Where is the future of tokenization heading?

Author: Thomas Cowan, Head of Markets, Galaxy, Source: Coindesk, Translator: Shaw Golden Finance

For many of us in and around the cryptocurrency space, things seem different this time. The tokenization of financial assets is emerging in ways we have never seen before.

As we forge ahead, it is important to broaden our horizons, slow down (untypical of our industry), sort out the current situation, and clarify the future direction.

Stablecoins: The First Major Success Story in Tokenization

While tokenization is transformative for financial markets, its current application shows a gradual development trend. Initially, stablecoins emerged as a more efficient payment method. Subsequently, tokenized money market funds emerged as a more efficient means of storing value.

What’s next? The answer is structured credit combined with private equity. As with previous waves of technology adoption, the development of tokenization will show a slow advance in the early stage and an accelerated breakthrough in the later stage. Be prepared: we are about to enter the rapid rise phase of the S curve.

Since the last round of the cryptocurrency market cycle in 2021, stablecoins have demonstrated clear product-market fit. With a circulating supply of more than $250 billion, stablecoins continue to demonstrate long-term demand and utility. This includes USDT and USDC used in cross-border payments through companies such as MoneyGram, Stripe, PayPal and Felix; access to US dollars in emerging economies and countries with weak monetary systems such as Nigeria, Venezuela, Turkey; and as a major trading pair for cryptocurrencies such as Bitcoin and Ethereum. Regulatory clarity, especially the passage of the GENIUS Act in the United States covering stablecoins, will only accelerate this trend. The huge market demand for Circle’s shares after the listing is another positive sign.

Tokenized money market funds bring a technological and financial upgrade to on-chain value storage. Market leaders including BUIDL, BENJI, ONDO, etc. have shown that the market demand for on-chain risk-free rates is very clear.

This means that it can not only be used as collateral and funding tools, but also as a stablecoin alternative for crypto-native participants who need fiat-denominated liquidity. While the initial version uses a hybrid structure, fund tokens are similar to traditional transfer agents and off-chain shares, we are beginning to see token native issuance permeate throughout the industry.

What's next for tokenization?

Given that tokenization has shown a more efficient way to transfer and store value, what areas will the industry focus on next? First, we have noticed that some leading companies in the industry have begun to tokenize private funds. Examples include ACRED from Apollo, Hamilton Lane’s tokenized fund in partnership with Republic, and WisdomTree’s multi-branch on-chain fund. These funds have begun to demonstrate utility through transparency, DeFi lending, and liquidity improvements.

Tokenization is only scratching the surface of the value it brings to different fund structures today, but its utility is likely to increase significantly as DeFi and traditional finance (TradFi) become more integrated.

Structured credit is ideal for tokenization. Traditionally, structured credit can be complex, opaque, involve multiple counterparties, and have relatively high issuance and operating costs. Smart contracts can not only simplify and automate the debt repayment process for the loan pool, but also follow a pre-set process for each investor section.

Coupled with instant settlement within the structure, the cost basis can be significantly reduced. And, because the structure is on-chain, we will no longer face the lack of transparency that plagued the financial system in 2008. Holders of on-chain structured credit products can see the performance of the underlying assets in real time, 24/7, at the discretion of the issuer.

This transparency not only helps regulators better monitor potential risks, but also improves collateral acceptance by standardizing and providing more information to lenders.

This combination of value and information also means that the secondary market for these assets will be more liquid. While large traditional institutions can provide some advantages, such as transparency or their own secondary markets, tokenization has the potential to bring all of these advantages together and standardize them, breaking through today's closed barriers.

Tokenization of stocks

In 2025, the discussion about tokenizing stocks has increased significantly. Although companies including INX and Backed have previously tried to tokenize stocks, regulatory discussions with the U.S. Securities and Exchange Commission (SEC) Cryptocurrency Working Group have accelerated the process. Superstate, Kraken, and Galaxy have all announced plans to tokenize stocks to continue to advance the industry.

Despite the progress made by the industry, many challenges remain. The US still lacks the needed stablecoin and market infrastructure bills, although the passage of the GENIUS Act in the Senate is a significant step forward. Addressing KYC/AML issues remains a barrier to mass adoption of the technology; private chains are too restrictive, while public chain structures that lack adequate KYC/AML are difficult for TradFi to adopt.

Instead, the industry must take a middle ground, leveraging the strengths of public chains and the regulatory and trust-based KYC policies established by our current financial system.

Education about the potential of the technology also remains a major obstacle. The industry must continue to emphasize that tokenization can not only bring substantial use cases and tangible benefits to traditional finance, but also bring new opportunities and structures that have never been seen before.

Summary

What should we learn this time?

First, we’ve come a long way from the initial Bitcoin transactions and Ethereum smart contracts that form the foundation of cryptocurrency, to now working with the biggest names in finance, payments, and technology that power today’s global economy.

Second, we’re only in the early stages—and while we’ve achieved some results, this is just the beginning. Mass adoption will require combining the revolutionary benefits of this technology with the long-standing trust that has been the foundation of finance since its inception.

This balance of technology and trust is core to realizing the potential of financial tokenization: just as the internet transformed the way information is distributed, tokenization must do the same for the way value is transferred.