Original author: Fabienne van Kleef (Analyst at a global digital finance company)
Tokenization is developing rapidly, and BlackRock's CEO claims it may surpass AI in importance. What are your thoughts on this trend?
Yes, tokenization is swiftly rising, becoming a transformative force in the financial sector. According to industry research by 21.co, the market size for tokenized assets is expected to grow from $8.6 billion in 2023 to over $23 billion by mid-2025. Predictions indicate that in the next decade, the total scale of asset tokenization covering bonds, funds, real estate, and private markets could reach trillions of dollars. BlackRock CEO Larry Fink stated that tokenization may be more impactful than artificial intelligence, highlighting the significant implications of this trend. Tokenization is reshaping how we express and transfer value, just as the internet reshaped information exchange. If the infrastructure is in place, tokenization is expected to have a profound impact on the global financial landscape.
What are the main application scenarios and challenges of tokenized assets?
Today, the most active application scenarios for tokenization are concentrated in the field of financial instruments where efficiency and liquidity are crucial. Tokenized money market funds and bonds are typical examples. Tokenized money market funds and government bond funds are already operating on multiple blockchains, enabling near-instant transaction settlement and using stablecoins for fund subscriptions and redemptions, thus creating a new cash management workflow. Real asset application scenarios such as sovereign debt, real estate, and private credit are also continuously developing. The advantages in these areas lie in the divisible ownership of assets and around-the-clock markets, which can open investment channels for traditionally illiquid assets and improve liquidity.
Nevertheless, there are still some challenges to overcome. While regulatory and legal frameworks are steadily improving, progress varies across different jurisdictions, which can create some uncertainties. Different countries have varying definitions of digital asset custody or differing levels of recognition for blockchain records, meaning tokenized assets may be treated differently in different regions. From a technical perspective, interoperability and asset security remain top priorities, although many interoperability challenges have proven to be solvable. In the industry sandbox of the Global Digital Finance (GDF) tokenized money market fund (TMMF) report, cross-platform transfers have already been successfully executed. Overall, tokenization has created value in key financial service areas like fund management and bond markets, but further coordination of rules and broader upgrades to existing institutional infrastructure will be needed to address these challenges and achieve wider scalable applications.
How does tokenization affect the US dollar and traditional foreign exchange markets?
Tokenization is blurring the lines between traditional currencies and value transfer, with the US dollar at the center of this transition. Most stablecoins are explicitly backed by US dollars and short-term government bonds, further promoting the dollarization of cross-border payments. By 2025, the reserves of major US dollar stablecoins (primarily held in the form of US Treasury securities) have grown to the extent that the amount of US Treasuries held collectively by stablecoin issuers exceeds that of some countries, such as Norway, Mexico, and Australia. For the traditional foreign exchange market, the widespread application of tokenization brings both opportunities and challenges. On one hand, the emergence of digital currencies, especially dollar-backed stablecoins and the increasingly popular wholesale central bank digital currencies (CBDCs), can make foreign exchange trading faster and more efficient. This includes around-the-clock, near-instant cross-currency transactions that do not rely on correspondent banks. However, in these different development processes, regulation remains a key factor, as governments want to ensure that stablecoins can be trusted in various markets to truly function as money. In the United States, the recently passed (GENIUS Act) provides urgently needed clarity on reserve and redemption requirements for dollar-backed payment stablecoins, which we expect will enhance confidence in the large-scale use of tokenized dollars. Overall, tokenization is not expected to completely replace traditional currencies; rather, it may lead to the continued strength of the dollar's influence and even expand it further in the foreign exchange market. Settlements may achieve real-time processing, and the market needs to adapt to a system where a sovereign currency and its digital token version can flow freely within an interconnected network.
What would happen if every company or institution used digital wallets to store tokenized assets?
If in the future every company has a digital wallet for storing tokenized assets, we will see a radically different financial landscape that is more interconnected, instantaneous, and decentralized. In this scenario, the role of custodians and wallet providers will become crucial. Custodians will evolve from simple custodians to key infrastructure and important service providers, ensuring the safety, compliance, and interoperability of wallets and their internal assets. From a practical perspective, ubiquitous digital wallets mean that value can flow freely over the network like emails. Settlements can be completed in real-time, significantly reducing counterparty risk and releasing capital. CFOs can directly handle assets (such as tokenized bonds or invoices) for peer-to-peer transactions or lending activities with minimal friction. This requires unified protocols, standardized digital identity frameworks, and clear legal statuses for on-chain transactions.
How does tokenization affect liquidity in secondary markets and for institutional investors?
Tokenization is expected to significantly enhance liquidity in secondary markets, especially for assets that have traditionally been illiquid or complex to trade. By converting assets into digital tokens, partial ownership and near-round-the-clock trading can be achieved, thereby expanding the pool of potential buyers and sellers. We have already seen this in practice. The settlement speed of tokenized funds and government bonds is nearly instantaneous, unlike the traditional market that requires several days, enabling investors to reinvest more quickly. Recent analysis from the Global Development Finance (GDF) shows that the settlement period for tokenized money market funds (TMMF) is only a few seconds, while traditional money market funds typically have a settlement period of one to three days.
However, there are also some points to note. In the early stages, liquidity in the tokenized market may be relatively fragmented. Many tokenized assets currently exist on different blockchains or closed networks, which reduces liquidity. Additionally, the true liquidity of institutions relies on market confidence. Large institutions need to ensure that these tokens represent executable rights to the underlying assets and that the finality of settlement is guaranteed. Nevertheless, we should remain optimistic. With the unification of standards and the maturation of infrastructure, tokenization will release liquidity across various fields, from private equity to infrastructure projects, by making secondary trading processes more seamless. In the meantime, we encourage the industry to establish shared standards and cross-platform integration solutions to avoid liquidity being trapped in a single blockchain or jurisdiction.
For institutional participants, what strategies can promote the adoption and liquidity of the tokenized market?
The adoption of tokenized markets by institutions ultimately depends on whether regulation, custody, and infrastructure can develop in a coordinated manner. Regulatory coordination is fundamental; institutions need unified legal definitions for ownership, custody, settlement, and asset classification to operate confidently across borders. Otherwise, the tokenized market cannot scale, as institutions will face uncertainties regarding legal validity, risk management, and seamless trading across jurisdictions.
The custodial model is also rapidly evolving. As emphasized in the report (Interpretation of Digital Asset Custody) jointly released by the Global Digital Finance Alliance (GDF), the International Swaps and Derivatives Association (ISDA), and Deloitte, most institutional-grade custody frameworks already exist, especially regarding client asset segregation, key management, and operational controls. The report points out that many principles of traditional custody can and should be applied to digital assets, but new capabilities are also needed to manage risks, such as wallet management, governance of distributed ledger technology (DLT) networks, and effective segregation of client and company assets.
Capital treatment is another important consideration. Capital treatment refers to the way tokenized asset exposure is classified under a prudent regulatory framework (such as the Basel Committee's crypto asset standards), determining how much regulatory capital banks need to hold. Recent reviews of the Basel standards have further emphasized the distinction between tokenized traditional assets and high-risk crypto assets. Under this framework, fully reserved and regulated tokenized assets, such as tokenized money market funds, should fall into Group 1a, enjoying the same capital treatment as their non-tokenized counterparts.
Interoperability is another key driving factor. Today's fragmented ecosystems slow down liquidity, making common standards and cross-platform settlement channels essential. Early projects like Fnality and various central bank digital currency (CBDC) pilot projects have demonstrated that atomic, near-instant settlement can reduce friction. The work of GDF TMMF provides concrete evidence for this. In industry sandboxes, TMMF has transferred across multiple heterogeneous DLTs and traditional systems, including Ethereum, Canton, Polygon, Hedera, Stellar, Besu, and institutional cash networks like Fnality, indicating that tokenized funds can flow freely between platforms. Simulation 6 further extends this to traditional payment channels, linking SWIFT messages to tokenized collateral workflows and completing a full bilateral to tri-party repo cycle in under a minute. These findings collectively indicate that interoperability is already feasible in practice and can support large-scale liquidity once applied in the market.
Looking ahead, what do you think will be the most transformative impact of tokenization in 2026?
In 2026, tokenization will begin to reshape the daily operations of the market. The most direct transformation is the shift towards programmable settlement, in many cases even achieving real-time settlement, supported by tokenized cash, stablecoins, or central bank digital currencies (CBDCs).
We also anticipate that traditionally illiquid assets will be more readily accepted by the market. In areas such as private equity, infrastructure, and private credit, more institutional participants will be able to enter these markets and enhance liquidity by achieving partial ownership.
At the same time, the regulatory framework in major jurisdictions is becoming clearer, providing institutions with confidence to transition from pilot projects to true integration. Custodians will expand their native roles in the digital space, supporting the operation of smart contracts and enhancing recovery mechanisms.
Original link: https://thepaypers.com/crypto-web3-and-cbdc/interviews/beyond-crypto-how-tokenization-is-quietly-rewiring-markets
