Author: Citi Research Institute

Compiled by: Jia Huan, ChainCatcher

Six core judgments

The tokenization of financial assets, which represents securities as digital tokens on the blockchain, is moving from pilot programs to operational deployment. Progress was slow in the past few years, hampered by regulatory uncertainty, fragmented infrastructure, and a lack of on-chain settlement currencies, but it is now accelerating.

The current global tokenized asset market size is approximately $17 billion, which has increased about threefold in one year. Among them, US short-term bonds, bonds, and money market funds account for more than 55%, while gold and commodities account for about 34%.

By 2030, the baseline scenario is projected to reach $5.5 trillion, the pessimistic scenario to $2.7 trillion, and the optimistic scenario to $8.2 trillion. Growth will be primarily driven by publicly traded securities, while the private market will remain in its early stages and face structural constraints.

The main points can be summarized into six core judgments.

• I. Growth Forecast. The baseline scenario for tokenized assets in 2030 is $5.5 trillion, rising to $8 trillion in an optimistic scenario. Publicly available securities and liquid collateral, especially US stocks and bonds, will drive early adoption and expand distribution to digital-native investors.
• Second, on-chain liquid assets. Digital-native investors are increasingly looking forward to 24/7 access to financial assets, with stocks, bonds, and commodities all potentially being on-chain. If 10% of US retail investors adopt on-chain solutions by 2030, the tokenization of US stocks alone could create demand of approximately $2.6 trillion.
• III. Institutional Catalysts. DTCC, NYSE, and Nasdaq have begun embedding tokenization into their core platforms. As pilot programs transition to production and regulation progresses simultaneously, adoption by traditional financial institutions may accelerate from 2026 onwards.
• IV. Digital currency is the core support . Tokenized financial assets are a byproduct of tokenized cash. Regulated stablecoins and tokenized deposits can build trust for on-chain delivery versus payment (DvP), improve capital efficiency, and reduce settlement risks.
• Fifth, the emergence of ecosystem coordinators (institutions that simultaneously control both "asset issuance" and "on-chain settlement currency tracks") is imminent . Tokenization may create new revenue pools through programmability, composability, and vertically integrated business models. Institutions will want to control the issuance, distribution, and settlement tracks simultaneously to extract value, while traditional intermediaries will face structural pressure.
• VI. Evolution rather than revolution, hybrid model dominates. The transition will be gradual, with a period of chaos where tokenization and legacy systems coexist. The hybrid model and interoperability between the on-chain and off-chain worlds are key to scaling.

Progress is uneven, but the direction has been set.

Security tokenization is part of a larger transformation toward programmable assets, digital-native settlement, and a more "always-on" finance. The convergence of tokenized assets and on-chain currencies points to on-chain finance: settlement, collateral management, and liquidity transfers based on atomic settlement, operating in real time and across borders.

Institutional participation has moved beyond the trial phase, with tokenization being used in issuance, trading, and post-trade (clearing and settlement) processes. Regulatory clarity in key jurisdictions provides legal certainty for institutional adoption.

Evolution, not revolution

This transformation will not be a one-off disruption. It won't be a sudden flip from traditional markets to complete tokenization.

Adoption remains early and uneven across asset classes and jurisdictions, hampered by interoperability, legal frameworks, liquidity coordination, investor behavior, and market practices. As with previous infrastructure shifts, the benefits of tokenization will accumulate gradually rather than materialize immediately.

Institutions will integrate issuance, trading, and settlement within a regulated framework and existing client relationships, as controlling these layers allows them to capture a larger share of the transaction lifecycle. Scalability depends on interoperability, unified standards, regulatory alignment, trusted digital identities, and cross-ecosystem coordination, which will take time.

Artem Korenyuk, Head of Corporate Digital Assets at Citi Client Business Development: Tokenization is not just a technology; it's unlocking Wall Street for the digital native generation.

Towards Implementation: Five Catalysts

Tokenization is not a new concept. The 2023 report, " Money, Tokens, and Games, " pointed out that it can unlock trillions of dollars in value through more efficient and programmable markets.

Some early predictions were overly aggressive, projecting a target market of tens of trillions of dollars, which in hindsight appears too optimistic. Past waves of tokenization have struggled to scale due to regulatory uncertainty limiting implementation and feasibility, limited secondary market liquidity, fragmented infrastructure, and most importantly, the lack of regulated on-chain cash.

These constraints are easing, and several independent catalysts are beginning to combine.

Blue Macellari, Head of Digital Asset Strategy at T. Rowe Price: The best way to understand the shift to the tokenized market is through E-ZPass electronic payment. We didn't reach full automation overnight; first, two systems ran in parallel, the road was widened, and separate lanes were opened for automated and traditional traffic. Costs and complexity increased first, and then convergence occurred. The real question is only one: how quickly will we reach the end point of full automation?

Note: Tokenization refers to representing the ownership, rights, or claims of an asset as tokens on a blockchain or distributed ledger. This can be an on-chain mirror of an existing asset or a new asset issued natively on the blockchain.

These tokens embed asset attributes, ownership, transaction history, and transfer rules. In addition to digitization, tokenization also introduces programmability, allowing actions such as interest payments, compliance checks, collateral management, and corporate actions to be executed automatically through smart contracts.

Catalyst 1: Institutional participation in the rise.

Asset management institutions have been creating tokenized funds for several years, and this time they are entering the market with system-level infrastructure.

DTCC will receive regulatory approval by the end of 2025 to provide tokenization services for its custodial assets. A three-year pilot program will be launched by the end of 2026, covering stocks, ETFs, and U.S. Treasury bonds, while retaining existing legal ownership and investor protection.

The NYSE plans to launch a tokenized securities platform by the end of 2026, pending regulatory approval. The platform aims to provide 24/7 trading of US stocks and ETFs, near-instant settlement, and stablecoin funding, potentially operating outside of traditional clearing infrastructure. Nasdaq has already received SEC approval to issue, trade, and settle some stocks and ETFs in tokenized form, while continuing to utilize its existing clearing and settlement infrastructure.

These are not crypto-native companies pushing blockchain, but rather the oldest and largest financial institutions adopting new infrastructure, choosing to embed tokenization into the core rather than building a separate parallel system, prioritizing legal certainty and investor protection.

David Cunningham, Global Head of Institutional Business at Consensys: When the DTCC and NYSE embedded tokenization into the capital markets, that was a turning point. What you saw was the massive on-chaining of American financial power and global reserve currencies.

Catalyst 2: On-chain currency enables native settlement.

Early tokenization could only be settled through fiat currency, which was inefficient. This is changing as stablecoins have gained wider acceptance.

The issuance of stablecoins is projected to reach $1.9 trillion by 2030, and large banks are also developing tokenized deposits, which could be even larger. This coexistence provides the liquidity foundation needed for scaling tokenized securities, supporting atomic DvP and continuous market operation.

In the US, on-chain currencies will be a combination of stablecoins and tokenized deposits. In Europe, India, and mainland China, central bank digital currencies and tokenized deposits will be the policy focus, rather than stablecoins.

Catalyst 3: Increased regulatory clarity, but this is a double-edged sword .

A clearer framework strengthens the legal basis for institutional adoption, but progress has been uneven. While clarity supports scalability and market confidence, the divergence in regional rules could also fragment markets, increase compliance costs, and dilute efficiency benefits.

Europe has pilot programs for MiCA and DLT, but industry feedback indicates that the scope and design of these pilots limit their effectiveness in large-scale tokenized capital markets.

In January 2026, the U.S. Securities and Exchange Commission (SEC) clarified the applicability of federal securities laws to tokenized securities, reiterated technological neutrality, and allowed institutions to treat tokenization as a market infrastructure issue.

The Bank of England and the FCA have launched a digital securities sandbox, and the FCA will release a policy statement on fund tokenization in April 2026.

In Asia, Hong Kong has completed a regulated tokenized bond issuance, while Singapore's Project Guardian has entered the testing phase.

Catalyst 4: Expanded retail access and the evolution of digital brokerages.

Retail brokerages are increasing their understanding of on-chain securities, with some digital brokerages already offering tokenized US stocks and ETFs to EU clients. However, current demand still primarily comes from native crypto users. These moves are reshaping investor expectations regarding fragmented asset investment, extended trading hours, and continuous liquidity.

Solomon Tesfaye, Chief Business Officer of Aptos Labs: In 2026, the momentum for tokenized public equities and other liquid assets is accelerating, and exchanges, brokerages and fintech platforms are converging towards 24/7 blockchain infrastructure.

Catalyst 5: Improved market infrastructure maturity.

Cross-network interoperability is advancing and is crucial for the flow of assets across platforms. DTCC's actions in digital asset custody, clearing, and asset movement, coupled with the NYSE's shift towards continuous trading and near-instant settlement, are beginning to lay this foundation.

A supplementary perspective from an asset management standpoint. In the interview, Blue Macellari pointed out that tokenization is an orderly journey, evolving from simply adding the efficiency of putting existing products on the blockchain to a deeper transformation driven by programmability and mass customization. The key prerequisite is building a broad repertoire of tokenized securities.

One of the most interesting use cases is the automation of portfolio management for multi-asset and target-date funds. Historically, three major obstacles have been hindering this: adapting legacy infrastructure is less efficient than native on-chain implementation, the lack of widely accepted interoperability standards, and the distribution gap in reaching non-crypto-native customers. Recent widespread adoption is more likely driven by cost pressures from intermediaries and distribution platforms than by genuine customer demand.

Why is tokenization necessary?

Market participants are questioning whether existing post-trade processing and settlement models are still suitable for an always-online financial system. Today's infrastructure is capital-intensive, operationally complex, and slow to respond to changes in liquidity and balance sheet demands.

At the same time, investor behavior and distribution models are changing, with an increasing demand for bringing assets closer to investors, reaching digital native capital pools, corporate treasury, and diversified new wealth-seeking customer groups.

A survey of 537 market participants shows a rising expectation that DLT market structures can reduce post-trade processing costs, improve liquidity and asset mobility, and enhance balance sheet efficiency. Specifically, the acceptance of improved post-trade processing costs rose from 32% in 2023 to 51% in 2025, while the acceptance of improved liquidity and asset mobility increased from 34% to 43%.

Tokenization also aligns with the trend of financial markets evolving towards "24/7 operation." Investors are increasingly expecting continuous trading, real-time settlement, and seamless wallet-based access.

Early adoption focuses on scenarios with the most direct returns, particularly collateral and liquidity management. It may also open up access and release liquidity for traditional illiquid assets such as private equity, infrastructure, and real estate.

From a value chain perspective, all parties benefit.

Issuers can achieve automated treasury and dynamic financing, and directly reach investors; underwriters can reduce underwriting risk through real-time book-building and create composable cross-asset structured products; exchanges can reduce counterparty risk through atomic settlement; custodians can automate the handling of complex corporate behaviors; asset managers can reduce fund management costs and create customizable on-chain active funds; end investors can obtain tamper-proof proof of ownership and can lend out tokenized securities to generate additional returns.

Germán Soto Sanchez, Chief Product and Strategy Officer at Broadridge: We are already seeing early evidence of tokenization scaling at the institutional level, especially in buybacks and collateral, but wider adoption will depend on liquidity, engagement, and more aligned infrastructure and regulation.

How big is the market?

The current size is approximately US$17 billion, with US short-term debt, bonds, and money market funds accounting for more than 55%, and gold and commodities accounting for about 34%.

The forecasts for 2030 from third-party institutions vary widely: McKinsey estimates $1-4 trillion, Deutsche Bank Research estimates $1.5-2 trillion, Ripple and BCG estimates $9.4 trillion, Roland Berger estimates $10 trillion, ARK Invest estimates $11 trillion, and BCG and ADDX estimates $16.1 trillion.

Most estimates cluster around 10 trillion, but the wide range itself indicates a high degree of uncertainty at the time point.

Blockstream Chief Marketing Officer Peter Bain believes that tokenization is only in the very early stages of the adoption curve. The technology development curve is much earlier, but without the convergence of platforms and infrastructure, adoption will remain slow.

Applied Blockchain founder Adi Ben-Ari is more optimistic: the logic is simple—higher returns and lower costs. If these are achieved, a market size of 1-5 trillion by 2030 is achievable, with the pace shaped by regulation. BlackRock's Larry Fink and Rob Goldstein, on the other hand, compare the current stage to the early days of the internet in 1996.

The 2023 report originally estimated that by 2030, the asset value would be 4-5 trillion, which is still within a reasonable range. However, the asset composition has changed, with more assets coming from publicly traded securities and highly liquid collateral, while the private market will be slower.

The baseline estimate of $5.5 trillion is derived from the penetration rate of the $392 trillion global potential target market (TAM) broken down by asset class. The pessimistic scenario represents approximately half the baseline, while the optimistic scenario represents approximately 1.5 times the baseline. It's important to note that tokenization is not a magic wand; the underlying assets themselves must have demand, and the US public stock market happens to have proven global demand.

The four sub-items are as follows.

Publicly offered fixed income. Total market capitalization: 168 trillion yuan, with a benchmark penetration rate of 0.9%, corresponding to 1.4 trillion yuan. This includes a 10% penetration rate for US short-term bonds and 5% for money market funds. Short-term bonds are naturally well-suited for tokenization, offering deep liquidity, standardization, and serving as core collateral in repurchase agreements and liquidity markets.

The growth of stablecoins is expected to generate approximately $1 trillion in incremental demand for US Treasury bonds, some of which will shift towards tokenized short-term debt and on-chain collateral structures. Money market funds are more complex, relying on fund structures and existing market infrastructure, and the liquidity pressures of 2020 and 2023 have also led to greater regulatory caution.

Publicly traded stocks. This is the largest segment, with a total market capitalization of 191 trillion. A benchmark of 1.9% corresponds to 3.6 trillion. In the US market, a 3% penetration rate would correspond to 2.6 trillion.

The underlying logic is that retail trading in the United States already accounts for 20-25% of market activity, and this could reach about 35% during periods of volatility (such as April 2025). Of this, about 10% will gradually shift to tokenized distribution channels, reflecting the influence of digital native investors such as millennials and Gen Z.

Penetration outside the United States is much lower, at about 1%, due to more fragmented market structures, lower retail participation, and slower modernization of regulation and post-trade processing.

Rob de Rozario, founder of Alphaparty Capital: By 2030, at least in some markets, 50% of publicly traded stocks may be tokenized, driven by convenience rather than just speed.

Private lending versus equity. Each is assumed to be around $100 billion. Private lending, due to its more standardized transactions and legal documentation and frequent asset backing, is more suitable for tokenization than private equity.

Private equity and venture capital face even greater challenges due to their long holding periods, J-curve returns, and low willingness to engage in secondary market transactions. Currently, the total amount of tokenized credit assets is approximately 5 billion, of which asset-backed credit is about 2 billion and corporate credit is nearly 700 million.

Real estate funds. Approximately $200 billion, representing about 1% of the $17 trillion market. Currently, there are only about 165 million tokenized real estate assets, but the growth rate is extremely fast, increasing by about 50 times in 2024 and another 6 times in 2025. It is assumed that the growth rate will fall back to an average of about 4 times per year in the future.

Ryan Rugg, Global Head of Digital Assets at Citi Services: For tokenized assets to operate at scale, efficient circulation of cash and liquidity is indispensable, and on-chain payment infrastructure is the fundamental enabler for broader tokenization.

Why was tokenization delayed previously?

Understanding the obstacles of the past helps us understand why things are different now.

First, there is a lack of native issuance and full lifecycle support . In the early stages, most of the work involved creating digital mirrors of existing off-chain assets, which failed to fully unleash the potential efficiency benefits.

Problems include incomplete infrastructure (lack of end-to-end capabilities for handling dividends, stock splits, voting, and redemptions), lack of on-chain settlement assets (absence of central bank digital currencies and bank-grade deposit tokens, meaning the final payment still has to be returned to the traditional track), and regulatory uncertainty (ambiguity regarding the legal status and disclosure requirements of digital securities).

Second, there is insufficient liquidity in the secondary market . Tokenized securities have long been dominated by over-the-counter markets, resulting in market fragmentation and a lack of incentives for market makers to quote prices. Many products have high entry barriers, only open to institutions or qualified investors. There are also regulatory restrictions on cross-border transactions and the use of collateral. ESMA has pointed out that these barriers, coupled with a lack of standardization, will hinder the formation of a liquid secondary market.

Third, cross-chain interoperability is poor . As of May 2025, financial institutions had adopted at least 72 different ledgers, and these digital silos were not interconnected. However, the market is converging, and the industry is moving towards fewer networks and interoperability solutions.

Chainlink's cross-chain interoperability protocol CCIP is one example. In 2023, ANZ Bank's collaboration with Chainlink demonstrated how to connect private permissioned chains with public chains such as Ethereum to achieve cross-environment settlement of tokenized assets.

Is the private equity market truly a natural fit?

The private market is often cited as a core use case for tokenization because of its slow transactions, heavy documentation, and fragmented data, but the actual experience is a mixed bag.

In theory, tokenization can automate compliance checks, fundraising, and allocation; it can also tokenize data for more controlled sharing and expand access to private assets through wealth management channels. Some more specialized uses are at the early frontier, such as allowing investors to access income streams like royalties or using assets as collateral.

Adoption has been slow. Hamilton Lane, KKR, and Apollo have offered tokenized private equity and credit to accredited wealth investors through feeder funds, but these represent a very small percentage of the total. Regulatory and accredited investor requirements are still shaping participation, with most access still going through traditional channels.

More fundamentally, the structure of the private market itself limits the impact of tokenization. Transactions are large and concentrated, with a few companies contributing the majority of the volume; even in a semi-liquid structure, redemptions are restricted. Tokenization can improve access and reduce operational friction, but it cannot change the liquidity attributes of the underlying assets and cannot create meaningful secondary liquidity or price discovery.

How Tokenization Reshapes Capital Markets

Tokenization has the potential to reshape the capital market structure, but the benefits will not be immediate. Platform fragmentation, hybrid operating models, and regulatory uncertainty will shape this transition.

The focus will be on control over the issuance and settlement process, favoring institutions that can integrate both within a trusted framework. New entrants tend to drive innovation, but existing institutions with scale, balance sheet strength, and client relationships can also benefit if they adapt properly.

Reshaping the Capital Market Structure

Tokenization will not eliminate core market functionality, but it will change how these functions are delivered, connected, and priced.

Matthew Blumenfeld, Global Head of Digital Assets at PwC: This is not a technological upgrade, but a change in market structure that redesigns access, distribution, and transparency.

Lowering capital costs will be achieved, but fragmentation will occur in the near term. Shared ledgers allow for near real-time ownership transfers and settlements, reducing reconciliation and post-transaction processing layers. Complete disintermediation is unlikely; core functions such as settlement finality, risk management, and regulation will be retained.

In terms of efficiency estimates, issuing a $1 billion bond on-chain could save about $2-3 million. Some studies also point to a reduction of about 24% in transaction costs. However, the benefits will take time to materialize, and the initial fragmentation of assets across multiple non-interconnected platforms may even exacerbate the problem.

The focus is shifting from asset-for-cash to asset-for-asset swaps. Collateral swaps, securities exchanges, and multi-asset atomic transactions reduce reliance on cash as an intermediary.

Fee compression will simultaneously create new revenue pools. While traditional fee pools related to processing and intermediaries may be compressed, structuring token issuance, collateral optimization, data analytics, and smart contract lifecycle services will become new sources of revenue. The net effect is a redistribution of value within the stack rather than a simple reduction.

Vertical integration of the value chain. Tokenization allows for tighter integration of issuance, trading, settlement, and custody, shifting control to infrastructure providers and platform operators, which benefits vertically integrated models. However, this does not equate to a closed system; cross-network interoperability remains crucial.

Settlement assets have become strategic anchors. The choice between stablecoins, bank tokens, and central bank digital currencies for settlement will impact liquidity concentration, counterparty risk, regulatory acceptance, and interoperability. In practice, institutions will align their issuance and trading with settlement mechanisms they trust and can scalably access.

Real-time collateral management. Tokenization enables intraday collateral movement, such as intraday repurchase agreements with interest calculated per minute rather than per day, improving liquidity.

Liquidity and interoperability determine scale. Early markets are fragmented due to platform, protocol, and liquidity pool isolation, weakening network effects. Early on-chain bond issuances proved the technology was feasible, but often resulted in isolated transactions, requiring investors to switch platforms for each individual transaction.

A more pragmatic approach is a hybrid model, such as Digital Native Notes (DNN), which combines digital issuance with existing post-trade settlement tracks without having to move the entire market stack onto the blockchain. Interoperability is not just about connecting blockchains, but about integrating tokenized assets with existing custody, exchanges, settlement systems, workflows, and liquidity pools.

Hybrid transition models will inevitably precede scaling. The path to the tokenization market is not linear. The current reality is that assets, cash, and records are scattered across legacy systems, private ledgers, and public blockchains, bringing complexities in reconciliation, risk management, and compliance, as well as unresolved legal issues such as ownership, liability, and cross-chain failures.

The adoption of tokenization is more determined by the ability to manage this hybrid complexity than by the technology itself. The tokenization market also requires a combination of traditional capital market capabilities and digital asset capabilities; integrating these skills into existing institutions may be as difficult as the technology itself.

Chris Rayner-Cook, Chief Investment Officer at Brevan Howard Digital: The killer use of tokenization is capital efficiency. It brings not just faster settlement, but atomic settlement, removing counterparty risk that forces institutions to hold large capital buffers. Combined with programmability, it determines how efficiently the released capital can be redeployed.

The biggest bottleneck at present is a unified digital identity standard, especially considering privacy. The core constraint imposed by regulatory agencies is not whether transactions are allowed, but whether the counterparty can be identified. As for the last-mile distribution to global investors, the main bottleneck is also the regulatory and investor protection framework, rather than technology.

Who controls the ecology?

As operational frictions decrease, the focus will shift to two structural control points: control over asset issuance and distribution, and control over the settlement currency track.

Institutions that can scale up the integration of both within a trusted framework will gain structural advantages: internalizing the complete transaction loop from initiation to issuance, trading, settlement, custody, and collateral management; profiting from both the asset and currency layers; using pricing on one side to subsidize the platform-style approach on the other, referencing the logic of those super apps in Asia; and influencing interoperability frameworks, collateral eligibility, and smart contract design, thereby defining standards.

Based on this, four types of players are identified.

Ecosystem coordinators: Some banks, asset management companies, and stablecoin issuers control both asset issuance and settlement, and can influence market design and value distribution, but their advantage depends on achieving scale and regulatory acceptance at the settlement layer.

Distribution-driven challengers: digital brokers, fintech companies, and wealth management platforms. As the barriers to entry for issuance decrease, the bottleneck shifts from manufacturing to distribution and customer reach, and those who control customer relationships and data will reap the rewards.

Cash infrastructure providers—stablecoin issuers and banks without tokenized asset products—sit in the settlement flow center earning reserve returns, float, and transaction fees. However, if they do not extend their role to asset issuance or distribution, their role may be trapped at the infrastructure layer, and their profits may be squeezed by competition.

The hardest hit are traditional post-transaction intermediaries. They don't profit from either end of the transaction; as settlements become faster, more automated, and more atomic, their revenue from reconciliation and processing complexity will be squeezed. They won't disappear, but they will need to shift towards higher-value services such as collateral management and cross-system interoperability.

Suzy Singh and Giang Bui of Securitize: Tokenizing assets is easy in itself, the technology has been proven. The difficulty lies in the utility and distribution of assets after they are on the blockchain. Without utility, tokenization is just a static record of ownership.

Liquidity is the primary challenge. Tokenization cannot change the underlying liquidity attributes of assets and cannot create liquidity. The focus should shift to building secondary markets and trading infrastructure.

Different customers, different adoption paths

Institutional clients are driven by trust and scale. Large asset management firms and enterprises prefer familiar, regulated counterparties, and tokenization is superimposed on existing relationships, not replaced. They will not migrate to fragmented platforms that introduce parallel processes.

For wealth management clients (high-net-worth and ultra-high-net-worth individuals), tokenization is currently more of a concept than a reality; no one is actively seeking tokenized stocks or 24/7 markets. To get them involved, there need to be tangible benefits: better access to private markets, stronger liquidity, and better tax or profit outcomes.

The potential is even clearer in alternative assets and digital-native assets, where tokenization can bring new features such as fractional ownership and programmability.

For retail customers, tokenization can broaden access, but access does not equal participation. Whether it can be used depends on whether it is simple enough and whether its value is clear enough. Ultimately, what drives retail adoption is not tokenization itself, but whether it can be seamlessly integrated into daily financial activities.

Deborah Querub, Head of Digital Assets at Citi Wealth: We are in the midst of the largest wealth transfer in history, with the next generation of technology native, and we expect value to flow as quickly as data.

A general conclusion is that the constraint is not technology, but investor adoption. Economic rationality, such as pricing, returns, liquidity, and risk, will always be more important than the underlying settlement mechanism. Unless tokenization brings clear economic advantages or seamlessly integrates into existing processes, investor behavior will not change.

The emergence of new market participants

The new market structure will allow a wider range of participants to enter the asset lifecycle. New entrants can build directly on the blockchain-native infrastructure without the burden of legacy systems, enabling faster product development and more flexible experimentation.

They converge on several core functions: issuance and structured infrastructure, trading and liquidity provision, custody and asset servicing, identity compliance and trust layer, underlying infrastructure and interoperability.

However, low technical barriers do not equate to low barriers to entry. Regulatory requirements such as licensing, custody, and compliance remain substantial, and institutional adoption will ultimately depend on trust, security, and operational resilience. The real differentiator lies in the ability to combine infrastructure, regulatory alignment, and scalable liquidity.

Existing institutions need to evolve and adapt.

Existing financial institutions will remain at the heart of the ecosystem, but will face competition from new entrants. Monetization can be achieved through both existing and emerging services.

Recent opportunities lie in issuance platforms, custody, advisory, and brokerage services. Emerging opportunities are in market making and liquidity provision, data analytics, yield-generating products (structured products, lending, collateralized financing), and asset management.

Ethereum co-founder and Consensys founder Joseph Lubin: Leading US financial institutions are embracing decentralized infrastructure to provide 24/7 on-chain marketplaces, laying the foundation for a new financial system built on open protocols and shared infrastructure.

The most challenging immediate issue is the coexistence of tokenized and legacy systems. Institutions must operate across hybrid environments, running two sets of processes in parallel, building connections, and managing new compliance and reconciliation requirements, resulting in intensive initial costs and delaying the realization of efficiency benefits.

Infrastructure design choices

The choice of underlying architecture involves a trade-off between openness (liquidity and distribution), speed (scalability), and control (compliance and counterparty management). Three main models are as follows.

Permissionless public blockchains are open to everyone, theoretically offering the highest liquidity and interoperability, but with low privacy, as all transactions are visible. Scalability is improved through Layer-2 and modular architectures, with Ethereum and Solana being prime examples.

Private licensed networks offer closed networks, controllable high throughput, and high privacy, but have limited liquidity and weak native interoperability. Examples include Hyperledger Fabric and R3 Corda.

Public blockchains are permissioned: open but with controlled access, liquidity lies between the two, and privacy is configurable (such as zero-knowledge proofs). Examples include Canton Network and Provenance.

One often overlooked dimension is the settlement asset, specifically the currency layer used. Institutions typically don't choose infrastructure in isolation; instead, they first select a trusted settlement track and then align asset issuance.

Compliance is increasingly being implemented at the application layer. Identity verification, KYC/AML, and transfer restrictions can be embedded through smart contracts and middleware, allowing public chains to support regulated scenarios. As a result, the traditional trade-off between openness and compliance is weakened.

Early institutions mostly opted for private permissioned or hybrid models, but more and more issuances are starting to go on public blockchains, especially standardized and highly liquid assets such as money market funds and government securities.

BlackRock's tokenized US Treasury fund, BUIDL, expanded to multiple chains after its launch on Ethereum, while Franklin Templeton's on-chain government money market fund, FOBXX, expanded from Stellar to networks such as Ethereum. As tokenization matures, the key design issue is no longer whether to use a public or private chain, but rather how to combine infrastructure, compliance layers, and settlement assets into a coherent operating model.

Risks associated with tokenization

The vulnerabilities pointed out by regulators are almost never technical issues, but rather whether core financial principles such as ownership, settlement integrity, and investor protection can be upheld after being reconstructed on-chain.

Private currency settlement risks. Settlement with stablecoins may introduce credit, liquidity, and redemption risks, and their ability to be converted into central bank currency may be impaired under stress scenarios.

Currently, stablecoins still face structural limitations such as pre-raised funds. Therefore, the market is exploring tokenized deposits and tokenized money market funds issued by regulated banks as yield-generating, high-quality, and more scalable on-chain liquidity. The coexistence of multiple digital currencies challenges the singularity of the monetary foundation supporting financial trust and may amplify contagion risks during periods of stress.

Ownership rights are unclear. Tokenization may separate economic exposure from legal ownership; holding tokens does not necessarily equate to enforceable rights to the underlying assets, creating ambiguity in bankruptcy, trusteeship, and cross-border enforcement. Natively issued tokenized assets can mitigate this, but it depends on whether the jurisdiction recognizes them.

Investor protection and disclosure gaps exist. Tokenized assets may be packaged like traditional securities, but their rights, risks, and underlying structure remain vague, increasing the risk of missale. Legislative efforts, including the Clarity Act, aim to ensure that tokenized instruments meet the same disclosure and protection standards as traditional products.

Hybrid models and fragmentation risks. Matching on-chain assets with off-chain processes may lead to a lack of transparency, operational complexity, and unclear responsibilities, bringing back traditional issues such as counterparty risk; fragmentation between platforms may also reduce liquidity efficiency and limit net settlement returns.

Asset selection and liquidity risk. Tokenization does not uniformly improve all assets. Early focus often shifted to assets that are easy to issue rather than those with inherent trading demand. If the underlying assets lack liquidity and buying interest, tokenization itself cannot change the fundamentals, resulting in thin trading volumes and fragmented liquidity pools.

Emerging systemic risks. When control over issuance, distribution, and settlement is concentrated in a few platforms, institutions that anchor liquidity or control the settlement process become key nodes, increasing the system's dependence on a few participants.

While interoperability improves efficiency, it also opens new channels for contagion. Atomic settlement reduces counterparty risk but introduces a dependence on smart contracts, oracles, and cross-chain bridges; failure of these components can disrupt the settlement flow.

Next stop: On-chain finance

Once tokenized assets and on-chain currencies reach a certain scale, the next step is their use within on-chain financial systems. To date, DeFi has primarily relied on native crypto assets and self-contained liquidity pools, resulting in fragmented liquidity and high volatility.

Tokenization can change this: it brings higher-quality collateral such as bonds, funds, and deposits onto the blockchain to support more stable liquidity; and it allows assets and cash to circulate together through atomic settlement and programmability, improving capital efficiency and connecting on-chain activities with traditional market structures.

However, DeFi will not replace traditional finance; it is more likely to evolve into a hybrid model, allowing high-quality, highly liquid scenarios such as collateral and fund management to be put on-chain first.

From crypto-native DeFi to institutional adoption

Digital assets are evolving from simple cryptocurrency trading into a broader financial architecture that combines tokenized assets and on-chain currencies (stablecoins, bank tokens, and possibly central bank digital currencies).

DeFi has experienced significant but volatile growth. Total value locked peaked at approximately $180 billion in 2021, then plummeted in 2022 due to a crypto market correction and a series of collapses, before rebounding to a peak of approximately $170 billion in 2025, and is currently around $100 billion.

The next phase of development is more likely to rely on putting real and financial assets on-chain rather than speculative activities, thereby expanding the collateral base and supporting more sustainable returns.

Germán Soto Sanchez of Broadridge: For end users, value is not just about efficiency, but also about access benefits (such as lending protocols), fractional ownership, and asset classes that were previously inaccessible to many (such as private assets).

DeFi possesses several characteristics that are difficult for traditional systems to replicate: a 24/7 continuous market, particularly useful for the real-time transfer of global collateral, cross-border and cross-currency foreign exchange flows, and large-scale financial operations; native support for atomic settlement via Delivery versus Payment (DvP); and programmability at the asset and currency layers, allowing logic such as margin requirements, interest payments, and collateral triggers to be directly written into the code. The shift from static holding to actively invoked collateral is the core of DeFi's value proposition.

Tokenization, as a driver of on-chain finance, manifests in three aspects: expanding the on-chain asset universe and introducing more stable and familiar collateral; pairing tokenized assets with on-chain currencies to enable DvP and collateral transfers to occur natively on-chain, reducing off-chain reconciliation; and facilitating institutional participation by providing assets similar to existing tools.

In the United States, the Digital Asset Market Clarity Act points to a more structured regulatory framework, including a clearer classification of digital assets and a clearer division of regulatory responsibilities between the SEC and CFTC. The bill is still progressing in the Senate, but the direction is towards increasingly clear regulation.

The debate surrounding stablecoin yields and on-chain incentives highlights the trade-offs between innovation and financial stability. The fragmentation of cross-chain, standard, and settlement assets may limit seamless interoperability, thus adoption will be gradual. Recent implementations focus on high-quality collateral and fund management, with long-term potential extending to broader credit markets such as securitization and structured finance.

Institutional Perspective and Technical Standards

Perspective from global standards-setting organizations

The four institutions generally agree that tokenization is still in its early stages, and the outcome depends on how the infrastructure, regulation, and settlement framework evolve.

The Financial Stability Board (FSB) is concerned about the impact on financial stability. In its 2024 report, it noted that tokenization is currently small in scale and does not pose a material risk to global financial stability, but warned that risks may emerge if adoption accelerates and close monitoring is required.

The International Organization of Securities Commissions (IOSCO) is focusing on the current market, noting that activity is concentrated in a few use cases and jurisdictions, the benefits of efficiency and transparency have not yet been realized at scale, fragmentation, lack of interoperability, and lack of widely used on-chain settlement assets are the main constraints, and the risks are largely consistent with those of traditional markets but appear in new forms.

The Bank for International Settlements (BIS) takes a systemic perspective, viewing tokenization as the next step in the evolution of the monetary and financial system. A unified tokenized ledger that combines central bank reserves, commercial bank money, and government bonds can support this transformation, but the system must adhere to core principles such as unity, resilience, and integrity.

The International Monetary Fund (IMF) frames tokenization as a structural shift in the financial architecture, rather than an improvement in marginal efficiency. Its benefits depend on a clear policy framework, legal certainty, secure settlement assets, and strong governance. Without these prerequisites, tokenization, due to its extremely rapid circulation, excessive concentration of nodes, and market fragmentation, could further amplify the instability of the financial system.

Based on the perspectives of IOSCO, BIS, and IMF, the three institutions share a high degree of concern regarding core bottlenecks: interoperability, legal certainty, and settlement mechanism design. If these three hurdles cannot be overcome, the development of tokenization will remain lukewarm, and the so-called efficiency benefits will only be realized in limited scenarios.

Tokenization Standards and Interoperability

As the market continues to evolve, the importance of technical standards in interoperability, compliance control, and system scalability is becoming increasingly prominent. These underlying standards rigorously define how digital assets will be issued, transferred, settled, and governed in a standardized manner across blockchains and different ledger environments.

Within the Ethereum ecosystem, ERC-20 and ERC-721 laid the foundation for fungible and non-fungible assets; while the new generation of security token standards such as ERC-1400 have embedded sophisticated logic such as transfer restrictions, whitelist identity verification, investor permissions and compliance controls, aiming to provide solid support for the on-chaining of assets subject to strict regulation.

Traditional sectors beyond blockchain are also accelerating their resonance. For example, the PCI Security Standards Committee (PCI SSC), a consortium of giants in the payment industry, has issued detailed guidelines instructing institutions to use tokenization technology to replace the highly sensitive underlying payment card data.

Promoting higher levels of standardization can effectively break down market fragmentation, smooth operations between platforms and settlement assets, and pave the way for broader institutional participation.

However, this process is currently in its early stages, with multiple technical frameworks still fiercely competing in different jurisdictions, networks with varying underlying architectures, and complex business scenarios.