McKinsey report: Although tokenization technology has made significant progress, mainstream application will still take time

Global management consulting firm McKinsey & Company provided insights into the current status of tokenization of financial assets in its research report released on June 20.

The report points out that although tokenization technology has developed to a critical tipping point, showing technological maturity and measurable economic benefits, its widespread application in the mainstream market still faces many challenges.

McKinsey emphasized that the trend of asset digitization is becoming increasingly obvious. With the maturity of technology and the emergence of economic benefits, this process seems irreversible. However, even with this positive momentum, widespread adoption of tokenization technology still faces obstacles that prevent it from becoming mainstream in the market.

The report mentioned that tokenization has transitioned from the initial pilot project stage to large-scale deployment, and the monthly transaction volume of some large-scale applications has reached trillions of dollars.

Despite this progress, McKinsey notes that mainstream adoption of tokenized technologies remains elusive due to the so-called “cold start” problem and other regulatory, technical and operational hurdles. These issues include issues such as limitations on liquidity and trading volumes, which limit and hinder the establishment of a robust and active market.

“Cold start” problem: liquidity and trading limitations

In its report, McKinsey specifically highlighted the issue of “cold starts” in the tokenization process, which is a major challenge that involves limited liquidity and trading volumes, both of which are critical to building a healthy and robust market. Crucial. Without the active participation of issuers and investors, the promised advantages of tokenization technology, such as increased asset liquidity, faster transaction settlement, and improved market transparency, will be difficult to realize.

At the same time, the report also mentioned that the cold start problem is essentially a "chicken or egg" dilemma. Due to the insufficient number of tokenized assets in the market, potential investors may be hesitant due to concerns about illiquidity and lack of market depth.

To overcome this challenge, McKinsey believes there will be a need for use cases that deliver clear and demonstrable benefits, such as reduced transaction costs, improved market efficiency and expanded market access, that can demonstrate the real value of tokenized technology.

The report also cited the example of tokenized money market funds that have attracted more than $1 billion in assets under management, indicating that in some areas, tokenized technology has begun to show its potential.

The growth prospects and adoption wave of tokenized assets

Meanwhile, McKinsey made optimistic predictions about the future growth of tokenized assets in its report. The report predicts that by 2030, the total market value of tokenized assets is expected to reach US$2 trillion. If the market develops more optimistically, this number may even double to US$4 trillion. This forecast reflects the contribution of asset classes such as mutual funds, bonds, exchange-traded notes (ETNs), loans, and securitizations to the tokenization trend.

The report also pointed out that the application of blockchain technology will be carried out in stages, and will initially focus on asset classes that can provide reliable investment returns and scalability. Because the introduction of blockchain technology will be a gradual process, the market will give priority to areas that can quickly achieve efficiency and value gains.

The McKinsey report also noted some early successes, such as tokenized money market funds that have attracted more than $1 billion in assets under management. Additionally, in the lending space, blockchain-based platforms such as Figure Technologies have facilitated billions of dollars in loan originations, demonstrating the potential of blockchain technology to increase efficiency and transparency.

McKinsey concluded by stressing that the development of tokenization requires close cooperation between financial institutions and market infrastructure players. These collaborations are critical to establishing minimum viable value chains. At the same time, financial institutions need to evaluate their product suites and combine the strategic priorities derived from these evaluations with market opportunities to determine which asset classes can benefit most from tokenization.

Conclusion

McKinsey's research report reveals that although financial asset tokenization technology has made significant progress, it still needs to overcome a series of challenges including the "cold start" problem to achieve widespread application in the mainstream market. However, despite the obstacles, the report is optimistic about the growth of the market value of tokenized assets in the 2030s, predicting that it can reach $2 trillion or more. This growth prospect is due to the gradual maturity of blockchain technology and the gradual tokenization of asset classes, which heralds new changes in the financial market.

In order to seize the opportunities brought by tokenization technology, financial institutions and market participants need to strengthen cooperation and jointly build an ecosystem that supports the steady growth of tokenized assets. This requires them to deeply evaluate and identify the assets with the greatest potential for tokenization, while ensuring that strategy is closely aligned with market opportunities. Through this coordinated effort, tokenization technology is expected to unlock its full potential in increasing market efficiency and transparency, breathing new life into the future development of the financial services industry.

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