McKinsey asserts that tokenization of financial assets has reached a pivotal point but still faces obstacles to widespread adoption.

According to McKinsey:

“The digitization of assets appears more inevitable as the technology matures and shows measurable economic benefits. However, despite this momentum, broad adoption of tokenization remains distant.”

In a June 20 report, McKinsey noted that tokenization has moved from pilot projects to large-scale deployments, with some applications already handling trillions of dollars monthly. Yet, mainstream adoption is hindered by a “cold start” problem and other regulatory, technological, and operational challenges.

The 'cold start' problem arises from limited liquidity and transaction volume, preventing the establishment of a robust market. Tokenization’s benefits, like increased collateral mobility and faster settlements, need significant issuer and investor engagement to be fully realized. The problem creates a chicken-and-egg scenario where investors hesitate due to liquidity concerns, and issuers are reluctant due to low demand.

McKinsey cited the success of tokenized money market funds, which have over $1 billion in assets under management, as an example. Still, the broader market requires more substantial engagement for widespread adoption.

The report predicts that the total market capitalization of tokenized assets could reach $2 trillion by 2030, driven by mutual funds, bonds, ETNs, loans, and securitization, potentially doubling to $4 trillion in an optimistic scenario. Adoption will occur in waves, starting with asset classes that show proven ROI and scalability.

For tokenization to progress, financial institutions and market infrastructure players must collaborate to create minimum viable value chains. Financial institutions should identify which assets would benefit most from tokenization, aligning strategies with market opportunities. Coordinated efforts across the financial ecosystem are essential for realizing the full benefits of tokenization and transforming financial services.