McKinsey believes that the tokenization of financial assets has reached a critical tipping point, but still faces barriers to its widespread adoption.
According to the company:
“The digitalization of assets seems even more inevitable as the technology matures and delivers measurable economic benefits. Despite this visible momentum, widespread adoption of tokenization is still a long way off.”
McKinsey said in a June 20 research report that tokenization has evolved from pilot projects to scaled deployments, with the first large-scale applications already trading trillions of dollars every month.
However, mainstream adoption remains elusive due to a ‘cold start’ problem and other regulatory, technological and operational hurdles.
The ‘cold start’ problem
According to the report, the main challenges stem from limited liquidity and transaction volume, which hinder the creation of a robust market. The benefits of tokenization – such as greater collateral mobility, faster settlement times and improved transparency – cannot be fully realized without substantial involvement from issuers and investors.
It added that the cold start problem is a classic chicken-and-egg scenario. Without a critical mass of tokenized assets, potential investors remain hesitant due to concerns about liquidity and market depth.
At the same time, issuers are reluctant to tokenize more assets due to the lack of sufficient demand and trading activity. Overcoming this challenge requires use cases that deliver clear and demonstrable benefits, such as reducing costs, improving efficiency, and providing greater market access.
For example, tokenized money market funds have attracted more than $1 billion in assets under management, demonstrating early success. However, the broader market needs more substantial involvement to achieve the network effects necessary for widespread adoption.
The report states that it is crucial to build a robust ecosystem where both supply and demand grow together.
Adoption waves
McKinsey’s report predicted that the total market capitalization of tokenized assets could reach $2 trillion by 2030, driven by mutual funds, bonds, exchange-traded notes (ETNs), loans and securitization. In an optimistic scenario, this value could double to $4 trillion.
According to the report, adoption is expected to occur in multiple waves, starting with asset classes that offer proven returns on investment and scalability. It added that certain asset classes are already seeing significant adoption due to the efficiency and value gains offered by blockchain technology.
Tokenized money market funds have attracted more than $1 billion in assets under management, while in the credit sector, blockchain technology platforms such as Figure Technologies have facilitated billions in origination volumes, demonstrating the potential for increased efficiency and transparency.
McKinsey said the way forward for tokenization involves collaboration between financial institutions and market infrastructure players to establish minimum viable value chains. Financial institutions should assess their product suites and identify which assets would benefit most from tokenization, aligning strategic priorities with market opportunities.
Furthermore, coordinated efforts across the financial ecosystem will be essential to realize the full benefits of tokenization and pave the way for a transformative shift in the way financial services operate.