McKinsey Report: Widespread Tokenization Still Far Away
Blockchain technology has brought about a profound transformation in today’s financial markets, with tokenized asset technology attracting the attention of global investors and financial institutions. The Taiwan Financial Supervisory Commission recently announced the establishment of the “RWA Tokenization Task Force” in collaboration with the Central Depository & Clearing Corporation and six interested financial institutions to jointly discuss related promotion matters. However, according to the latest report from McKinsey & Company, a globally renowned consulting firm, widespread adoption of tokenization is still far off, with the market size possibly reaching a minimum of only $1 trillion.
The so-called “Real World Asset (RWA) Tokenization” refers to the tokenization of tangible and intangible assets in the real world, such as watches, real estate, wine, trading cards, and bonds, and creating a virtual counterpart on the blockchain that is linked to the value of the original assets.
For example, in June 2023, a 100-year-old Rolex watch was tokenized for the first time, allowing the owner of the watch to borrow over NT$400,000 in loans by using it as collateral. Not only watches, but even a piece of artwork or a luxury mansion can be divided into multiple tokens through tokenization, allowing multiple people to “co-own” them.
Binance, the world’s largest exchange, stated in its report on “Tokenization of Real-World Assets” that although RWA development is still in its early stages, the adoption rate and Total Value Locked (TVL) are continuously growing, with an expected market size of $16 trillion, or about NT$480 trillion, by 2030, accounting for 10% of global GDP.
However, according to McKinsey’s latest report, even in an optimistic scenario, the market size of tokenized assets by 2030 will only reach $4 trillion, far below the optimistic predictions in the market.
Current Market Situation and Challenges
As one of the hottest applications of blockchain technology, tokenization has already attracted the attention of global asset management companies and banks, such as BlackRock, Citigroup, and HSBC, which are introducing traditional assets like U.S. Treasury bonds and commodities into blockchain to achieve operational efficiency and broader market access.
However, despite the enormous potential of tokenization, the future of financial services will face many opportunities and challenges as infrastructure providers move from concept validation to robust expansion solutions.
In the current market environment, the actual application scope of tokenized assets is relatively limited. McKinsey’s report shows that the tokenized asset market is currently in a “cold start” state, with a projected market size of around $2 trillion by 2030, and at most doubling to $4 trillion in an optimistic scenario.
Challenge 1: Regulatory Compliance and Modernization
First of all, modernizing existing financial infrastructure itself is challenging, especially in heavily regulated industries such as financial services.
McKinsey’s report points out that currently, cash and deposits, bonds and exchange-traded notes (ETNs), mutual funds and exchange-traded funds (ETFs), loans, and securitizations are likely to be the first asset classes to be tokenized, while the chances of tokenizing assets such as real estate, commodities, and stocks are lower. Reasons include marginal returns, concerns about feasibility, complex compliance requirements, or a lack of incentives for industry participants to pursue tokenization.
Challenge 2: Limited Liquidity
One of the main problems faced by tokenization technology is limited liquidity, which also makes tokenized issuance unattractive. McKinsey analysts believe that tokenization needs to find application cases that offer greater advantages than the traditional financial system.
For example, in the case of tokenized bonds, new issuances are announced almost every week, and there are currently billions of dollars worth of tokenized bonds outstanding. However, compared to traditional issuances, the returns are almost negligible, and trading in the secondary market remains scarce.
In the example of bond tokenization, analysts say that the slow start can be addressed by providing “greater liquidity, faster settlement, and more fungibility.”
Blockchain technology is still in its early stages, and integrating existing processes and standards requires significant investment. Therefore, many institutions are currently in a “wait-and-see” mode, waiting for clearer signals to implement tokenization.
The McKinsey report also points out that widespread application of tokenization requires clearer regulations and industry collaboration.
References:
Cointelegraph,
Coindesk