Tokenization Faces Hurdles Despite Promises of $16 Trillion Value Unlock by 2030

A lack of a robust ecosystem, liquidity, industry standardization, and legal clarity are among the key hurdles that keep tokenization from making a

The Organisation for Economic Co-operation and Development (OECD) has released a report highlighting the top eight obstacles hindering the widespread adoption of tokenization.

Despite ambitious projections from industry experts, such as BCG's estimate that tokenization could unlock $16 trillion in value by 2030, the sector's growth has been limited. More recent estimates, like McKinsey's $2 trillion, have also fallen short of expectations.

The OECD, an intergovernmental organization dedicated to promoting world trade and economic development, examined the challenges faced by tokenization efforts globally.

At the forefront of these hurdles is the lack of liquidity and a cohesive ecosystem. The report notes that tokenization initiatives lack a critical mass of investors, leading issuers to hesitate in committing to tokenizing assets.

This creates a cyclical conundrum, as investors also hesitate to engage with tokenized assets due to the absence of liquidity. To address this challenge, the OECD suggests the need for a catalyst, such as sovereign bond issuances on a public blockchain.

However, financial institutions have largely dominated the issuance landscape, and in most cases, the clients are fellow banks.

Expanding on this initial challenge, the OECD highlights the lack of scale as another impediment to widespread adoption.

Once again, scale can only be achieved by transitioning from pilots to live products, which hinges on increasing investor participation.

A more unique challenge lies in the absence of payments integrated into blockchains. The OECD believes that tokenized money, such as central bank digital currencies (CBDCs), facilitates delivery-versus-payment (DvP), enabling on-chain payment.

This challenge is linked to the use of private networks and permissioned blockchains in tokenization. A public decentralized blockchain, like BSV, would offer seamless and instant payments using BSV as a Bitcoin-based stablecoin.

However, even in such a scenario, the OECD notes that participants would still face “counterparty and liquidity risks.”

"As such, an ideal payment instrument for DvP would be wholesale CBDC…Tokenised deposits (tokenised commercial bank money) could also be an alternative. In the future, a common interface for CBDCs and tokenised assets could be envisaged by central banks,” the report adds.

Other challenges include the lack of custodians for tokenized assets, the presence of multiple blockchain networks, a lack of interoperability among these networks, and a global standard for tokenization.

Legal issues also present challenges. For example, most jurisdictions have not yet legally recognized tokens as tantamount to legal ownership of the underlying assets.

Efforts are underway to address these challenges. Luxembourg recently passed Blockchain Law 4, which simplifies the process of issuing and managing tokenized securities.

One of the key amendments eliminates the requirement for a central securities depository (CSD). The law introduces the concept of a control agent who issues the token, maintains custody and oversees its reconciliation.

Despite the obstacles, market experts remain optimistic about the transformative potential of tokenization in the financial industry.

“By tokenizing those assets, it enables natural efficiency. It may even be bigger than the internet. It's fundamentally rethinking the way the markets work,” said Rob Krugman, chief digital officer at Broadridge (NASDAQ: BR).

The fintech giant has tokenized trillions of dollars in repos over the years but has yet to fully integrate blockchain.

Watch: Tokenized was built with blood, sweat and tears