By Damien Black
More than half of $60 billion in tokenized assets are sitting idle on the blockchain and not trading, according to research by BeInCrypto. It raises the question: does tokenization have a liquidity problem?
BeInCrypto monitored 1,289 tokenized assets earlier this year for one week, and found that 910 – worth just shy of $33 billion altogether – did zero trades. These “dormant assets” represent 56% of the total tokenized market, leading BeInCrypto to conclude that “the active tokenization market is much smaller than expected”.
But does this point to a genuine liquidity problem or not? Well, that all depends on whether a tokenized asset is intended for trading in the first place – in other words, on the owner’s intention when they put it on a blockchain. The BeInCrypto report distinguishes between “represented” and “distributed” assets. The former comprise tokenized assets that simply use blockchain technology as a “digital ledger” to represent an off-chain, that is, TradFi, investment. Unlike distributed assets, these were never intended for trading on the blockchain itself. This brings to light BeInCrypto’s key finding: tokenization may or may not have a liquidity problem, depending on how you look at it. But it certainly appears to have a nomenclature problem – one, you might say, that is all too typical of a fledgling industry that has yet to fully find its feet.
Defining liquidity
Anthony Georgiades runs Innovating Capital, which looks after $220 million across digital assets, deep tech, enterprise and AI. “Yes, tokenization has a liquidity problem, but I would define it carefully,” he told the Intersection. “Tokenization can make an asset easier to record, transfer, settle, and program. It does not automatically create buyers, sellers, market makers, or continuous price discovery.” He agrees that many of the assets found on the blockchain were never intended to trade.
“I would also be cautious about treating transfer activity as a direct measure of liquidity,” said Georgiades. “A Treasury fund or private-credit vehicle may be designed for buy-and-hold ownership, periodic subscriptions, or scheduled redemptions. A tokenized money-market fund that offers daily redemption at NAV [net asset value] can be liquid through its issuer even if the token rarely changes hands.” There are other false flags you’ll want to be wary of when assessing just how “liquid” the tokenized asset market is, he adds. “Transfers between wallets controlled by the same custodian can show activity without indicating a real market,” said Georgiades. “I would separate primary liquidity, meaning the ability to redeem with the issuer, from secondary liquidity, meaning the ability to sell to another investor at a reasonable price and in meaningful size.”
Are tokens a ‘non-market’?
So do bonanza headline figures like “$60 billion in tokenized assets and counting!” essentially disguise a non-market, I put it to Georgiades. “I would call an asset a ‘non-market’ when it is presented as tradable but holders have no practical route to sell it,” he said. “To assess that, I would ask whether the token is transferable, who can hold it, where it can trade, how it is priced, what the redemption terms are, and whether there is meaningful secondary-market depth.”
Swathes of money remaining frozen in aspic on the blockchain pose a risk that is peculiar to tokenization, Georgiades explains: “If billions of dollars remain static, the immediate risk is not necessarily a sudden loss of value – the risk is that the industry begins to confuse digitization with liquidity.”
This he says can produce inflated adoption narratives, prices that are barely supported by actual trades, and larger discounts when investors need to exit outside redemption windows. But what worries him most is what he describes as “the collateral issue”. “If tokenized assets are accepted as collateral on the assumption that they can be sold quickly, and there is no real secondary market behind them, that assumption will be tested during periods of market stress, when liquidity is hardest to find,” he said.
As such, Georgiades says it is essential to distinguish between represented and distributed assets, and agrees that the $60 billion headline is “incomplete and potentially misleading to investors”. “Represented assets can still have real value,” he added. “Using a blockchain as a shared ledger may reduce reconciliation costs, improve reporting, and create a cleaner operational record. But these assets should not be presented as equivalent to assets that can move across wallets, venues, or financial protocols.”
Georgiades urges reports on the size of the tokenization market to distinguish between the value represented on-chain, the value that is legally and technically transferable, and the value with demonstrated secondary-market activity. “I would also want to see active holders, transfer volume, bid-ask depth, redemption windows, venue access, and whether assets accepted as collateral could actually be liquidated,” he added. “Those measures would tell us much more about market maturity than issuance value alone.”
Big players dominate
Something else BeInCrypto pointed out that deserves closer scrutiny is the apparent concentration of the tokenised asset market: it registers over 7,000 assets on the blockchain, but just 62 of these “institutional” assets make up account forn’s share of the total value (88%). Somewhat dismissively, BeInCrypto described the rest as “experimental” assets.
Is this a good thing, I wonder – seeing most of the value of tokenized assets tied up in behemoth positions like BlackRock’s $2.3 billion BUIDL fund might be reassuring to some, but on the other hand wasn’t DeFi supposed to be about giving the so-called little guy a chance? And assuming tokenization of real-world assets (RWA) is the new wheelhouse of DeFi, what does this tell us about the direction of travel? Adili Yiligeer spent a couple of years working as product and strategy manager at Kraken before jumping ship to OKX crypto trading platform. He now works for Kamui, which specializes in bringing institutional-grade private credit and treasury-backed strategies onchain.
“The concentration is not surprising,” he told the Intersection. “In traditional finance, a large share of capital is also allocated to relatively lower-risk assets such as money markets and fixed income, and even money-market AUM is concentrated among a relatively small number of large providers.” Tokenized assets, therefore, are simply developing in response to investor demand, which tends to tilt strongly towards “familiar, liquid and lower-risk products”.
Yiligeer added: “As adoption grows and investors become more comfortable with the infrastructure, I would expect AUM to diversify gradually across a broader range of asset classes and risk profiles. The key question is whether that diversification translates into genuinely broader on-chain distribution and liquidity, rather than simply a larger number of tokenized products.”
He also agrees with Georgiades that the industry needs to distinguish clearly between distributed and represented assets. “There is a significant difference between an asset that is simply represented on-chain and one that is genuinely issued, distributed, transferred and settled on-chain,” he said. “Both are valid, but combining them can overstate actual blockchain adoption. I would prefer the market to distinguish between tokenized assets outstanding and assets that are actively distributed and used on-chain.”
Centralized DeFi?
Georgiades says that the institutional – one might say TradFi – dominance of tokenized assets brings benefits and hazards alike to the table. “If 62 assets account for roughly 88% of the value, that reflects where capital, compliant structures, custody, and distribution currently exist,” he said. “I do not think that is inherently bad. Large institutional products can help build the infrastructure others will use, although their size alone does not prove that a liquid market exists.” However, he added: “Tokenization may rearrange who controls finance’s most valuable choke points. If a small number of issuers, custodians, or venues control access to most tokenized value, the system may become more efficient while remaining highly centralized.”
Centralized decentralized finance – welcome to the brave new complexity of tokenization! Unfortunately for crypto natives, Georgiades does not see this trend reversing – not in the foreseeable future anyway. “I do not expect smaller issuers to dominate by value in the near term,” he said. “A more useful goal is for them to have access to interoperable rails, transparent standards, and distribution without needing to recreate the entire financial stack.”
In any case, he doesn’t think tokenization would necessarily benefit from proliferation of smaller assets on the blockchain. Rather, it is movement that will be key – in other words, addressing the liquidity issues that have been raised. “The next phase of tokenization should be judged less by how many assets have been issued and more by how many can actually move, settle, serve as collateral, and meet real investor demand.”
