Ideal Assets for Tokenization P2.2: Opening Up Hard‑to‑Access Markets
Discrepancies Between Openness Rankings and Tokenization Activity.
Why is there a mismatch between the top RWAs and the most open global asset classes for foreign investors?
While it might seem intuitive that asset classes with higher openness to foreign investors would lead in tokenization efforts, the reality presents a more complex picture. Notably, asset classes such as derivatives, structured products, and corporate bonds, despite their high openness rankings, have not seen as much tokenization activity as less open assets like private credit and real estate. Several factors contribute to this discrepancy:
Complexity and Standardization
Derivatives and Structured Products: These instruments often involve intricate contracts tailored to specific counterparties, leading to challenges in standardization. The bespoke nature of these products makes it difficult to create a one-size-fits-all tokenization approach. Additionally, the regulatory landscape for derivatives is complex, requiring compliance with various jurisdiction-specific rules, which can hinder tokenization efforts.
Corporate Bonds: Despite the potential benefits of increased liquidity and fractional ownership that tokenization could offer to corporate bonds, the need for careful structuring and adherence to existing regulations contributes to a more measured pace of adoption compared to less complex asset classes. While more standardized than derivatives, corporate bonds still exhibit variability in terms of covenants, maturities, and structures. This diversity can complicate the tokenization process, as each bond issuance may require a customized approach.
Existing Market Infrastructure and Liquidity
Established Systems: Asset classes like derivatives and corporate bonds benefit from well-established trading platforms and clearinghouses that provide liquidity and efficient settlement processes. The existing infrastructure meets the needs of institutional investors, reducing the immediate demand for tokenization as a solution. Franklin Templeton, JPMorgan Onyx, and Citi also acknowledge that tokenization shines most where legacy infrastructure is slow or exclusionary (e.g., private credit, real estate, T-bills for retail), not necessarily where liquidity is already strong (e.g., derivatives). BIS 2023-2024 reports note that markets like government bonds, derivatives, and corporate credit already benefit from mature clearing, trading, and settlement infrastructure.
Market Liquidity: These markets are already liquid, and the added value of tokenization in terms of enhancing liquidity is less pronounced compared to more illiquid asset classes. The IMF 2025 Fintech Note points out that tokenization may not meaningfully reduce friction in already-liquid, institutional asset classes unless it also changes how clearing/custody is done.
In contrast to the challenges faced by derivatives and corporate bonds, asset classes like real estate and private credit are gaining traction specifically because of their illiquidity and friction — and because they offer value in accessibility and transparency.
+ Private Credit: Traditionally, private credit markets have been characterized by limited access and illiquidity. Tokenization offers a transformative solution by enabling fractional ownership and creating secondary markets, thereby lowering investment thresholds and enhancing liquidity. This democratization allows a broader range of investors to participate in private credit markets.
+ Real Estate: Similar to private credit, real estate investments have historically been illiquid and required significant capital outlays. Tokenization facilitates fractional ownership and potentially creates secondary markets for these assets, increasing accessibility and providing liquidity options where they were previously scarce.
Regulatory and Legal Considerations
Complex Regulatory Environment: Tokenizing complex financial instruments like derivatives introduces intricate regulatory and legal challenges. Ensuring compliance with existing financial regulations, managing counterparty risks, and navigating the legal frameworks governing these instruments add layers of complexity that can deter tokenization initiatives. The IMF underscores that tokenization doesn’t eliminate legal complexities, particularly for instruments that already rely on negotiated bilateral agreements (like swaps, options, and structured products).
Comparatively Simpler Frameworks: In contrast, asset classes like private credit and real estate, while not without regulatory considerations, may present more straightforward pathways for tokenization, especially in jurisdictions that are developing supportive frameworks for digital assets. ADGM (UAE), MAS (Singapore), Swiss DLT Act, Project Guardian, DLT Pilot Regime (EU) are actively enabling tokenization of asset classes like real estate, private funds, and credit pools via sandboxes, exemptions, or tailored frameworks — far more so than for derivatives or structured notes.
Market Demand and Innovation Drive
Investor Appetite: The tangible nature of real estate and the high-growth potential of private credit make them attractive candidates for investors seeking diversification. The market's appetite for innovative investment vehicles has propelled tokenization efforts in these areas, as they offer clear value propositions by addressing existing market inefficiencies. Investors are interested — not just that the tech is there, but that these assets are aligned with portfolio needs and strategies.
Ex: ADDX, Securitize, RealT, Maple Finance, Centrifuge all emphasize that real estate and private credit are in high demand because:
- They offer non-correlated returns (compared to equities or crypto)
- Investors are seeking diversification + yield
- Real-world utility + relatability drive interest (especially real estate)
Technological Advancements: The rise of blockchain technology and smart contracts has provided the tools necessary to tokenize these traditionally illiquid assets effectively, further driving momentum in these sectors. Without the evolution of programmable token frameworks, fractional ownership, automatic payouts, or compliance layers wouldn’t be feasible. These technologies enabled the real-world assets we’re now seeing flourish.
Ex: The core architecture of tokenization relies on smart contracts and programmable asset logic. Blockchains like Ethereum, Stellar, Avalanche, and even permissioned networks like Provenance or Canton Network make token issuance, compliance, and settlement possible — and are actively used by firms like:
- Franklin Templeton (FOBXX on Stellar)
- BlackRock (BUIDL on Ethereum)
- Hamilton Lane (via Securitize/Polygon)
Final Takeaway: Openness ≠ Readiness
Openness is a great starting point, but practical accessibility, investor demand, and market inefficiencies are what actually drive tokenization.
Openness to foreign investors is not the primary driver of asset tokenization.
While asset classes with higher openness to foreign investors theoretically present opportunities for tokenization, practical challenges related to complexity, existing infrastructure, regulatory considerations, and market demand have influenced the actual momentum. Tokenization efforts have gravitated towards asset classes where they can address significant inefficiencies and accessibility issues, leading to the observed discrepancies between openness rankings and tokenization activity.
The early winners? Assets with a strong global appeal, tangible problems, and tokenization-ready wrappers. I’ll focus on demand-side pull: what institutions and retail actually want - in the next part of the series.
Disclaimer: This content is for informational and research purposes only. DYOR!
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