According to a McKinsey & Company report, tokenized financial assets have had a "cold start," but they are on track to reach a market size of at least $2 trillion by 2030.

Projections and Momentum

The June 20 McKinsey report notes that the market value could double to around $4 trillion in a bullish scenario. However, the analysts noted that their current outlook is 'less optimistic than previously.' Despite this, they observed 'visible momentum' in tokenization.

They also pointed out that broad adoption remains distant due to the challenges of modernizing existing financial infrastructure, particularly in a regulation-heavy industry like financial services.

Early Adoption

The analysts highlighted that cash and deposits, bonds, exchange-traded notes (ETNs), mutual and exchange-traded funds (ETFs), loans, and securitization are expected first to see 'meaningful adoption.'

These segments are projected to contribute $100 billion to the tokenized market capitalization by 2030. Their estimates excluded stablecoins, tokenized deposits, and central bank digital currencies (CBDCs).

'One such example is the tokenization of bonds. Barely a week goes by without the announcement of a new tokenized bond issuance,' McKinsey's analysts wrote.

Overcoming the Cold Start Problem

McKinsey's analysts emphasized that tokenization faces the common 'cold start problem,' where the technology needs users to gain value. Limited liquidity is a significant issue deterring tokenized issuance.

Additionally, the fear of losing market share can lead to tokenized assets having a 'parallel issuance on legacy technology.' According to the analysts, to overcome these hurdles, tokenization needs to offer a clear benefit over traditional finance systems.

Case for Tokenized Bonds

The report cited the tokenization of bonds as a promising use case. While billions of dollars in tokenized bonds are currently outstanding, the benefits over traditional issuance still need to be improved, and secondary trading is scarce.

The analysts suggested that providing 'greater mobility, faster settlement, and more liquidity' could resolve the slow start.

Early Movers Advantage

McKinsey's analysts also noted that early movers who 'catch the wave' of tokenization could gain a significant market share and set the agenda on standards, thereby boosting their reputation.

However, many institutions remain in a 'wait and see' mode. Signs of tokenization reaching a tipping point include: Blockchains capable of supporting trillions of dollars in volume. Seamless blockchain connections. Regulatory clarity on data access and security.