Author:Fabienne van Kleef(Analyst at a global digital finance company)Global Digital Finance CompanyAnalyst
Tokenization is developing rapidly,BlackRockCEO says it may surpass AI in importance.What do youview this trend? Yes, tokenization is rapidly emerging as a transformative force in the financial sector. According to industry research by 21.co, the tokenized asset market size will grow from $8.6 billion in 2023 to over $23 billion by mid-2025. Forecasts indicate that the total size of tokenized assets, encompassing bonds, funds, real estate, and private equity markets, could reach trillions of dollars within the next decade. BlackRock CEO Larry Fink stated that tokenization may be more impactful than artificial intelligence, highlighting the significance 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 has the potential to have a profound impact on the global financial landscape. What are the main application scenarios and challenges of tokenized assets currently? Currently, the most active applications of tokenization are concentrated in financial instruments where efficiency and liquidity are crucial. Tokenized money market funds and bonds are prime examples. These funds, already operating on multiple blockchains, enable near-instant transaction settlement and utilize stablecoins for subscription and redemption, thus creating entirely new cash management workflows. Real-world asset applications such as sovereign debt, real estate, and private credit are also evolving. The advantages of these areas lie in the divisible ownership of assets and 24/7 markets, which open investment channels for traditionally illiquid assets and improve liquidity. However, some challenges remain. While regulatory and legal frameworks are steadily improving, the pace of progress varies across jurisdictions, potentially creating uncertainty. Differing definitions of digital asset custody or varying degrees of acceptance of blockchain records mean that 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 solvable. Cross-platform transfers have already been successfully implemented in the industry sandbox of the Global Digital Finance (GDF) Tokenized Money Market Fund (TMMF) report. Overall, tokenization has already created value in key financial services areas such as fund management and bond markets, but further harmonization of rules and broader upgrades to existing institutional infrastructure are needed to address these challenges in order to scale up and achieve wider adoption. How does tokenization affect the US dollar and traditional foreign exchange markets? Tokenization is blurring the lines between traditional currencies and value transfers, and the US dollar is at the center of this shift. Most stablecoins are explicitly backed by the US dollar and short-term Treasury bonds, further driving the dollarization of cross-border payments. By 2025, the reserves of major dollar stablecoins (primarily held in the form of US Treasury bonds) had grown to such a scale that the amount of US Treasury bonds collectively held by stablecoin issuers exceeded that of some countries, such as Norway, Mexico, and Australia. For the traditional foreign exchange market, the widespread adoption of tokenization presents both opportunities and challenges. On the one hand, the emergence of digital currencies, especially dollar-backed stablecoins and the increasingly prevalent wholesale central bank digital currencies (CBDCs), enables faster and more efficient foreign exchange transactions. This includes 24/7, near-instantaneous cross-currency transactions without reliance on correspondent banks. However, regulation remains a key factor in these different developments, with governments seeking to ensure stablecoins gain trust in various markets to truly function as currency. In the United States, the recently passed GENIUS Act provides much-needed clear guidance for dollar-backed payment stablecoins by clarifying reserve requirements and redemption criteria, which we expect will enhance confidence in the large-scale use of tokenized dollars. Overall, tokenization is not expected to completely replace traditional currencies; instead, it may lead to a continued strong influence of the US dollar, and even further expansion in the foreign exchange market. Settlement may become real-time, and markets will need to adapt to a system where sovereign currencies and their digital token versions can flow freely across interconnected networks. What would happen if every company or institution used digital wallets to store tokenized assets? If every company in the future has a digital wallet for storing tokenized assets, we will see a completely different financial landscape—more interconnected, instantaneous, and decentralized. In this scenario, the role of custodians and wallet providers will become crucial. Custodians will transform from simple custodians into critical infrastructure and essential service providers, ensuring the security, compliance, and interoperability of wallets and their internal assets. From a practical perspective, widespread use of digital wallets means that value can flow freely across the network like email. Settlement can be completed in real time, significantly reducing counterparty risk and freeing up capital. Corporate Treasurers can directly handle assets (such as tokenized bonds or invoices) for peer-to-peer transactions or lending activities with minimal friction. This requires a unified protocol, a standardized digital identity framework, and a clear legal status for on-chain transactions. How does tokenization affect liquidity in secondary markets and for institutional investors?
Tokenization is expected to significantly improve liquidity in secondary markets, especially for historically illiquid or complex-to-trade assets. By converting assets into digital tokens, partial ownership and near-24/7 trading are possible, expanding the pool of potential buyers and sellers. We are already seeing this in practice. Tokenized funds and government bonds settle almost instantly, unlike traditional markets which take days, allowing investors to reinvest more quickly. Recent analysis from the Global Development Fund (GDF) shows that the settlement cycle for tokenized money market funds (TMMFs) is only seconds, compared to the typical one to three days for traditional money market funds.
However, there are some points to note. In the early stages, liquidity in the tokenization market may be relatively fragmented. Many tokenized assets currently exist on different blockchains or closed networks, which reduces liquidity. Furthermore, the true liquidity of institutions depends on market confidence. Large institutions need to ensure that these tokens represent enforceable interests in the underlying assets and that settlement finality is guaranteed. Nevertheless, we should remain optimistic. As standards unify and infrastructure matures, tokenization will unlock liquidity across various sectors, from private equity to infrastructure projects, by making secondary trading processes more seamless. During this period, we encourage the industry to develop shared standards and cross-platform integration solutions to avoid liquidity being trapped in a single blockchain or jurisdiction. For institutional participants, what strategies can drive the adoption and liquidity of the tokenization market? Ultimately, institutional adoption of the tokenization market depends on the synergistic maturation of regulation, custody, and infrastructure. Regulatory harmonization is fundamental; institutions need a unified legal definition of ownership, custody, settlement, and asset classification to confidently operate across borders. Otherwise, the tokenized market cannot expand because institutions will face uncertainties regarding legal validity, risk management, and the ability to trade seamlessly across jurisdictions. Custody models are also rapidly evolving. As highlighted in the report "Understanding Digital Asset Custody," jointly published by the Global Digital Finance Consortium (GDF), the International Swaps and Derivatives Association (ISDA), and Deloitte, most institutional-grade custody frameworks already exist, particularly in areas such as client asset segregation, key management, and operational control. 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 risk, such as wallet management, distributed ledger technology (DLT) network governance, and effective segregation of client and corporate assets. Capital handling is another important consideration. Capital treatment refers to the way tokenized asset exposures are categorized under prudential regulatory frameworks (such as the Basel Committee's crypto-asset standards), which determines 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-reserve and regulated tokenized assets, such as tokenized money market funds, should be classified as Group 1a, thus enjoying the same capital treatment as their non-tokenized counterparts. Interoperability is another key driver. Today's decentralized ecosystems slow liquidity, making common standards and cross-platform settlement channels crucial. Early projects like Fnality and various central bank digital currency (CBDC) pilot projects have demonstrated that atomic, near-instantaneous settlement can reduce friction. The work of GDF TMMF provides concrete evidence for this. In the industry sandbox, TMMF facilitated transfers between multiple heterogeneous distributed ledger technologies (DLT) and traditional systems, including Ethereum, Canton, Polygon, Hedera, Stellar, Besu, and institutional cash networks such as Fnality, demonstrating the seamless flow of tokenized funds between platforms. Simulation 6 further extended this to traditional payment channels, linking SWIFT messages to the tokenized collateral workflow and completing a full bilateral to three-way repurchase cycle in less than a minute. These findings collectively indicate that interoperability is already achievable in practice and can support large-scale liquidity once deployed in the market. Looking ahead, what will be the most transformative impact of tokenization in 2026? In 2026, tokenization will begin to reshape the daily operation of markets. The most direct shift is towards programmable settlement, and in many cases, even real-time settlement, thanks to the support of tokenized cash, stablecoins, or central bank digital currencies (CBDCs). We also expect traditionally illiquid assets to become more readily accepted by the market. In areas such as private equity, infrastructure, and private lending, partial ownership will enable more institutional participants to access these markets and improve liquidity. Meanwhile, the increasingly clear regulatory frameworks in major jurisdictions provide institutions with confidence to move from pilot projects to full integration. Custodians will expand their native role in the digital realm, supporting the operation of smart contracts and strengthening recourse mechanisms.
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