Asset tokenization: where are we at?

As cryptocurrency prices fluctuate ahead of their next change in direction, the market for tokenization — the issuance of blockchain-based digital tokens representing assets from bonds to stocks and real estate — may finally reach critical mass.
Large financial firms such as London Stock Exchange Group, WisdomTree and Mirae Asset Securities have invested in token-based trading and investment platforms in the past year, or are in talks to develop them.
Others such as Franklin Templeton, UBS Asset Management and ABN Amro have launched tokenized versions of assets such as money market funds and green bonds.
More than a third of institutional investors in the United States and nearly two-thirds of high-net-worth investors plan to invest in tokenized assets this year or next, according to two surveys of more than 300 participants conducted by EY-Parthenon in May.
It's the potential transaction cost savings that is attracting the big investment players, according to Colin Butler, Head of Institutional Capital at blockchain firm Polygon Labs.
Tokenization offers the traditional financial sector more transparent trading, greater liquidity, as well as reduced costs and settlement times, by automating processes via smart contracts – blockchain-based agreements that settle automatically.
On the other hand, critics point to large gaps in trading infrastructure, a lack of cohesive global regulation and still limited feedback among investors.
Indeed, the actual issuance and value of traditional tokenized assets remains modest.
The market capitalization of tokenized securities is $345 million, according to data from Dune Analytics, a small fraction of the broader $1 trillion cryptocurrency market.
These tokens have seen growth of 2.3% over the past month, much less than bitcoin's roughly 10% rise over the same period.
However, some see a brighter future: a report from Northern Trust and HSBC this year estimated that 5% to 10% of all assets will be digital by 2030.
While the idea of tokenization has been around for almost like bitcoin, the nascent market hasn't lived up to much of the initial enthusiasm.
Some market players are now seeing significant progress.
Obstacles remain, with market players also pointing to, among other things, the need for larger trading pools.
However, some are optimistic.
“In the future people are hoping for a better network effect where more and more companies adopt the same platforms so that assets become more tradable,” said Doug Schwenk, CEO of Digital Asset Research.
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