Tokenization Alone Can't Solve Illiquidity—Stablecoins Lead the Way

Tokenization increases accessibility but does not solve illiquidity. Only assets with existing deep markets, like stablecoins and U.S. Treasuries, benefit from enhanced liquidity. Regulatory clarity and market mechanisms are crucial for growth.

Tokenization is often seen as a way to broaden access to various asset classes, but experts emphasize that it does not automatically make illiquid assets liquid. While tokenization can lower barriers to ownership, the ability to quickly sell these assets without significant losses remains unchanged if the underlying asset is illiquid. The most successful examples of tokenization, such as stablecoins and tokenized U.S. Treasuries, involve assets that are already highly liquid. The industry is currently focusing on tokenizing assets with established markets and deep liquidity, like cash and government bonds, to build trust and reliability in the technology. Regulatory clarity and robust market mechanisms are highlighted as essential for the future growth and adoption of tokenized assets, especially in traditionally illiquid markets. Technological advancements may eventually improve liquidity for a wider range of tokenized assets, but for now, the challenges of trading illiquid assets persist even after tokenization.