Asset Tokenization To Hit $2T By 2030 Amid Its Cold Start, Claims McKinsey Report

Through years of experimentation and development, asset tokenization is gradually approaching a tipping point. Analysts at McKinsey & Company, a consulting firm, have predicted a market size of $2 trillion for tokenized financial assets by 2030.

Also, the experts believe that though tokenization had a cold start, it has recently gained visible momentum."According to the analysts, the adoption process for asset tokenization will occur in waves, and products like mutual funds, loans, and bonds will pioneer the move.

Tokenized Financial Assets Gain Visible Momentum - McKinsey Report

Analysts at McKinsey & Company released a report in June regarding the trend in asset tokenization. Despite the cold start, they predict tokenized financial assets could hit a market cap of $2 trillion by 2030.

They also highlighted a bullish scenario, where tokenized assets valuation could reach $4 trillion. In their report, the analysts said tokenization has reflected a visible momentum in its recent growth rate. However, issues with modernizing the existing financial infrastructure have limited broader adoption.

The major cause of this challenge is the heavy regulatory measures within the financial services industry.

Further, McKinsey noted that the adoption timing and rate for tokenization will vary according to asset classes. This variation will account for differences in the assets' expected feasibility, benefits, and even time of impact.

The report also highlighted mutual funds, exchange-traded funds (ETFs), Cash and deposits, Exchange-traded notes (ETNs), bonds, and loans and securitization as the asset classes that will gain considerable adoption. These assets could reach an outsized market cap of $100 billion by 2030.

Besides a large-cap valuation, the asset classes will have less mature traditional infrastructure and lower liquidity. The report also noted that asset categories with simple technicality and regulatory scrutiny have higher tokenization feasibility.

Notably, the analysts' estimation didn't include assets such as stablecoins, central bank digital currencies (CBDCs), and tokenized deposits.

Increased User Cases to Disperse Cold Start

Further, the analysts mentioned that a cold start challenge for tokenization included the issue of getting users to have value. The more users benefit and find value in the product, the more it attracts investors.

So, McKinsey believes tokenization if it offers use cases with more benefits than traditional systems.

The report highlighted the tokenization of bonds as an example of an asset class that requires increased use cases. It mentioned that there's always a new tokenized bond issuance every week.

However, while billions of dollars of tokenized bonds exist today, their benefits over traditional issuance are negligible, and there are limited secondary trading options.

Moreover, tokenization still lacks sufficient liquidity, which hinders issuance. The fear of losing market shares could result in a parallel issuance of legacy technology for tokenized assets.

The analysts believe greater mobility, liquidity, and faster settlement with tokenized assets would fix the slow start.

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