By Alex Tsepaev, CSO at B2PRIME Group

Tokenization has greatly altered how investors interact with financial instruments and markets. By enabling the movement of traditional assets on the blockchain, it gave parties all around the world the ability to access markets that were previously limited by geographic, regulatory, or infrastructural reasons.

Of course, bringing assets on-chain was never the finish line — if anything, it was only the first step. Listing a tokenized asset is relatively straightforward, but integrating it into institutional workflows, settlement processes and risk controls is where the real challenge begins.

Chainalysis data points to the overall value of the tokenized RWA market approaching $30 billion in AUM, so the industry is clearly past having hurdles with token issuance. The bigger priority now is making sure institutional capital can move in these markets with relative ease.

The Assets are On-Chain. Is The Capital?

Creating a digital token and using it to transfer an asset onto the blockchain rails does not automatically solve balance-sheet questions that institutional players have been dealing with for decades.

Tokenization changes the mechanics of ownership and allows broader participation, but large-scale players need more than that to commit serious capital. They have more practical questions, such as:

• Where is the asset held? 
• Who has legal and operational control over the asset?
• Is there a reliable custodian?
• Can the asset be pledged as collateral? 
• Can financing be obtained against the asset?
• What happens when the asset needs to be moved between chains or trading venues?

If the answers are unclear, then tokenized assets may as well be just a niche novelty for these parties. They remain isolated instead of being treated as a serious part of the broader financial markets.

This issue only becomes more pronounced as tokenized markets grow in scale. Every blockchain network introduces its own rules, be it for settlement, custody, or matters of compliance. As a result, a lot of friction exists between these networks, and capital cannot move freely between them.

The Hidden Cost of Fragmentation

Following from the point above, every additional venue creates another operational layer. Institutions find themselves having to keep capital across multiple platforms in advance instead of moving it freely.

Of course, each platform also comes with its own custody arrangements and compliance checks, which means that capital available only in one place can’t be quickly shuffled elsewhere when it’s needed.

This kind of fragmentation severely limits options for market participants. It doesn’t just make markets increasingly complicated — it makes money harder to move and use in general. And it’s also why the industry is cautious about treating additional venues as a universal solution. More venues can create more choice, but they can also spread liquidity more thinly while increasing complexity.

A recent analysis by J.P. Morgan accurately captured how the priorities of institutional traders are changing: technology has overtaken liquidity access as their top market-structure concern. As for why that’s the case, it’s because technology increasingly determines how liquidity is accessed and managed in today’s markets.

Collateral is Where Tokenization Can Create Real Value

There is a great opportunity for tokenization when it comes to collateral management.

The DTCC’s tokenization initiative, developed together with major financial institutions (Nasdaq, BlackRock and Goldman Sachs, among many others), explores how tokenized securities can be used in collateral, securities lending and repo. Workflows that institutional players commonly rely on. 

The central idea boils down to tokenization becoming truly valuable when market participants can clearly identify assets, use them as collateral, and move them quickly and securely across the existing market structure. 

Let’s take two identical Treasury securities as an example. If one of them can be collateralized, transferred and reused almost immediately via blockchain while the other remains tied down by slower operational processes, they no longer deliver the same economic value.

This is where tokenization begins to shine: faster settlements are also a plus, of course, but the larger benefit comes from boosting the velocity of collateral itself. Blockchain infrastructure gives treasury desks greater flexibility to address short-term funding needs as they come.

Infrastructure Must Meet Requirements of Capital

Based on everything we’ve covered above, it becomes clear that the next stage of tokenization will depend, above all, on the readiness of market infrastructure. On its ability to connect fragmented environments and allow capital to move with minimum friction.

For that to happen, several pieces must come together: interoperable settlement, reliable custody, portable collateral, clear legal ownership and risk systems that can monitor exposures across multiple venues simultaneously. 

Ironically, the industry has often treated all of these as separate technology projects. And yet now they need to be part of the same workflow.

Another interesting thing is that institutional research is already homing in on this. A recent BNY report on private-market infrastructure argues that private markets can expand only when distribution, servicing, reporting, data, and liquidity develop alongside issuance, not after it.

Citi arrived at a similar conclusion, though from the opposite direction. Its Tokenization 2030 report describes tokenization as a broader transformation of financial infrastructure, where the largest benefits emerge once assets, payments and market processes are all aligned together.

The two reports ultimately reinforce the same point: markets don’t automatically become institutionally-ready just because assets have been tokenized. That can only happen when capital can move freely and also predictably, while the overall architecture removes complexities instead of adding new layers of it. That’s what determines if markets can scale.