Though the crypto and digital assets industry has experienced its share of fads over the past few years, it has also given rise to transformative technologies like stablecoins and blockchain. These innovations are reshaping the financial landscape. Among them, tokenization has seen growing adoption by the world’s largest financial players—a trend that shows no signs of slowing down.
In his latest report, Tokenization: Growth Trend or Fad?, Joel Hugentobler, Analyst of Cryptocurrency at Javelin Strategy & Research, explores the growing use cases for tokenization, the increasing interest from institutional investors, and the steps financial institutions should take to embrace this powerful technology.
Impressive Growth Rates
Any real-world asset (RWA) can be digitized and placed on the blockchain, from property deeds to stocks. The reasons to tokenize are many—it is a secure, fully transparent process where transactions settle instantly.
Compared to their conventional counterparts, tokenized transactions can also carry significantly lower fees. Once an RWA is digitized, it can be fractionalized and sold to multiple parties, making investments that were previously considered illiquid and expensive attainable to everyday investors.
For all these reasons, tokenization efforts have taken higher priority at financial institutions around the world. Even many central banks—such as the Bank of England—are starting to recognize the technology’s potential.
“It’s not out of the ordinary to see huge compound annual growth rate (CAGR) numbers for early-stage companies or new technology like this,” Hugentobler said. “But depending on how you calculate it, tokenization’s projected CAGRs range anywhere from 400% to 4000%. It’s pretty impressive and there are no signs of slowing down. The number of companies that have launched funds on chain has seen like a 10X in just a couple of years.”
Building a Better Blockchain
While Ethereum remains the leading blockchain for tokenization, Solana is quickly gaining ground. One key reason is speed—the Ethereum network processes around 15 to 30 transactions per second, which can be inefficient for tokenizing high-demand RWAs. In contrast, Solana can handle around 1,000 transactions per second.
Higher fees on Ethereum have also posed challenges for many tokenization use cases. Solana’s transaction fees are often much lower—sometimes under $0.01 per transaction—making it far more cost-effective for tokenizing assets and performing complex operations.
These advantages are why more financial institutions are investing in Solana. For example, Franklin Templeton recently moved the third-largest tokenized money market fund, valued at $594 million, onto Solana.
As fast as the blockchain is, it could soon get a massive upgrade. Anza is a software development firm that was split off from Solana Labs and tasked with managing the Agave validator client on the blockchain.
In its recently released roadmap, Anza announced that its primary goal is to make Solana faster and more effective, aiming to reach one million transactions per second.
Innovations like this are among the key reasons why tokenization projects are expected to become more prevalent in the coming years.
“There have been huge advancements on the infrastructure side,” Hugentobler told PaymentsJournal. “We have custodians that have stepped up and substantially developed their infrastructure, their security, and their protocols for the institutional players who will drive this forward. That’s led to the most powerful companies in the industry getting involved, like Franklin Templeton and BlackRock.”
Tokenizing Securities Trading
Many of the leading financial firms are also exploring ways to optimize the stock and bond trading process through tokenization. While buying or selling a stock may seem as simple as a click of a button to many modern-day investors, the settlement process behind the scenes can be time-consuming and costly.
Additionally, most stocks are still bought and sold during business hours dictated by the New York Stock Exchange (NYSE). By comparison, crypto and digital assets can be traded around the clock, all year long.
These benefits, coupled with the continued mainstream acceptance of crypto, have caused a shift in sentiment among many Wall Street firms. Most notably, Citadel Securities has previously steered well clear of crypto.
However, this philosophy has changed, as Citadel recently signaled its intention to become a liquidity provider for cryptocurrencies. The firm will now be listed as a market maker on major crypto exchanges like Coinbase, Binance, and Crypto.com.
Citadel and fellow financial giant BlackRock have also considered starting their own stock exchange, potentially based in Texas. The main reason cited was to reduce the cost of trading on the NYSE, but there has also been speculation that the new exchange could be built on blockchain and incorporate tokenized stock trading.
While this initiative may take time to get off the ground, there is clearly a growing place for tokenization in securities trading.
“Equities on the U.S. stock market side are sitting at a valuation of around $555 trillion right now, while on-chain stocks are close to $5 million, so there’s so much room for that to continue,” Hugentobler said. “But I think tokenization of private credit will continue at a high rate—treasuries as well—and there’s a lot of opportunity for everything in between that hasn’t come on-chain yet.”
Preparing for the Arrival of Tokenization
Payments modernization projects have been top of mind for many financial institutions for some time, driven by rapid innovations in the payments space. However, tokenization capabilities can have just as much of an impact as adopting real-time payment support.
“The infrastructure that traditional financial institutions use is more than five decades old, and we’re moving towards this digital economy that has so many benefits and efficiencies and can help build consumer confidence and trust,” Hugentobler said. “Having that transparency, those additional tools, and that optionality definitely provides value to the end user.”
The opportunity to streamline processes that have traditionally been expensive and time-consuming means financial institutions should explore ways to implement tokenization now.
“They need to proactively build a plan, assess the risks, conduct a cost savings analysis, and prepare for what’s coming,” Hugentobler said. “Those that wait are not going to have those first-mover advantages and will be left behind. However, there are companies that have been involved in the industry coming on 15 years now, and there’s a lot of talent and experience out there. They don’t need to go at this alone.”
Source: LedgerInsights
