McKinsey Report: Tokenization’s Widespread Adoption is Still Far Away
Blockchain technology has brought about a profound transformation in today’s financial markets, with tokenization of assets capturing the attention of global investors and financial institutions. Recently, the Financial Supervisory Commission of Taiwan announced the establishment of the “RWA Tokenization Working Group” in collaboration with the Taiwan Depository & Clearing Corporation and six interested financial institutions to jointly study related promotion matters. However, according to the latest report from McKinsey & Company, a globally renowned consulting firm, the widespread adoption of tokenization is still a long way 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 asset.
For example, in June 2023, a 100-year-old Rolex watch was successfully “tokenized” and used as collateral to secure a loan of over $400,000. It is not just watches, even a piece of artwork or a luxury mansion can be divided into multiple tokens through tokenization, allowing multiple people to “co-own” it.
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, and it is expected to reach a market size of $16 trillion, roughly 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 can only reach $4 trillion, far below the optimistic predictions in the market.
Current Market Status and Challenges
As one of the hottest applications of blockchain technology, tokenization has 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 the blockchain to achieve operational efficiency and broader market access.
However, despite the tremendous potential of tokenization, the future of financial services will face many opportunities and challenges as infrastructure providers transition from proof of concept to robust expansion solutions.
In the current market environment, the actual scope of application for tokenized assets is relatively limited. McKinsey’s report shows that the market for tokenized assets is currently in a “cold start” state, with an estimated market size of around $2 trillion by 2030, which, in an optimistic scenario, could double to $4 trillion at most.
Challenge 1: Regulatory Compliance and Modernization
First and foremost, modernizing existing financial infrastructures in heavily regulated industries, such as financial services, poses challenges in itself.
McKinsey’s report indicates that, at present, cash and deposits, bonds and exchange-traded notes (ETNs), mutual funds and exchange-traded funds (ETFs), loans, and securitization are likely to be the first asset categories to be tokenized. On the other hand, tokenizing assets such as real estate, commodities, and stocks has the lowest possibility, due to reasons such as marginal returns, concerns about feasibility, complex compliance requirements, or 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 less attractive. McKinsey’s analysts believe that tokenization needs to find application cases that offer greater advantages than the traditional financial system.
For example, in the case of tokenizing bonds, new tokenized bond issuances are announced almost every week, and there are billions of dollars worth of tokenized bonds outstanding in the market. 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 suggest that the slow start problem can be addressed by providing “greater liquidity, faster settlement, and more fungibility.”
Blockchain technology is still in its early stages, and the integration of 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