Fragmentation Costs Tokenized Asset Market Up to $1.3 Billion Annually

Summary:
A new report reveals that fragmentation within blockchain networks is causing significant economic losses in the market of tokenized assets, amounting to as much as $1.3 billion each year. This inefficiency results in price discrepancies and complicated capital movements across different chains, highlighting a major obstacle to the market's potential.

Key Takeaways

Fragmentation in blockchain networks leads to annual losses of up to $1.3 billion from tokenized assets.
Identical assets frequently trade at different prices across various networks.
Moving capital between non-interoperable blockchains incurs additional costs of 2% to 5% per transaction.
Without addressing fragmentation issues, the market could face potential losses of $30 billion to $75 billion annually by 2030, given projected market growth.

Fragmentation Costs Tokenized Asset Market Up to $1.3 Billion Annually

Economic Costs Due to Fragmentation

Fragmentation among blockchain networks is imposing a tangible economic toll on the tokenized asset marketplace. According to a recent report by RWA.io, a provider of real-world asset (RWA) data, this issue is leading to inefficiencies that can result in a staggering annual value loss of up to $1.3 billion. While blockchain technology has propelled innovation, it has also erected barriers that hinder liquidity from flowing freely across networks.

As a consequence, tokenized RWAs are increasingly functioning like disconnected markets instead of forming a cohesive financial system. The study revealed that identical or economically comparable assets frequently trade at varying prices across different blockchains, making it costly and complicated to transfer capital between networks. Researchers pointed out that these inefficiencies prevent the market from self-correcting through arbitrage, which is essential for effective price discovery.

Marko Vidrih, co-founder and COO of RWA.io, emphasized the significance of this issue: “This fragmentation is the single greatest impediment to the market realizing its multi-trillion-dollar potential. In traditional finance, the EU-wide SEPA Instant mandate demonstrates how value movement across accounts can occur in seconds. Tokenized assets should be equally seamless,” he stated.

RWA market growth from 2020 to 2025. Source: RWA.io

Price Discrepancies and Cross-Chain Challenges

The report highlights that one of the most apparent effects of fragmentation is the persistent price differences for identical assets that exist on various blockchains. According to the findings, tokenized assets that are economically identical frequently trade at spreads of 1% to 3% across major networks, despite representing claims on the same underlying assets. In a traditional financial system, such arbitrage opportunities would quickly close these market gaps.

However, conducting cross-chain arbitrage is often unfeasible due to technological hurdles, high fees, delays, and operational risks, the report noted. The expenses associated with relocating assets often surpass the price differences, allowing inefficiencies to linger. Beyond just price discovery, RWA.io projected that transferring capital between incompatible chains results in losses ranging from 2% to 5% per transaction, resulting from exchange fees, slippage, transfer costs, gas fees, and timing uncertainties. Overall, the report estimates an average loss of approximately 3.5% for every capital reallocation.

Should the current patterns of fragmentation continue, RWA.io estimates that these friction costs may strip away between $600 million to $1.3 billion from the market annually.

Economic costs of market fragmentation. Source: RWA.io

Looking forward, RWA.io anticipates that tokenized real-world assets could develop into a market valued between $16 trillion to $30 trillion by 2030. However, if the existing inefficiencies persist, the associated value loss would only grow alongside the market. Applying today’s fragmentation-related challenges to a market of that size could lead to potential annual losses ranging from $30 billion to $75 billion, signaling that infrastructure limitations might become a significant barrier to long-term growth.

Growing Interest in Tokenized Assets

Despite the acknowledged inefficiencies, tokenized assets continue to attract attention from both crypto-native platforms and traditional financial institutions. Recently, companies have taken significant steps towards tokenizing equities.

For instance, Securitize, a company focused on RWAs, announced plans to launch compliant, on-chain stock trading. Meanwhile, Coinbase, a popular cryptocurrency exchange, introduced a stock trading feature that allows users to directly invest in stocks through its application.

These moves highlight the growing traction and interest in the tokenization space, indicating that the market is evolving, even amid its current challenges.

Related: Tokenized stocks may be on-chain, but the SEC still wants the keys