Tokenization is moving beyond experimentation. Financial assets can increasingly be represented on blockchain networks, creating new ways to issue, transfer, record and settle ownership. Yet one important challenge remains: creating a token is not the same as creating a liquid market for it.
Recent regulatory developments are making tokenized securities easier to structure. In January, the U.S. Securities and Exchange Commission (SEC) clarified that tokenized securities can use blockchain networks as part of the ownership record, while emphasizing that the underlying instrument remains subject to securities laws. The European Union’s DLT Pilot Regime similarly provides a framework for trading and settlement of qualifying financial instruments using distributed ledger technology.
Issuance Is Only the First Step
Tokenization can simplify several parts of an asset’s lifecycle. Ownership records can move on-chain, settlement can become more automated, and fractional structures may broaden access to certain assets.
However, liquidity depends on much more than blockchain infrastructure. A token needs active buyers and sellers, appropriate trading venues, compatible settlement systems, sufficient market depth and clear legal rights.
This creates a growing distinction between tokenized assets and liquid tokenized assets.
A token representing real estate, private credit or another traditionally less-traded asset may be technically transferable while still having limited secondary-market activity. Research from the Bank for International Settlements highlights how tokenization is being explored to address liquidity gaps in traditionally illiquid markets such as real estate.
Fragmentation Can Create Another Liquidity Barrier
Blockchain infrastructure can also divide liquidity across networks. Different chains, wallets, trading venues and settlement arrangements may create separate pools of activity rather than one connected marketplace.
The BIS recently highlighted this issue, noting that the growth of multiple blockchain networks and layer-2 systems has contributed to fragmentation across infrastructure, assets and liquidity. Interoperability tools can reduce some friction, but they can also introduce additional dependencies involving governance, trust and operational resilience.
For issuers, this means choosing where and how an asset is tokenized can become just as important as the token structure itself.
What Market Participants Should Watch
Liquidity considerations should increasingly sit alongside custody, compliance, security and portfolio construction. Tokenized products may need carefully designed access controls, compatible settlement assets and connections to established financial infrastructure.
The issue is especially relevant for tokenized funds and other regulated products. BIS research on tokenized money market funds has identified liquidity mismatches and compliance considerations alongside their growing use within digital asset markets.
For investors and businesses navigating digital assets, evaluating the underlying asset, token rights, trading venues and liquidity structure is essential. Digital asset management services can help organizations assess how tokenized exposure fits within broader portfolio and risk-management objectives.
Beyond the Token Itself
Putting an asset on a blockchain is only one part of building a functioning tokenized market. Secondary-market access, investor participation, settlement infrastructure, legal rights, interoperability, and reliable ownership records can determine whether an issued token develops meaningful market activity.
For Kenson Investments, tokenization is considered within the wider digital asset landscape, with attention to market structure, liquidity considerations, and the risks associated with emerging blockchain-based financial products.
Explore the evolving role of tokenized assets with Kenson Investments. Contact the team to discuss current market developments and potential applications.
Disclaimer: The information provided on this page is for educational and informational purposes only and should not be construed as financial advice. Crypto currency assets involve inherent risks, and past performance is not indicative of future results. Always conduct thorough research and consult with a qualified financial advisor before making investment decisions.
“The crypto currency and digital asset space is an emerging asset class that has not yet been regulated by the SEC and the US Federal Government. None of the information provided by Kenson LLC should be considered as financial investment advice. Please consult your Registered Financial Advisor for guidance. Kenson LLC does not offer any products regulated by the SEC, including equities, registered securities, ETFs, stocks, bonds, or equivalents.”
