Introduction

The financial sector is undergoing one of the most profound transformations since the digitization of trading in the 1980s: the tokenization of real-world assets (RWAs). Tokenization, the process of representing ownership of assets on distributed ledgers, promises to enhance market efficiency, democratize access, and improve transparency. Yet it also raises fundamental questions about regulation, interoperability, and systemic risk.

The World Economic Forum’s 2025 report “Asset Tokenization in Financial Markets” provides a timely and structured examination of this phenomenon. It outlines the potential benefits, identifies critical challenges, and offers a roadmap for policymakers, financial institutions, and technology providers to navigate the transition.

What is Asset Tokenization?

At its core, tokenization converts claims on an asset—be it equities, bonds, real estate, or commodities—into digital tokens recorded on a blockchain. These tokens can be transferred peer-to-peer with programmable settlement features, theoretically lowering costs and increasing accessibility.

The WEF emphasizes that tokenization is not about creating new forms of money but about modernizing market infrastructure. By embedding assets into programmable environments, tokenization allows for:

  • Fractional ownership: enabling smaller investors to access high-value assets.
  • Programmable compliance: embedding regulatory requirements into smart contracts.
  • Faster settlement: reducing counterparty and liquidity risks.
  • Global access: extending markets beyond geographic and institutional boundaries.

Market Potential

The report highlights estimates from major consultancies and central banks suggesting that tokenized markets could reach trillions of dollars within the next decade. Tokenized government bonds, money-market funds, and private market assets are seen as the first large-scale applications, given their demand for liquidity and transparency.

Pilot projects have already demonstrated benefits in:

  • Sovereign bonds: central banks exploring issuance of tokenized government securities.
  • Funds and ETFs: asset managers testing tokenized money-market funds with real-time settlement.
  • Private equity and real estate: fractionalization enabling wider investor participation.

However, the WEF stresses that scale will only be achieved if infrastructure becomes institutional-grade, interoperable, and compliant with existing regulations.

Key Challenges

Jurisdictions diverge significantly in their treatment of digital tokens. Some classify them as securities, others as digital records of ownership, and many remain uncertain. Without legal clarity, adoption will be fragmented.

2. Interoperability

A proliferation of tokenization platforms risks creating silos. For institutional adoption, tokens must move seamlessly across networks, requiring standardized protocols and settlement layers.

3. Custody and settlement

Safekeeping tokenized assets involves reconciling blockchain records with legal ownership rights. Questions remain about liability in the event of smart contract failure or custody breaches.

4. Risk management

Tokenization could amplify systemic risks if leveraged improperly. For example, fractionalization might encourage overexposure to illiquid assets, while 24/7 settlement may strain liquidity buffers.

Policy and Regulatory Pathways

The WEF recommends a principles-based approach rather than rigid rules at this early stage. Policymakers should:

  • Define legal status: provide clear definitions of tokenized assets and establish how they interact with securities law.
  • Encourage pilot programs: regulatory sandboxes allow innovation under controlled supervision.
  • Promote interoperability: support international standards bodies to align technical protocols.
  • Strengthen disclosure: require transparency in reserves, smart contract design, and governance.

Implications for Financial Institutions

For banks, asset managers, and infrastructure providers, tokenization represents both opportunity and obligation:

  • New revenue streams: fractional ownership opens access to broader client segments.
  • Operational efficiency: programmable settlement reduces reconciliation costs.
  • Risk management: enhanced transparency could support better collateral and liquidity monitoring.
  • Compliance: firms must ensure that tokenized offerings align with AML/KYC and investor protection rules.

Institutions that experiment early may gain a competitive edge, but they must also prepare for evolving regulatory requirements.

Comparative Landscape

The report highlights several regional approaches:

  • United States: the GENIUS Act and ongoing SEC discussions create a parallel framework for stablecoins and tokenized assets.
  • European Union: MiCA and pilot regimes for DLT market infrastructure aim to harmonize treatment of tokenized securities.
  • Asia: Singapore and Hong Kong actively position themselves as global hubs for tokenization, emphasizing regulatory clarity and robust infrastructure.
  • Emerging Markets: tokenization is being explored primarily for remittances, microfinance, and government bond markets.

Conclusion

The WEF’s 2025 report underscores that tokenization is not merely a technological upgrade—it is a systemic shift with implications for liquidity, market access, and global financial stability. If implemented with legal clarity, interoperable standards, and robust governance, tokenization could unlock unprecedented efficiency and inclusivity. Without these safeguards, it risks creating fragmented, opaque markets vulnerable to shocks.

For regulators, the message is clear: build frameworks that support innovation while mitigating systemic risk. For institutions, the time to engage is now—through pilots, partnerships, and active dialogue with policymakers.

Reference:
World Economic Forum. (2025). Asset Tokenization in Financial Markets. Available here

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