Citi Releases “Asset Tokenization Market Outlook 2030”: Six Key Trends Could Drive an $8.2 Trillion Market
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Citi Releases “Asset Tokenization Market Outlook 2030”: Six Key Trends Could Drive an $8.2 Trillion Market
Tokenization of financial assets is transitioning from pilot projects to large-scale implementation, but this is a gradual evolution—not a radical revolution.
Navigating Web3 tides with focused insightsAuthor: Citi Research
Translated and edited by Jiahuan, ChainCatcher
Six Core Judgments
Tokenization of financial assets—representing securities as digital tokens on blockchains—is transitioning from pilot projects to operational deployment. Progress over the past few years has been slow, stalled by regulatory uncertainty, fragmented infrastructure, and the absence of a native on-chain settlement currency. Now, momentum is accelerating.
The current global tokenized asset market stands at approximately $17 billion—roughly tripling year-on-year. U.S. short-term Treasuries, bonds, and money market funds account for over 55% of this total; gold and commodities make up about 34%.
By 2030, the base-case scenario projects $5.5 trillion in tokenized assets, with pessimistic and optimistic forecasts at $2.7 trillion and $8.2 trillion respectively. Growth will be primarily driven by public-market securities; private markets remain in early stages and face structural constraints.
The overarching narrative can be distilled into six core judgments.
1. Growth forecast: The base-case estimate for tokenized assets reaches $5.5 trillion by 2030; the optimistic case rises to $8 trillion. Public-market securities—and liquid collateral, especially U.S. equities and Treasuries—will drive early adoption and extend distribution to digitally native investors.
2. Onboarding liquid assets: Digitally native investors increasingly expect 24/7 access to financial assets. Stocks, bonds, and commodities are all candidates for tokenization. If just 10% of U.S. retail investors adopt on-chain solutions by 2030, tokenized U.S. equities alone could generate ~$2.6 trillion in demand.
3. Institutional catalysts: DTCC, NYSE, and Nasdaq are embedding tokenization into their core platforms. As pilots transition to production and regulation advances in parallel, traditional financial institutions’ adoption may accelerate starting in 2026.
4. Digital currencies as foundational infrastructure: Tokenized financial assets co-evolve with tokenized cash. Regulated stablecoins and tokenized deposits establish trust for on-chain Delivery versus Payment (DvP), enhancing capital efficiency and reducing settlement risk.
5. Emergence of ecosystem orchestrators—entities that control both “asset issuance” and “on-chain settlement currency rails.” Tokenization may create new revenue pools through programmability, composability, and vertically integrated business models. Institutions will seek control over issuance, distribution, and settlement rails to capture value—posing structural pressure on traditional intermediaries.
6. Evolution—not revolution—with hybrid models dominating. Transition will be gradual, featuring an extended period of coexistence between tokenized and legacy systems. Hybrid models and interoperability between on-chain and off-chain worlds are critical to scaling.
Uneven Progress, but Direction Is Set
Securities tokenization is part of a broader transformation toward programmable assets, digitally native settlement, and a more “always-on” financial system. The convergence of tokenized assets and on-chain money points toward on-chain finance: settlement, collateral management, and liquidity flows powered by atomic settlement—operating in real time and across borders.
Institutional participation has moved beyond experimentation. Tokenization is now applied across issuance, trading, and post-trade (clearing & settlement) processes. Regulation is becoming clearer across major jurisdictions, providing legal certainty for institutional adoption.
Evolution, Not Revolution
This shift won’t be a one-time disruption—there won’t be an overnight flip from traditional markets to fully tokenized ones.
Adoption remains early and uneven across asset classes and jurisdictions, constrained by interoperability, legal frameworks, liquidity coordination, investor behavior, and market conventions. As with prior infrastructure shifts, the benefits of tokenization will accrue gradually—not instantly.
Institutions will integrate issuance, trading, and settlement within regulated frameworks and existing client relationships—because controlling these layers allows them to capture a larger share of the transaction lifecycle. Scalability hinges on interoperability, unified standards, regulatory alignment, trusted digital identity, and cross-ecosystem coordination—all of which take time.
Artem Korenyuk, Head of Enterprise Digital Assets, Citi Client Business Expansion: “Tokenization isn’t just technology—it’s unlocking Wall Street for the digitally native generation.”
Path to Real-World Adoption: Five Catalysts
Tokenization is not new. Citi’s 2023 report, “Money, Tokens, and Games,” highlighted its potential to unlock trillions of dollars in value through more efficient, programmable markets.
Early forecasts were overly aggressive—projecting target markets in the tens of trillions—proving too optimistic in hindsight. Past waves of tokenization failed to scale due to regulatory uncertainty limiting implementation and enforceability, limited secondary-market liquidity, fragmented infrastructure, and—most critically—the absence of regulated on-chain cash.
These constraints are now easing, and several independent catalysts are converging.
Blue Macellari, Head of Digital Asset Strategy, T. Rowe Price: “Think of the shift to tokenized markets like E-ZPass electronic tolling—we didn’t go overnight to full automation. First came dual-track operation: widening roads, dedicating lanes for both automated and traditional vehicles. Costs and complexity rose initially—then converged. The only real question is: how fast do we reach full automation?”
Note: Tokenization refers to representing ownership, rights, or claims to an asset as tokens on a blockchain or distributed ledger—either as on-chain mirrors of existing assets or as newly issued native assets.
These tokens embed asset attributes, ownership records, transaction history, and transfer rules. Beyond digitization, tokenization introduces programmability—enabling automatic execution of interest payments, compliance checks, collateral management, corporate actions, and more via smart contracts.
Catalyst One: Rising institutional participation.
Asset managers have offered tokenized funds for several years. This time, systemic infrastructure providers are entering.
DTCC received regulatory approval by end-2025 to offer tokenization services for its custodied assets. Its three-year pilot begins end-2026, covering equities, ETFs, and U.S. Treasuries—while preserving existing legal ownership structures and investor protections.
NYSE plans to launch a tokenized securities platform by end-2026, pending regulatory approval, targeting 24/7 trading of U.S. equities and ETFs, near-instant settlement, and stablecoin funding—potentially operating outside traditional clearing infrastructure. Nasdaq has already received SEC approval to issue, trade, and settle certain equities and ETFs in tokenized form—continuing to rely on existing clearing and settlement infrastructure.
This isn’t crypto-native firms pushing blockchain—it’s the most established, largest financial institutions adopting new infrastructure. They’re choosing to embed tokenization into core rails—not build parallel systems—prioritizing legal certainty and investor protection.
David Cunningham, Global Head of Institutional Business, Consensys: “When DTCC and NYSE embed tokenization into capital markets—that’s the inflection point. You’re seeing U.S. financial power and the world’s reserve currency going massively on-chain.”
Catalyst Two: On-chain money enabling native settlement.
Early tokenization relied on fiat rails for settlement—diluting efficiency gains. That’s changing as stablecoins gain wider acceptance.
Stablecoin issuance is projected to reach $1.9 trillion by 2030. Major banks are also developing tokenized deposits—potentially at even larger scale. Their coexistence provides the liquidity foundation needed to scale tokenized securities, supporting atomic DvP and continuous market operation.
U.S. on-chain money will likely comprise stablecoins and tokenized deposits. In Europe, India, and mainland China, central bank digital currencies (CBDCs) and tokenized deposits—not stablecoins—will be policy priorities.
Catalyst Three: Regulatory clarity—though it’s a double-edged sword.
Clearer frameworks strengthen the legal basis for institutional adoption—but progress remains uneven. While clarity supports scalability and market confidence, regional rule divergence risks fragmenting markets, raising compliance costs, and diluting efficiency gains.
Europe has MiCA and the DLT Pilot Regime—but industry feedback indicates limited scope and design constraints hinder their effectiveness for scaling tokenized capital markets.
The U.S. SEC clarified in January 2026 that federal securities laws apply to tokenized securities—reaffirming technological neutrality and allowing institutions to treat tokenization as a market infrastructure issue.
The Bank of England and FCA launched a digital securities sandbox; the FCA issued its fund tokenization policy statement in April 2026.
In Asia, Hong Kong completed its first regulated tokenized bond issuance; Singapore’s Project Guardian has entered live testing.
Catalyst Four: Expanded retail access and evolution of digital brokerages.
Retail brokerages are raising awareness of on-chain securities. Some digital brokerages already offer tokenized U.S. equities and ETFs to EU clients. Yet current demand remains largely from crypto-native users. These initiatives are reshaping investor expectations around fractional investment, extended trading hours, and continuous liquidity.
Solomon Tesfaye, Chief Business Officer, Aptos Labs: “By 2026, momentum for tokenized public equities and other liquid assets is accelerating—exchanges, brokerages, and fintech platforms are converging on 24/7 blockchain infrastructure.”
Catalyst Five: Maturing market infrastructure.
Cross-network interoperability is advancing—critical for asset mobility across platforms. DTCC’s moves in digital asset custody, clearing, and asset movement—combined with NYSE’s shift toward continuous trading and near-instant settlement—are beginning to lay this foundation.
Asset manager perspective addendum: Blue Macellari noted in interviews that tokenization is a phased journey—from efficiency gains achieved by onboarding existing products, to deeper transformation driven by programmability and mass customization—contingent on building a broad library of tokenized securities.
One of the most compelling use cases is automated portfolio management for multi-asset and target-date funds. Historically, three major barriers existed: legacy infrastructure was less cost-effective than native on-chain issuance; no widely accepted interoperability standard existed; and distribution gaps persisted in reaching non-crypto-native clients. Recent adoption is more likely driven by cost pressures on intermediaries and distribution platforms—not genuine client demand.
Why Tokenization Is Needed
Market participants are questioning whether today’s post-trade processing and settlement models still fit an always-on financial system. Current infrastructure is capital-intensive, operationally complex, and slow to adapt to changes in liquidity and balance sheet requirements.
Meanwhile, investor behavior and distribution models are shifting—increasing demand to bring assets directly to investors, tapping into digitally native capital pools, corporate treasury, and new wealth segments seeking diversification.
A survey of 537 market participants shows rising expectations that DLT-based market structure will lower post-trade processing costs, improve liquidity and asset mobility, and enhance balance sheet efficiency. Recognition of post-trade cost improvement rose from 32% in 2023 to 51% in 2025; liquidity and asset mobility improved from 34% to 43%.
Tokenization also aligns with finance’s trend toward “always-on” operation. Investors increasingly expect continuous trading, real-time settlement, and seamless wallet-based access.
Early adoption focuses on highest-impact use cases—especially collateral and liquidity management. It may also open access and unlock liquidity for traditionally illiquid assets such as private equity, infrastructure, and real estate.
From a value chain perspective, all stakeholders benefit:
Issuers gain automated treasury and dynamic financing, plus direct investor access; underwriters reduce underwriting risk via real-time book-building and create composable, cross-asset structured products; trading venues cut counterparty risk via atomic settlement; custodians automate complex corporate actions; asset managers lower fund management costs and build customizable on-chain active funds; end investors receive immutable proof of ownership and can lend tokenized securities for additional yield.
Germán Soto Sanchez, Chief Product & Strategy Officer, Broadridge: “Early evidence of tokenization scaling is visible at the institutional level—especially in repo and collateral—but broader adoption depends on liquidity, participation, and better-aligned infrastructure and regulation.”
How Big Is the Market?
Current size is ~$17 billion: U.S. short-term Treasuries, bonds, and money market funds account for >55%; gold and commodities ~34%.
Third-party 2030 forecasts vary widely: McKinsey $1–4 trillion; Deutsche Bank Research $1.5–2 trillion; Ripple & BCG $9.4 trillion; Roland Berger $10 trillion; ARK Invest $11 trillion; BCG & ADDX $16.1 trillion.
Most estimates cluster near $10 trillion—but the wide range itself reflects high uncertainty.
Peter Bain, Chief Marketing Officer, Blockstream: “Tokenization is only at a very early stage on the adoption curve—technology development is ahead, but without platform and infrastructure convergence, adoption will remain slow.”
Adi Ben-Ari, Founder, Applied Blockchain: “The logic is simple: higher returns, lower costs—if delivered, $1–5 trillion by 2030 is credible. Pace is shaped by regulation.” BlackRock’s Larry Fink and Rob Goldstein compare the current stage to the early internet in 1996.
The 2023 report originally estimated $4–5 trillion by 2030—a figure still within reason—but asset composition has shifted: more public-market securities and highly liquid collateral; private markets lag further behind.
The base case of $5.5 trillion is derived from a $392 trillion global total addressable market (TAM), segmented by asset class and penetration rate. The pessimistic case is roughly half the base case; the optimistic case ~1.5x. Note: Tokenization isn’t magic—underlying assets must themselves have demand. U.S. public equities happen to have globally validated demand.
Four components:
Public Fixed Income: Total market $168 trillion; base-case penetration 0.9% = $1.4 trillion. U.S. short-term Treasuries assumed at 10% penetration; money market funds at 5%. Short-term Treasuries are naturally suited to tokenization—deep liquidity, standardized, core collateral for repo and liquidity markets.
Stablecoin growth is expected to generate ~$1 trillion incremental U.S. Treasury demand—partially migrating to tokenized short-term Treasuries and on-chain collateral structures. Money market funds are more complex—dependent on fund structure and existing market infrastructure—and regulatory caution increased after liquidity stress events in 2020 and 2023.
Public Equities: Largest segment—$191 trillion total; base case 1.9% = $3.6 trillion. U.S. market assumed at 3% penetration = $2.6 trillion.
Rationale: U.S. retail trading accounts for 20–25% of market activity—rising to ~35% during volatile periods (e.g., April 2025). Roughly 10% of that volume is projected to gradually shift to tokenized distribution channels—reflecting influence of digitally native generations (Millennials, Gen Z).
Penetration outside the U.S. is far lower (~1%)—due to fragmented market structures, low retail participation, and slower post-trade modernization.
Rob de Rozario, Founder, Alphaparty Capital: “By 2030, at least in some markets, up to 50% of public equities may be tokenized—driven by convenience, not just speed.”
Private Credit & Equity: Each assumed at ~$100 billion. Private credit—more standardized documentation and often asset-backed—is better suited to tokenization than private equity.
Private equity and venture capital face greater hurdles—long holding periods, J-curve returns, and low secondary trading willingness. Current tokenized credit assets total ~$5 billion—asset-backed credit ~$2 billion; corporate credit ~$700 million.
Real Estate Funds: ~$200 billion—or ~1% of the $17 trillion market. Tokenized real estate currently ~$165 million—but growing extremely rapidly: ~50x in 2024, another ~6x in 2025. Future growth assumed to moderate to ~4x annually.
Ryan Rugg, Global Head of Digital Assets, Citi Services: “For tokenized assets to scale, efficient cash and liquidity flow is essential—on-chain payment infrastructure is the foundational enabler for broader tokenization.”
Why Tokenization Lagged Previously
Understanding past obstacles clarifies why things are different now.
First: Lack of native issuance and full lifecycle support. Early efforts mostly created digital mirrors of off-chain assets—unable to fully unlock efficiency potential.
Problems included incomplete infrastructure (missing end-to-end capabilities for dividends, stock splits, voting, redemptions), lack of on-chain settlement assets (no CBDCs or bank-grade tokenized deposits—final settlement still reverted to traditional rails), and regulatory uncertainty (unclear legal status and disclosure requirements for digital securities).
Second: Insufficient secondary-market liquidity. Tokenized securities remained largely OTC, fragmented across silos; market makers lacked quoting incentives; many products had high entry thresholds—limited to institutions or qualified investors; cross-border trading and collateral usage faced regulatory restrictions. ESMA noted these barriers—plus lack of standardization—hinder formation of liquid secondary markets.
Third: Poor cross-chain interoperability. As of May 2025, financial institutions had adopted at least 72 distinct ledgers—creating digital islands with no interconnection. Yet convergence is underway, with industry coalescing around fewer networks and interoperability solutions.
Chainlink’s Cross-Chain Interoperability Protocol (CCIP) exemplifies this: ANZ Bank’s 2023 demo with Chainlink showed how to connect private permissioned chains with public chains like Ethereum—enabling cross-environment settlement of tokenized assets.
Are Private Markets Truly a Natural Fit?
Private markets are often cited as a core tokenization use case—citing slow transactions, heavy documentation, and scattered data—but real-world experience is mixed.
Theoretically, tokenization can automate compliance checks, capital calls, and distributions; tokenize data for more controlled sharing; and broaden private asset access via wealth channels. More specialized applications—like granting investors access to royalty streams or using assets as collateral—are still frontier use cases.
But adoption remains slow. Hamilton Lane, KKR, and Apollo offer tokenized private equity and credit to qualified wealth investors via feeder funds—but represent a tiny fraction of total AUM. Regulation and qualified investor requirements continue to shape participation—most access still occurs via traditional channels.
More fundamentally, private market structure itself limits tokenization’s impact. Transactions are large and concentrated—few firms drive most volume; even semi-liquid structures impose redemption restrictions. Tokenization improves access and reduces operational friction—but cannot change underlying asset liquidity characteristics or create meaningful secondary liquidity or price discovery.
How Tokenization Reshapes Capital Markets
Tokenization has potential to reshape capital market structure—but benefits won’t materialize instantly. Platform fragmentation, hybrid operating models, and regulatory uncertainty will define this transition.
Focus will center on control over issuance and settlement rails—favoring institutions able to integrate both within trusted frameworks. New entrants tend to drive innovation—but incumbent institutions with scale, balance sheet strength, and client relationships can also benefit if they adapt effectively.
Reshaping Capital Market Structure
Tokenization won’t eliminate core market functions—but will change how they’re delivered, connected, and priced.
Matthew Blumenfeld, Global Head of Digital Assets, PwC: “This isn’t a tech upgrade—it’s a market structure change, redesigning access, distribution, and transparency.”
Lowering capital costs—but fragmentation first. Shared ledgers enable near-real-time ownership transfer and settlement—compressing reconciliation and post-trade layers. Full disintermediation is unlikely; finality, risk management, and regulation remain core functions.
Efficiency estimates: A $1 billion on-chain bond issuance could save ~$2–3 million; some studies suggest ~24% reduction in transaction costs—but benefits take time to accrue. Initially, assets spread across disconnected platforms may even worsen fragmentation.
Shifting from asset-to-cash to asset-to-asset. Collateral swaps, securities-for-securities exchanges, multi-asset atomic trades—reduce reliance on cash as intermediary.
Fee compression—and emergence of new revenue pools. Traditional processing and intermediary fee pools may shrink—but token issuance structuring, collateral optimization, data analytics, and smart contract lifecycle services become new sources. Net effect is value redistribution within the stack—not simple reduction.
Vertical integration across the value chain. Tokenization tightens integration across issuance, trading, settlement, and custody—shifting control points toward infrastructure providers and platform operators—favoring vertical integration models. But this doesn’t mean closed systems—cross-network interoperability remains vital.
Settlement assets as strategic anchor points. Whether settling in stablecoins, bank tokens, or CBDCs affects liquidity concentration, counterparty risk, regulatory acceptance, and interoperability. Practically, institutions align issuance and trading with settlement rails they trust and can scale into.
Real-time collateral management. Tokenization enables intraday collateral movement—for example, repo collateral accruing interest by the minute rather than daily—improving liquidity.
Liquidity and interoperability determine scale. Early markets will fragment across platforms, protocols, and liquidity pools—undermining network effects. Early on-chain bond issuances proved technical feasibility—but often remained isolated transactions requiring investors to onboard onto new platforms per trade.
A more pragmatic path is hybrid models—e.g., Digital Native Notes (DNNs)—combining digital issuance with existing post-trade settlement rails—avoiding wholesale migration of the entire market stack onto-chain. Interoperability isn’t just connecting blockchains—it’s linking tokenized assets with existing custody, exchange, settlement systems, workflows, and liquidity pools.
Hybrid transition models inevitably precede scaling. The path to tokenized markets isn’t linear. Near-term reality involves assets, cash, and records scattered across legacy systems, private ledgers, and public blockchains—creating reconciliation, risk management, and compliance complexity—as well as unresolved legal questions around ownership, liability, and cross-chain failure.
Adoption hinges more on managing this hybrid complexity than on technology itself. Tokenized markets require combining traditional capital market expertise with digital asset capabilities—and integrating those skills into existing institutions may be as difficult as the technology itself.
Chris Rayner-Cook, Chief Investment Officer, Brevan Howard Digital: “Tokenization’s killer use case is capital efficiency. It delivers more than faster settlement—it delivers atomic settlement, removing counterparty risk that forces institutions to hold large capital buffers. Combined with programmability, it determines how efficiently released capital can be redeployed.”
The biggest current bottleneck is a unified digital identity standard—especially one balancing privacy. Regulators’ core constraint isn’t whether trading is possible—but whether counterparties can be verified. For last-mile global distribution, the main bottleneck is regulatory and investor protection frameworks—not technology.
Who Controls the Ecosystem?
As operational friction declines, focus concentrates on two structural control points: control over asset issuance and distribution—and control over settlement currency rails.
Institutions that can scaleably integrate both within trusted frameworks gain structural advantage: internalizing the full transaction lifecycle—from origination through issuance, trading, settlement, custody, and collateral management; earning revenue across both asset and monetary layers; using pricing on one side to subsidize platform economics on the other—akin to Asian super-app logic; and influencing interoperability frameworks, collateral eligibility, and smart contract design—thus defining standards.
This yields four player archetypes:
Ecosystem Orchestrators: Some banks, asset managers, and stablecoin issuers—holding both asset issuance and settlement rails—can influence market design and value allocation. But advantage depends on achieving scale and regulatory acceptance at the settlement layer.
Distribution-Driven Challengers: Digital brokerages, fintechs, and wealth platforms. When issuance barriers fall, bottlenecks shift from manufacturing to distribution and client reach—those holding client relationships and data capture value.
Cash Infrastructure Providers: Stablecoin issuers and banks without tokenized asset offerings—earning reserve income, float, and transaction fees at the center of settlement flows. But unless they extend into asset issuance or distribution, they risk being confined to the infrastructure layer—profits eroded by competition.
Most Disrupted: Traditional post-trade intermediaries. Holding neither side, their revenue—based on reconciliation and processing complexity—shrinks as settlement becomes faster, automated, and atomic. They won’t disappear—but must pivot to higher-value services like collateral management and cross-system interoperability.
Suzy Singh and Giang Bui, Securitize: “Tokenizing assets itself is easy—technology is proven. The hard part is utility and distribution post-tokenization. Without utility, tokenization is just a static ownership record.”
Liquidity is the primary challenge. Tokenization doesn’t alter underlying asset liquidity—it doesn’t create liquidity. Focus must shift to building secondary markets and trading infrastructure.
Different Clients, Different Adoption Paths
Institutional clients are driven by trust and scale. Large asset managers and corporates prefer familiar, regulated counterparties—tokenization layers atop existing relationships, not replacing them. They won’t migrate to fragmented platforms introducing parallel processes.
Wealth clients (HNW/UHNW) view tokenization mostly as a concept—no active demand for tokenized equities or 24/7 markets. To move them, tangible benefits are required: better private market access, stronger liquidity, superior tax or yield outcomes.
Potential is clearer for alternative and digitally native assets—where tokenization delivers fractional ownership, programmability, and other novel features.
For retail clients, tokenization expands access—but access ≠ participation. Usability depends on simplicity and clear value. Ultimately, retail adoption is driven not by tokenization itself—but by seamless integration into everyday financial activity.
Deborah Querub, Head of Digital Assets, Citi Wealth: “We’re experiencing the largest wealth transfer in history—and the next generation is tech-native, expecting value to move as fast as data.”
A unifying judgment: Constraints aren’t technological—they’re behavioral. Economic rationality—pricing, yield, liquidity, risk—always outweighs underlying settlement mechanics. Unless tokenization delivers clear economic advantages or seamless integration into existing workflows, investor behavior won’t change.
Emergence of New Market Participants
New market structures will broaden participation across the asset lifecycle. New entrants build natively on blockchain infrastructure—free of legacy system baggage—enabling faster product development and more flexible experimentation.
They’ll concentrate on several core functions: issuance & structuring infrastructure; trading & liquidity provision; custody & asset servicing; identity, compliance & trust layers; and underlying infrastructure & interoperability.
But low technical barriers don’t equal low overall barriers. Licensing, custody, and compliance requirements remain heavy. Institutional adoption still hinges on trust, security, and operational resilience. True differentiation lies in combining infrastructure, regulatory alignment, and scalable liquidity.
Incumbents Must Evolve and Adapt
Existing financial institutions will remain central—but must compete with new entrants. Monetization opportunities span both existing and emerging services.
Near-term opportunities include issuance platforms, custody, advisory, and brokerage services. Emerging opportunities lie in market-making & liquidity provision, data analytics, yield products (structured products, lending, collateral financing), and asset management.
Joseph Lubin, Co-Founder of Ethereum and Consensys: “Top U.S. financial institutions are embracing decentralized infrastructure to deliver 24/7 on-chain markets—a new financial system built on open protocols and shared infrastructure is laying its foundations.”
The thorniest near-term challenge is coexistence of tokenized and legacy systems. Institutions must operate across hybrid environments—running parallel processes, bridging systems, managing new compliance and reconciliation requirements—initially cost-intensive, delaying realization of efficiency gains.
Infrastructure Design Choices
Underlying architecture choices involve trade-offs among openness (liquidity & distribution), speed (scalability), and control (compliance & counterparty management). Three primary models:
Permissionless Public Chains: Open to all—highest theoretical liquidity, high interoperability—but low privacy (all transactions visible). Scalability enhanced via Layer-2 and modular architectures—examples: Ethereum, Solana.
Permissioned Private Chains: Closed networks—high throughput, strong privacy—but limited liquidity, weak native interoperability—examples: Hyperledger Fabric, R3 Corda.
Permissioned Public Chains: Open but access-controlled—liquidity between extremes, configurable privacy (e.g., zero-knowledge proofs)—examples: Canton Network, Provenance.
An often-overlooked dimension is the settlement asset—the monetary layer used. Institutions rarely select infrastructure in isolation—they first choose trusted settlement rails, then align asset issuance accordingly.
Compliance is increasingly implemented at the application layer: identity, KYC/AML, and transfer restrictions can be embedded via smart contracts and middleware—enabling even public chains to support regulated use cases, weakening the traditional trade-off between openness and compliance.
Early institutions favored permissioned or hybrid models—but increasing issuance is moving to public chains—especially for standardized, liquid assets like money market funds and government securities.
BlackRock’s tokenized U.S. Treasury fund BUIDL expanded from Ethereum to multiple chains; Franklin Templeton’s on-chain government money market fund FOBXX expanded from Stellar to Ethereum and other networks. As tokenization matures, the key design question is no longer public vs. private chains—but how to coherently combine infrastructure, compliance layers, and settlement assets into an operational model.
Risks Associated with Tokenization
Regulators’ identified vulnerabilities are almost never technical—they concern whether core financial principles—ownership, settlement integrity, investor protection—can be upheld when re-engineered on-chain.
Private Currency Settlement Risk: Settling in stablecoins introduces credit, liquidity, and redemption risks—conversion capability to central bank money may deteriorate under stress.
Current stablecoins face structural constraints like pre-funding requirements. Markets are exploring regulated bank-issued tokenized deposits and tokenized money market funds—yield-bearing, high-quality, more scalable on-chain liquidity. Multiple digital currencies coexisting challenge monetary singularity—the bedrock of financial trust—and may amplify contagion risk during stress.
Unclear Ownership Rights: Tokenization may decouple economic exposure from legal ownership—holding a token doesn’t guarantee enforceable rights to underlying assets—creating ambiguity in bankruptcy, custody, and cross-border enforcement. Native issuance mitigates this—but jurisdictional recognition is uncertain.
Investor Protection & Disclosure Gaps: Tokenized assets may resemble traditional securities while obscuring rights, risks, and underlying structure—raising mis-selling risk. Legislative efforts—including the CLARITY Act—aim to ensure tokenized instruments meet disclosure and protection standards equivalent to traditional products.
Hybrid Model & Fragmentation Risk: On-chain assets paired with off-chain processes may introduce opacity, operational complexity, and unclear liability—reintroducing traditional counterparty risk; platform fragmentation lowers liquidity efficiency and limits netting benefits.
Asset Selection & Liquidity Risk: Tokenization doesn’t uniformly improve all assets. Early focus often falls on ease of issuance—not inherent trading demand. If underlying assets lack liquidity and buyers, tokenization can’t fix fundamentals—resulting in thin trading and fragmented liquidity pools.
Emerging Systemic Risk: Concentration of issuance, distribution, and settlement control in few platforms makes anchoring liquidity providers or settlement rail controllers critical nodes—increasing system dependence on few participants.
Interoperability boosts efficiency—but opens new contagion channels. Atomic settlement reduces counterparty risk—but introduces dependency on smart contracts, oracles, and cross-chain bridges—failure of any component may disrupt settlement flows.
Next Stop: On-Chain Finance
Once tokenized assets and on-chain money scale, the next step is their use within on-chain financial systems. So far, DeFi relies mainly on crypto-native assets and self-contained liquidity pools—leading to fragmented liquidity and high volatility.
Tokenization can change this: bringing higher-quality collateral—bonds, funds, deposits—on-chain to support more stable liquidity; combined with atomic settlement and programmability, enabling assets and cash to flow together—enhancing capital efficiency and bridging on-chain activity with traditional market structures.
But DeFi won’t replace traditional finance—it’s more likely to evolve into hybrid models—starting with high-quality, liquid use cases like collateral and treasury management.
From Crypto-Native DeFi to Institutional Adoption
Digital assets are evolving from pure cryptocurrency trading into a broader financial architecture integrating tokenized assets and on-chain money (stablecoins, bank tokens, possibly CBDCs).
DeFi experienced notable—but volatile—growth. Total value locked peaked at ~$180 billion in 2021, fell sharply in 2022 amid crypto market correction and high-profile failures, rebounded, peaked again at ~$170 billion in 2025, and currently sits at ~$100 billion.
Next-stage growth will likely stem from real-world and financial assets coming on-chain—not speculation—expanding the collateral base and supporting more sustainable yields.
Germán Soto Sanchez, Broadridge: “For end users, value extends beyond efficiency—to access yield (e.g., lending protocols), fractional ownership, and asset classes previously inaccessible to many (e.g., private assets).”
DeFi possesses several features hard for traditional systems to replicate: 24/7 continuous markets—especially useful for real-time global collateral movement, cross-border, cross-currency FX flows, and large-scale treasury operations; native support for atomic DvP; and programmability across asset and monetary layers—embedding margining, interest payments, collateral triggers directly into code. Shifting from static holdings to actively callable collateral is DeFi’s core value proposition.
Tokenization drives on-chain finance in three ways: expanding the on-chain asset universe—introducing more stable, familiar collateral; pairing tokenized assets with on-chain money to enable native DvP and collateral movement—reducing off-chain reconciliation; and offering assets resembling existing tools—to ease institutional participation.
In the U.S., the Digital Asset Market Clarity Act points toward a more structured regulatory framework—including clearer digital asset classification and delineation of SEC/CFTC oversight. The bill remains before the Senate—but direction is toward increasing regulatory clarity.
Debates around stablecoin yield and on-chain incentives highlight the trade-off between innovation and financial stability. Fragmentation across cross-chain protocols, standards, and settlement assets may limit seamless interoperability—making adoption gradual. Near-term deployment focuses on high-quality collateral and treasury management; long-term extension may reach securitization and structured finance across broader credit markets.
Institutional Perspective and Technical Standards
Global Standard-Setting Bodies’ Perspectives
Four institutions broadly agree: tokenization remains early-stage—its outcome depends on how infrastructure, regulation, and settlement frameworks evolve.
Financial Stability Board (FSB): Focuses on financial stability impact. Its 2024 report notes tokenization’s current scale is small—posing no material risk to global financial stability—but cautions that risks could emerge with accelerated adoption, warranting close monitoring.
International Organization of Securities Commissions (IOSCO): Focuses on current markets—activity concentrated in few use cases and jurisdictions; efficiency and transparency benefits not yet scaled; fragmentation, lack of interoperability, and absence of widely adopted on-chain settlement assets are key constraints; risks broadly mirror traditional markets—but manifest in new forms.
Bank for International Settlements (BIS): Takes a systems view—sees tokenization as the next step in monetary-financial system evolution. A tokenized unified ledger integrating central bank reserves, commercial bank money, and government bonds could support this—but the system must uphold singularity, resilience, and integrity.
International Monetary Fund (IMF): Frames tokenization as a structural shift in financial architecture—not marginal efficiency gains. Benefits depend on clear policy frameworks, legal certainty, safe settlement assets, and strong governance. Absent these, tokenization’s extreme speed, excessive node concentration, and market fragmentation could amplify financial system instability.
Synthesizing IOSCO, BIS, and IMF views—these three institutions express highly consistent concerns about three core bottlenecks: interoperability, legal certainty, and settlement mechanism design. If these three hurdles remain unaddressed, tokenization will stay lukewarm—and so-called efficiency gains will only materialize in isolated contexts.
Tokenization Standards and Interoperability
As markets evolve, technical standards are gaining weight in interoperability, compliance controls, and system scalability. These foundational standards precisely define how digital assets will be issued, transferred, settled, and governed across cross-chain and heterogeneous ledger environments.
Within the Ethereum ecosystem, ERC-20 and ERC-721 laid the groundwork for fungible and non-fungible assets; newer standards like ERC-1400—designed for security tokens—hardcode transfer restrictions, whitelisted identity verification, investor permissions, and compliance controls—providing robust scaffolding for rigorously regulated assets going on-chain.
Traditional domains beyond blockchain are also resonating. For example, the PCI Security Standards Council—a major payment-industry alliance—has issued detailed guidance for institutions to use tokenization to replace highly sensitive underlying payment card data.
Advancing higher-level standardization can effectively shatter market fragmentation, smooth operations between platforms and settlement assets, and pave the way for broader institutional participation.
Yet this process remains in its pioneering phase—multiple technical frameworks are still competing across diverse jurisdictions, heterogeneous underlying architectures, and complex business scenarios.
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