Tokenized financial assets are moving from pilot to at-scale deployment. Adoption is not yet widespread, but financial institutions with blockchain capabilities in place will have a strategic advantage.
🚀 Tokenization is progressing at a gradual pace, with acceleration expected as network effects gain momentum.
🔍 This expects the most prominent frontrunners will include cash and deposits, bonds and ETNs, mutual funds and exchange-traded funds (ETFs), as well as loans and securitization. For many of these, adoption rates are already material, underpinned by greater efficiency and value gains from blockchain along with higher technical and regulatory feasibility.
💡 While there has been traction in proof-of-concept experiments and single-fund launches, token issuers and investors still bump up against a familiar cold start problem: limited liquidity deters issuance due to inadequate transaction volume to establish a robust market; a fear of losing market share may cause first movers to incur additional expense by supporting parallel issuance on legacy technology; and despite considerable benefits, incumbents may experience inertia due to the disruption of established processes (and associated fees).
🌐 Although it is fair to expect tokenization to spur such a multidecadal transformation of the financial industry, there may be particular benefits for early movers who are able to “catch the wave.” Pioneers can capture oversized market share (especially in markets benefiting from economies of scale), enhance their own efficiency, and set the agenda for formats and standards, as well as benefit from the reputational halo of embracing emerging innovation. Early movers in tokenized cash payments and on-chain repos have demonstrated this.
