McKinsey believes that tokenization of financial assets has advanced to a critical tipping point yet faces hurdles that hinder its widespread acceptance.
According to the firm:
“The digitization of assets seems even more inevitable now as the technology matures and demonstrates measurable economic benefits. Despite this visible momentum, broad adoption of tokenization is still far away.”
McKinsey said in a June 20 research report that tokenization has progressed from pilot projects to scaled deployments, with the first large-scale applications already transacting trillions of dollars monthly.
However, mainstream adoption remains elusive due to a “cold start” problem and and other regulatory, technological, and operational hurdles.
The ‘cold start’ problem
According to the report, the main challenges arise from limited liquidity and transaction volume, which prevent the establishment of a robust market. The benefits of tokenization — such as increased collateral mobility, faster settlement times, and improved transparency — cannot be fully realized without substantial engagement from issuers and investors.
It added that the cold start problem presents a classic chicken-and-egg scenario. Without a critical mass of tokenized assets, potential investors remain hesitant due to concerns over liquidity and market depth.
Simultaneously, issuers are reluctant to tokenize more assets because of the lack of sufficient demand and trading activity. Overcoming this challenge requires use cases that deliver clear and demonstrable benefits, such as reducing costs, enhancing efficiency, and providing greater market access.
For instance, tokenized money market funds have attracted over $1 billion in assets under management, showcasing early success. However, the broader market needs more substantial engagement to achieve the network effects necessary for widespread adoption.
The report asserted that constructing a robust ecosystem where both supply and demand grow in tandem is crucial.
Adoption waves
McKinsey’s report projected 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 already see significant adoption due to the efficiencies and value gains offered by blockchain technology.
Tokenized money market funds have attracted over $1 billion in AUM, while in the lending sector, blockchain-enabled platforms like Figure Technologies have facilitated billions in origination volumes, showcasing the potential for increased efficiency and transparency.
McKinsey said the path forward for tokenization involves collaboration among financial institutions and market infrastructure players to establish minimum viable value chains. Financial institutions must assess their product suites and identify which assets would benefit most from tokenization, aligning strategic priorities with market opportunities.
Additionally, coordinated efforts across the financial ecosystem will be essential to realize the full benefits of tokenization and set the stage for a transformative shift in how financial services operate.