is a possibility that tokenization may not have a significant impact in 2030 as anticipated
Bitcoin took nearly nine years to reach $10,000 and just over 12 years to surpass $50,000. McKinsey believes that tokenization will require similar patience. While there has been a lot of excitement about how tokenizing real-world assets can revolutionize the world, McKinsey provides a reality check. The consulting firm acknowledges that this technology will transform financial institutions, improve the investing experience, and reduce trading costs, but warns that the tokenization sector may be running ahead of itself.
McKinsey questions the widespread belief that every stock and fund will be tokenized in the near future. The firm believes that the sector may not gain significant traction in the next six years, and in the worst-case scenario, it may be worth only $1 trillion, which is less than Bitcoin’s current market cap. McKinsey is not dismissing tokenization as a passing trend, but rather highlighting the fact that adoption takes time, just as it did with Bitcoin.
The consulting firm outlines the challenges that tokenization must overcome to gain wider momentum. These challenges include limited liquidity, high transaction costs due to parallel issuance on traditional platforms, and disruption of established processes. Moreover, tokenization must prove that it is superior to the current methods. McKinsey uses bonds as an example to illustrate this point.
In addition to these challenges, McKinsey identifies three other potential hurdles. Upgrading the systems used by the financial services sector to handle trillions of dollars in value will require time, careful planning, and uniformity. Regulators also need to weigh in, which can be a slow process with emerging technologies. Lastly, there needs to be a discussion about whether blockchains are capable of handling the demands of tokenization. Scalability and fragmentation are concerns, although Layer 2 solutions have started to address these issues. However, bridges, which are proposed as a solution, come with security risks and have experienced high-profile hacks.
McKinsey’s overall argument is that tokenization is inevitable and will bring significant benefits. It envisions a world where businesses can make payments around the clock, investors have fairer terms, and financial products are modernized. However, proponents must not lose sight of the fact that progress takes time. Early movers can reap rewards, but they also face the risk of being overtaken by more technologically advanced start-ups, resulting in a loss of investment.
In the end, only time will tell the true value of the tokenization market. Both 21.co and McKinsey cannot be correct in their predictions for 2030. However, they both have the potential to be wrong.
