McKinsey recently released a report stating that despite significant advancements in tokenization, mainstream adoption is still a distant goal. The firm highlighted various challenges such as the “cold start” problem, regulatory issues, and technological barriers that are impeding widespread acceptance.
The “cold start” problem refers to the lack of liquidity and transaction volume in the market, which hinders the establishment of a robust tokenized asset market. Without a critical mass of tokenized assets, potential investors are hesitant to participate, while issuers are reluctant to tokenize more assets due to the lack of demand and trading activity.
To overcome these challenges, clear and demonstrable benefits of tokenization need to be highlighted, such as cost reduction, efficiency enhancement, and increased market access. For example, tokenized money market funds have already attracted over $1 billion in assets under management, demonstrating early success.
McKinsey projected that the total market capitalization of tokenized assets could reach $2 trillion by 2030, with the potential to double to $4 trillion in an optimistic scenario. The firm emphasized that adoption will occur in waves, starting with asset classes that offer proven returns on investment and scalability.
In order to drive mainstream adoption, collaboration among financial institutions and market infrastructure players is crucial. Financial institutions need to assess their product suites and identify assets that would benefit most from tokenization. Coordinated efforts across the financial ecosystem will be essential to unlock the full potential of tokenization and revolutionize how financial services operate.