Accelerating value flow in financial markets through tokenization

Tokenization is already in the early stages of adoption. Technical and regulatory hurdles have impeded its scale, but these are being overcome at varying paces depending on jurisdiction and sector. We expect that the adoption of tokenization will advance through three distinct phases: 

• Early use cases in highly liquid assets and financial institution collateral operations 

• The expansion of these use cases to borrowers/issuers across the credit spectrum

• The interaction of these new tokenized assets with AI agents to revolutionize asset management  

The speed at which money moves has lagged the acceleration of the flow of information since the advent of the internet. Since the failure of Herstatt Bank in 1974, which exposed how settlement risks can contribute to financial instability, financial market infrastructure providers have been trying to reduce settlement times. Tokenization can bring instant settlement times to highly liquid markets and significantly shorten the typically longer settlement times of private markets. 

Tokenization enables the creation of new capital pools by reducing the need for lending intermediaries. This trend began with securitization in the early 1990s and continues today as private credit markets fragment the traditional lending base. Tokenization will play a role connecting borrowers and lenders in this new landscape. More asset types will be used as collateral for debt financing facilitated by tokenization, which allows for the combination of different asset types.

Tokenized assets and tools to pay for these assets on a blockchain, or on-chain, will enhance automation of markets by enabling AI agents to transact with each other. From streamlining back-office processes to algorithmic trading, financial markets have evolved to automate tasks and accelerate execution. Tokenization enables the use of smart contracts, or software deployed on a blockchain, to automate transactions based on predefined conditions. Automation in financial markets will also allow participants to make transactions without relying on historical payment infrastructures or bank accounts. 

This will not all happen at once. Advancements in blockchain for finance in the last two years mean that technical barriers will not be the main roadblock. Legal and regulatory frameworks must adapt to accommodate tokenized assets, and divergence across jurisdictions will somewhat impede progress. We believe that solid commercial use cases will be the main driver of adoption and expect that use cases will expand in phases, starting from the tokenization of assets used in collateral operations, before spreading across the credit spectrum. As adoption increases, tokenization will intersect with the growth of private credit markets and AI to significantly disrupt the future of capital markets over the next five to 10 years. 

We expect tokenization will first scale in the collateral operations of financial markets because the ability to swap an asset for a cash payment instantly as part of a single transaction will bring tangible commercial benefits to financial institutions involved with repo transactions and intraday liquidity management. The digital bonds rated by S&P Global Ratings so far have been issued primarily by sovereigns and supranational entities whose debt is often used as collateral. Since the start of 2024, there has also been a rapid expansion of tokenized money market funds, such as BlackRock’s BUIDL fund, backed by traditional short-term US government obligations. These funds are being used as a form of collateral in decentralized finance and could grow substantially if they become eligible collateral in the broader financial market, particularly for derivatives.

Although there have been innovations, tokenization volumes remain limited and robust secondary markets have not yet materialized. Solutions are emerging to overcome the key obstacles impeding adoption — namely, technical interoperability challenges and a lack of broadly accepted solutions for making on-chain cash payments. 

For there to be a liquid market in tokenized assets, investors need to access the blockchains that tokenized instruments are issued on and institutions need to connect their legacy systems to these blockchains. This has proved difficult because many tokenized assets use private blockchains operated by a single bank, with access limited to the bank’s clients. Different options are emerging to address these challenges, including the use of public blockchains, private permissioned blockchains shared among partner institutions, and cross-chain communication technologies that enable private and public blockchains to interact while mitigating security risks.

Acceptance of on-chain cash leg solutions, including central bank digital currencies (CBDCs), regulated stablecoins and tokenized deposits, will be a key driver of tokenization adoption. Without these, an asset can move on a blockchain but would rely on existing payment networks for cash payments, which does not deliver compelling commercial benefits. Jurisdictions are diverging in their approach, favoring either CBDCs, in the case of China and the EU, or stablecoins, in the case of the US. The choice of CBDC or stablecoin does not impact the benefits of tokenization, but for cross-border transactions, this divergence will require common technical standards and market participants to operate with either tool. 

As these hurdles diminish, digital bonds will be issued increasingly with on-chain delivery versus payment, allowing investors and issuers to realize the efficiency gains of tokenization. The Swiss National Bank and European Central Bank have already conducted pilot schemes with market participants to issue digital bonds using a wholesale CBDC for payments. In the US, legislation is expected to support the issuance of regulated stablecoins and bring the necessary clarity and confidence required for the broader adoption of digital bonds. (The US Senate passed stablecoin legislation, the GENIUS Act, on June 17, 2025; approval by the House of Representatives is pending at time of writing.)

Stablecoins and CBDCs are forecast to become ubiquitous in cross-border payments and gain adoption in corporate treasuries. Cross-border payments are a significant area of friction, cost and delay in existing systems. If, by the end of this first phase, the use of stablecoins for cross-border payments expands and corporate treasurers engage with tokenized products such as tokenized money market funds, the greater use of stablecoins in corporate finance will lead to demand for tokenized financing, or loans originated on a blockchain, for companies, setting the foundation for tokenization to spread across the credit risk spectrum. 

Phase two (2027–2033): Expansion across the credit spectrum

Once tokenized assets become embedded in the narrow but important operations of financial institutions and corporates, use cases will expand. This will intersect with a trend toward a more disparate lending base driven by private credit markets, with tokenization connecting borrowers to lenders and supporting continued or improved access to capital. For example, in January, alternative asset manager Apollo and tokenization platform provider Securitize announced the tokenization of an existing private credit fund. The companies took this further in May, announcing that investors can borrow on decentralized lending protocol Morpho using the tokenized shares in the fund as collateral. 

As corporates increasingly use tokenization for cross-border payments, they will also seek on-chain loans. This may lead to the emergence of fully on-chain collateralized loan obligations (CLOs), where the CLOs are issued as on-chain tokens and a transaction’s flow of funds is governed and fully automated by smart contracts. Relative to traditional securitizations, investors in on-chain securitizations will benefit from real-time transparency on the underlying portfolio’s composition and performance. This transparency may fuel increasing investor demand for securitizations and funds to be issued in tokenized form. 

The growth of on-chain Treasury issuances and use cases of tokenization in securitization will lay the foundations for some large mainstream applications. One particularly impactful scenario would be if US government lending agencies offered on-chain mortgages by the end of this phase, unlocking on-chain mortgage lending. We expect on-chain mortgage lending by commercial lenders to initially remain limited to the small pockets of the mortgage market that are currently underserved. However, agencies’ support of on-chain mortgage lending would significantly accelerate adoption and open opportunities for the creation of a high-volume, on-chain residential mortgage-backed securities market.

Phase three (2031–2035): Combined adoption of AI and tokenization 

In the next decade, we may see the development of AI agents participating in specific market segments with increasing autonomy. Tokenization would play the important roles of bringing together pools of capital and liquidity, where market-based AI agents would otherwise face fragmentation risks, and providing the technical infrastructure for AI agents to transact with each other. Blockchains could support transactions between wallets controlled by AI agents, which do not have bank accounts, leading to a new type of participation in capital markets of the future.

The intersection of tokenization and AI could revolutionize asset management and capital markets by increasing access to alternative investments, simplifying downstream processes, and automating asset and value transfer between multiple parties. The use of AI in portfolio construction could help asset managers better tailor portfolios for investors according to risk tolerances, investment objectives and liquidity needs. The expansion of tokenization across asset classes in phase two would make it feasible for asset managers to allocate part of a personalized portfolio to private credit for investors that cannot normally access these exposures, unlocking new capital for the private credit space. 

Harmonizing the treatment of public and private assets in portfolio management would create significant value for investment managers and investors. Tokenized private assets could be included in discretionary and model portfolios, enabling wealth managers to offer higher-quality portfolios to their clients. The scalability and interoperability of tokenization solutions would enable seamless portfolio management, allowing fund and portfolio managers, alongside investors, to connect with different networks and manage cohesive strategies.

Amara’s law states that people tend to overestimate what can change in the short term and underestimate what can change in the long term. Considering the current volumes of tokenized assets and the challenges that remain in scaling adoption, it is easy to overlook the potential for disruption. But the technology’s relatively narrow applications today only target the most immediate commercial benefits. Once the technology is embedded, we may hit an inflection point where use cases expand rapidly and intersect with other megatrends in private credit markets and AI.