Building the Future of Tokenized Finance: What Does It Take?

Building the Future of Tokenized Finance: What Does It Take? | Opinion

Tokenized finance is transitioning from experimental to mainstream, with significant investments pouring into tokenized treasuries, real estate, and commodities. As traditional markets evolve and face competition from real-world asset (RWA) tokenization, understanding the value and risks involved will be crucial for future success.

Key Takeaways

Real-world asset (RWA) tokenization is gaining traction, with over $7 billion in U.S. Treasuries on blockchain.
The main benefits of RWAs are efficiency, reduced risk, and increased profitability.
Regulatory frameworks for RWAs are still developing, and existing infrastructure must be improved.
The future is likely to be a hybrid model that combines traditional finance with tokenized finance.
Firms must adopt a forward-thinking approach and invest in new processes to stay competitive in the evolving landscape.

A symbol of US dollar covered with elements of decentralization and tokenization

The Rise of Tokenized Finance

Real-world asset (RWA) tokenization started as an experimental concept in cryptocurrency, but the landscape is rapidly changing. Investors are diving into tokenized treasuries, real estate, and commodities, with experts noting that over $7 billion in U.S. Treasuries are currently on-chain. Major financial players like Goldman Sachs are also entering this space, making RWAs a significant force in digital finance since the early 2020s. The pressing question now isn't whether RWAs will transform market infrastructure, but rather how they will do so.

Benefits vs. Challenges

Despite the buzz surrounding RWAs, the most significant changes are occurring behind the curtain. Tokenized assets can settle almost instantly, function 24/7, and eliminate many layers of intermediaries that have historically burdened traditional markets. From my perspective, the main driver of their growth isn't solely about reinventing finance; it’s about resolving longstanding backend issues. Faster settlement, improved reconciliation, and fewer intermediaries enhance market efficiency and profitability.

According to McKinsey, tokenized assets could reach a remarkable $2-4 trillion by 2030, indicating the immense stakes involved. Companies that streamline processes related to tokenization could gain a significant competitive edge before retail investors fully embrace this trend. However, there is a critical concern about the infrastructure for storing and securing these assets. We are still far from achieving enterprise-level standards in areas like key management and custody procedures. A single mismanaged key could threaten to erase progress and lead to substantial legal consequences.

Regulatory bodies are striving to keep pace, but legal frameworks remain nascent. Currently, there are no globally recognized baseline standards for this sector. Until these frameworks are established, each new tokenized treasury or real estate deal risks being built on shaky foundations. Without robust infrastructure, trust in RWAs could diminish, jeopardizing momentum just as the industry begins to grow.

A Future of Hybrid Finance: Merging TradFi and Tokenization

I do not foresee tokenized markets completely replacing traditional markets. The foundations and support for legacy systems are now too embedded in global finance. Instead, looking ahead three to five years, it is more plausible that we will witness a hybrid model where both systems coexist and complement each other.

Interoperability will be vital for developing such a hybrid system. Without seamless communication between different systems, chains, and ledgers, tokenized assets may remain isolated. I believe that SWIFT could play a crucial role in this context. With its extensive global reach and established trust with financial institutions, SWIFT could serve as a neutral hub for tokenized finance. Its role would focus on providing messaging, routing, and compliance checks necessary for smooth cross-border asset transfers, rather than holding assets.

By acting as a single connector that enables any asset to flow across various ledgers while remaining in their native chains, this approach could allow institutions to "plug in" easily and trade across systems, thereby accessing global liquidity with greater efficiency.

Staying Ahead in the Tokenization Wave

Unfortunately, many banks, exchanges, and enterprises are approaching RWAs as if it were merely another system upgrade. It is essential to recognize this transition requires a complete overhaul. Adapting to this new technology demands fresh processes, purpose-built systems, and significantly, a new way of thinking.

Organizations that consider RWAs simply as enhancements to their existing frameworks will likely find themselves at a strategic disadvantage within a couple of years. The true winners will be the forward-looking firms willing to implement bold strategies and consistently follow through. Engaging risk professionals who understand both the potential and risks of financial innovation will also be essential for guidance.

The adoption of tokenized RWAs signals a significant shift in the financial landscape, and although much work remains, the wave is undeniably coming. Organizations that stick to a "bolt-on" methodology will quickly fall behind, while proactive and innovative firms will pave the way for new industry standards and lead the next era of finance.