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Tokenization adoption will happen in waves led by assets such as mutual funds, bonds, loans, McKinsey said in a report.
Many institutions are still in "wait and see" mode while early movers can capture "oversized market share," the report added.
The market of tokenized assets might be just $4 trillion even in an optimistic scenario by 2030 as financial institutions embrace blockchain technology for traditional financial instruments at a slower pace and limited range of assets than more optimistic reports predicted, global consulting firm McKinsey & Company said in a Thursday report.
"Broad adoption of tokenization is still far away," the authors said, noting the number could be as low as $1 trillion. "As infrastructure players pivot away from proofs of concept to robust scaled solutions, many opportunities and challenges remain to reimagine how the future of financial services will work."
Tokenization emerged as one of the hottest use cases for blockchains during this bull market as global asset managers and banks such as BlackRock, Citigroup and HSBC along with native digital asset firms are putting old-school assets such as U.S. Treasuries and commodities – also known as real-world assets (RWA) – to blockchain rails in hopes for operational efficiencies and broader access among benefits.
The trend gained widespread attention over the past year with reports by Boston Consulting Group and digital asset manager 21Shares predicting the tokenized asset market to reach several multiples of the McKinsey estimate by the end of the decade.
Read more: Why Asset Tokenization Is Inevitable
The McKinsey report said that tokenization is at a "tipping point," with many projects stepping out from pilot to deployment at scale.
In its base case, the company estimated the tokenized asset market to reach nearly $2 trillion market size by 2030, notably excluding tokenized deposits, stablecoins and central bank digital currencies from calculation.
McKinsey's $4 trillion bullish scenario would be supported by more accommodating regulations, industry-wide collaboration and without any systemic events happening that would hinder adoption.
Mutual funds, bonds, exchange-traded notes, repurchase agreements (repos), alternative funds, loans and securitization will be the frontrunners of tokenization efforts, according to the report.
Meanwhile, the authors see slower adoption for assets such as real estate, commodities and equities, citing reasons like marginal benefits, concerns over feasibility, complex compliance requirements or lack of incentive for key industry players to pursue tokenization.
Many institutions still are in "wait and see" mode anticipating a clearer signal to implement tokenization, which may put early movers in position to capture "oversized" market share, the report added.
"Blockchain technology is still in early days and requires a material amount of integration with existing processes and standards," Anthony Moro, CEO of Provenance Blockchain Labs, said in a note to CoinDesk. "Most institutions recognize tokenization needs to be a large part of their business moving forward, but technical integration is where the rubber meets the road."