Tokenized financial assets have had a “cold start” but they’re tracking to reach a market size of about $2 trillion by 2030, say analysts at consulting firm McKinsey & Company.
“In a bullish scenario, this value could double to around $4 trillion,” the analysts wrote on June 20 — despite being “less optimistic than previously.”
McKinsey’s analysts said there’s been “visible momentum” on tokenization, but broad adoption is still far away as modernizing existing financial infrastructure is “challenging, especially in a regulation-heavy industry such as financial services.”
The analysts expected cash and deposits, bonds and exchange-traded notes (ETNs), mutual funds and exchange-traded funds (ETFs), loans and securitization to reach “meaningful adoption” first — meaning a $100 billion of tokenized market capitalization by 2030.
The analysts estimate excluded stablecoins, tokenized deposits and central bank digital currencies (CBDCs).
Better use cases would thaw cold start
McKinsey’s analysts said tokenization is facing the common “cold start problem” — where tokenized stuff needs users to be worth something.
The technology has issues with limited liquidity, which deters a tokenized issuance. Fear of losing market share can also lead to tokenized assets with a “parallel issuance on legacy technology.”
The analysts added tokenization needs a use case where it offers a benefit over traditional finance systems.
“One such example is the tokenization of bonds. Barely a week goes by without the announcement of a new tokenized bond issuance,” McKinsey’s analysts wrote.
“While there are billions of dollars of tokenized bonds outstanding today, benefits over traditional issuance are marginal, and secondary trading remains scarce.”
In their example, the analysts said the slow start could be fixed by providing “greater mobility, faster settlement, and more liquidity.”
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McKinsey’s analysts added early movers who “catch the wave” of tokenization could see an outsized market share and could set the agenda on standards, along with getting a reputation bump.
“But many more institutions are in ‘wait and see’ mode,” they said.
The analysts said there are signs for when tokenization has reached a tipping point, including blockchains able to support trillions of dollars in volume and are seamlessly connected, and regulation catches up to give “clarity on data access and security.”
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