The market for tokenized real-world assets (RWAs) is expanding rapidly, yet the primary barrier to more widespread adoption isn’t regulatory issues as often assumed, but rather the absence of specialized secondary markets for trading tokenized securities, according to the insights of a prominent industry founder.
In a recent discussion, attention was drawn to the comments made by a well-known CEO during the Digital Asset Summit in New York, highlighting that unclear regulations are hindering her firm’s efforts to tokenize its funds.
“It’s a common misconception that regulatory ambiguity is the main obstacle,” he stated, emphasizing that the existing framework provided by the US Securities and Exchange Commission (SEC) offers a compliant route for launching blockchain-based funds, which deliver efficiency benefits compared to traditional methods.
“The real challenge lies in the scarcity of market infrastructure to facilitate the trading of tokenized securities for a wide array of investors,” he pointed out.
Excluding stablecoins, the market value of tokenized RWAs has risen nearly 8% in the last month, reaching $19.5 billion, with private credit and US Treasury debt being the two primary applications.
“While these assets exist across a few blockchains, there is still no comprehensive public secondary market where both institutional and retail investors can buy, sell, and trade them in the same way they do with conventional securities on platforms like Nasdaq or through brokerage accounts like those offered by Fidelity,” he mentioned, outlining two general strategies for developing these platforms.
The first involves creating tokenized securities markets via decentralized finance (DeFi) models, similar to the initiatives being pursued by various fintech firms.
The second strategy is to incorporate tokenization protocols into existing brokerage platforms that comply with SEC regulations and federal securities laws.
“Established crypto and fintech platforms already have experience in facilitating cryptocurrency transactions, so it’s reasonable to expect them to expand their services to include tokenized securities,” he explained.
Although many in the latter camp may not operate digitally at present, they are unlikely to relinquish their market share easily. “Numerous firms are currently investing in their tokenization initiatives or collaborating with fintech and crypto companies to stay competitive,” he noted.
“What’s at stake is onboarding the next wave of users into the digital asset sphere. The pressing question is whether traditional brokerage firms will venture into the digital asset domain or if crypto platforms will create the next generation of markets for trading digital securities.”
As a company focused on digital asset trading and custody, efforts are being made to close the infrastructure gap by developing a comprehensive digital asset securities marketplace. They assert that transactions conducted on their platform come with lower fees, quicker settlement times, and improved efficiency.
One of the primary factors driving demand for tokenized assets among conventional investors is their desire for access to “digital native versions of all assets, along with cryptocurrencies, all within a singular, familiar ecosystem that helps them achieve diverse financial objectives,” he explained.
Tokenization is showing particular promise in the real estate sector as well. Reports indicate that luxury and commercial properties across North America are being tokenized, with secondary markets being developed to trade tokenized shares.
A report from a leading consulting firm identified tokenization as a transformative blockchain application in financial services, highlighting its scalability and almost instantaneous transaction capabilities.
According to an executive at the consulting firm, tokenization has the potential to increase annual returns for investors by around $100 billion and enhance revenue streams for financial institutions.
The potential for tokenization has even been recognized by a well-regarded global organization in a recent publication, which discussed that approximately 10% of the $230 trillion global securities market could be utilized as collateral.
“Tokenization, which enhances the mobility of collateral and capital efficiency, could release this untapped capital and optimize liquidity during trading hours, allowing funds to be accessed and transferred within the same day to meet payment and settlement needs,” the article stated.