Cryptocurrencies

Tokenized financial assets have had a “cold start” but are on track to reach a market size of

Tokenized financial assets have had a “cold start” but are on track to reach a market size of around $2 trillion by 2030, according to analysts at consultancy McKinsey & Company.

“In a bullish scenario, this value could double to around $4 trillion,” the analysts wrote on June 20, although they were “less optimistic than before.”

McKinsey analysts said there is “clear momentum” for tokenization, but widespread adoption is still a long way off, as modernizing existing financial infrastructure is “a challenge, particularly in a highly regulated like financial services.”

Analysts expect cash, deposits, bonds, exchange-traded securities (ETNs), mutual funds, exchange-traded funds (ETFs), loans and securitization to hit first “meaningful adoption,” meaning $100 billion in token market capitalization by 2030.

Derivatives and stocks should be the least likely to be widely tokenized. Source: McKinsey & Company

Analysts exclude stablecoins, tokenized deposits and central bank digital currencies (CBDCs).

Better use cases would melt cold start

Analysts at McKinsey said tokenization faces a common “cold start problem”: tokenized items must have some value to users.

The technology faces limited liquidity issues, hampering token issuance. Fear of losing market share can also lead to the creation of tokenized assets through “parallel issuance of legacy technologies.”

Analysts added that tokenization requires a use case where it provides an advantage over traditional financing systems.

“An example of this is the tokenization of bonds. “Hardly a week goes by without the announcement of a new token bond issue,” McKinsey analysts wrote.

“Although there are billions of dollars of tokenized bonds in circulation today, interest relative to traditional issuance is marginal and secondary trading remains rare.”

In their example, the analysts said the slow start could be fixed by providing “larger movement, faster settlement and more liquidity.”

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McKinsey analysts added that early movers who “catch the wave” of tokenization could see significant market share and set the agenda for standards, while gaining a good reputation.

“But many other institutions are in wait-and-see mode,” they said.

Analysts said there are signs that tokenization has reached a tipping point, including blockchains capable of supporting billions of dollars in volume and seamlessly connected, and that regulation is catching up to provide “clarity on access and data security.

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