Evolving From Ripples to Wave: The Transformative Impact of Tokenization

Tokenization, the creation of a distinct digital representation of an asset on a blockchain network, has reached a critical juncture after years of exploration and development.
The advantages of this technology—including enhanced programmability, composability, and transparency—allow financial institutions to achieve operational efficiencies, boost liquidity, and unlock new revenue streams through innovative applications.
These advantages are already being realized, with some large-scale implementations now processing trillions of dollars in on-chain transactions every month.

Waves of Tokenization

The pace and extent of tokenization’s adoption will differ across asset classes due to variations in anticipated benefits, feasibility, implementation timeline, and the risk appetite of market participants. These factors are expected to shape the distinct phases of tokenization activity and adoption. Asset classes with larger market values, higher friction within their current value chains, less developed traditional infrastructure, or lower liquidity are more likely to gain significant benefits from tokenization.

The willingness to invest in tokenization often scales inversely with the profitability of current inefficient processes. This varies depending on whether these functions are handled internally or outsourced, and how concentrated the market players and their fees are. Outsourced services often benefit from economies of scale, which can diminish the motivation for disruption. The time to impact—meaning how quickly returns from investments in tokenization can be realized—can strengthen the business case and increase the willingness to invest in tokenization efforts.

The adoption of tokenization in one asset class can pave the way for other asset classes by providing greater regulatory clarity, more mature infrastructure, improved interoperability, and encouraging further investment.

Asset Classes Most Likely to Adopt Tokenization Quickly

The progress of tokenization is currently steady, with expectations of faster adoption as network effects take hold. Certain asset classes, due to their inherent characteristics, are poised to achieve significant adoption—defined as reaching over $100 billion in tokenized market capitalization—by the end of this decade.

It is estimated that the tokenized market capitalization across various asset classes could reach approximately $2 trillion by 2030, excluding cryptocurrencies and stablecoins. This growth will primarily be driven by the asset classes discussed above (see Exhibit 1). Under different scenarios, the market size could range from a low of about $1 trillion to a high of around $4 trillion.

projections exclude stablecoins—including tokenized deposits, wholesale stablecoins, and central bank digital currencies (CBDCs)—to prevent double counting, as these are frequently used as cash equivalents in settling trades involving tokenized assets.

Focus on Repurchase Agreements (Repos)

Repurchase agreements, or “repos,” provide a current example of where tokenization is being adopted and delivering benefits. Firms such as Broadridge Financial Solutions, Goldman Sachs, and J.P. Morgan transact trillions of dollars in repo volume each month. Unlike some other use cases for tokenization, reports do not require the entire value chain to be tokenized to achieve significant advantages.

Financial institutions that tokenize repurchase agreements (repos) primarily gain operational and capital efficiencies. On the operational front, the use of smart contracts automates daily life cycle management tasks, such as collateral valuation and margin adjustments. This automation reduces errors, minimizes settlement failures, and simplifies reporting. Moreover, features like 24/7 instant settlement and on-chain data access enhance capital efficiency by providing intraday liquidity for short-term borrowing and optimizing collateral use.

Next Waves of Asset Tokenization

The initial wave of tokenized assets has followed a somewhat distinct adoption path, which is expected to continue over the next two to three years. In contrast, the tokenization of other asset classes is likely to gain momentum only after the groundwork has been established by the earlier assets or when a catalyst triggers progress, even in the absence of immediate benefits.

Many market participants see significant potential for tokenization in the realm of alternative funds, which could drive growth in assets under management and simplify fund accounting processes. By leveraging smart contracts and interoperable networks, managing discretionary portfolios at scale can become more efficient, thanks to automated portfolio rebalancing. Additionally, tokenization might unlock new sources of capital for private assets. The ability to fractionalize these assets and create secondary market liquidity could allow private funds to attract capital from smaller retail investors and high-net-worth individuals.
A Path Forward

Analyzing the current stage of asset tokenization alongside the development of other transformative technologies suggests we are in the early phases of adoption. Technologies that have reshaped consumer behavior—such as the internet, smartphones, and social media—and financial innovations like credit cards and ETFs, typically experience their most rapid growth (over 100% annually) within the first five years of their introduction.

While it is reasonable to anticipate that tokenization could drive a long-term transformation of the financial sector, there are specific advantages for early adopters who can “ride the wave.” These pioneers stand to gain a substantial share of the market, particularly in sectors where economies of scale are advantageous. They can also improve their operational efficiency, influence the establishment of formats and standards, and enjoy a reputational boost from being at the forefront of innovation.

Early adopters face both risks and rewards: the initial investment and the uncertainty involved in embracing new technology can be considerable. First movers are often in the spotlight, and building new infrastructure while maintaining operations on an existing legacy platform can be both time-consuming and resource-intensive.