Tokenization and Liquidity: Creating Capital or Just Moving It Around?
Tokenization is one of the most talked-about developments in modern finance: the idea that by turning real-world assets into digital tokens, markets can become faster, more transparent, and more liquid.
But a key question remains: does tokenization create new liquidity, or does it simply shift existing liquidity onto new rails?
The answer depends on the asset, the market structure, and who gains access.
The Case for Tokenization Creating New Liquidity
Supporters argue that tokenization can unlock liquidity by reducing friction and widening participation.
- Lower barriers to entry. Fractional ownership lets investors buy smaller shares of assets once reserved for institutions or high-net-worth individuals.
- Faster capital cycles. Instant settlement frees up capital that used to be locked in multi-day clearing processes.
- Broader, global access. Digital tokens can, in principle, trade around the clock and across borders. If settlement happens in trusted forms of digital money, such as tokenized deposits or, eventually, central-bank digital currencies, more institutions can participate safely.
Over time, these dynamics could deepen markets, attract new investors, and make liquidity more continuous. Industry analysis from the CAIA Institute expands on how tokenization can reduce entry barriers, enhance transparency, and support more fluid capital movement in private markets.
The Case Against: Mostly a Change in Form, Not Substance
Critics argue that, so far, tokenization has delivered more efficiency than new liquidity.
It has streamlined how assets are issued and settled, but evidence suggests that market depth has not grown meaningfully. The main concerns are:
- Limited trading volumes: Most tokenized assets still see small transaction sizes and sparse secondary-market activity.
- Fragmented infrastructure: Liquidity is spread across multiple blockchains and custodians, making it difficult to build depth or consistent price discovery.
- Restricted access: Regulatory frameworks and investor-eligibility rules still exclude most retail participants.
- Potential fragility: Central banks warn that markets relying heavily on crypto infrastructure could face liquidity stress during volatility.
These points are supported by a 2025 study: “Tokenize Everything, But Can You Sell It? RWA Liquidity Challenges and the Road Ahead,” which finds that most tokenized real-world assets still show low trading volumes, long holding periods, and limited active participation, suggesting that liquidity improvements stay largely theoretical for now.
So far, tokenization seems better at making liquidity move faster than at creating more of it.
Liquidity Differs by Asset Type
Not all assets react to tokenization in the same way. Some markets become faster and cheaper to access; others are still slow to evolve.
Government bonds and money-market funds are already among the most liquid assets in finance. Here, tokenization mainly improves efficiency, but it does not fundamentally change who trades them or why.
Private markets and alternative assets stand to benefit more from tokenization. These areas, spanning private credit, real estate, and other non-public investments, have traditionally been accessible only to institutional investors. Fractional ownership and on-chain settlement could broaden participation, but real progress still depends on developing transparent pricing, consistent valuation standards, and active secondary markets.
Then there are fine wine and other passion-assets and collectibles: smaller markets but revealing ones. Digital tokens make it possible to verify provenance, represent ownership accurately, and trade without physically moving the asset. That accessibility could draw in younger, more global investors who might never have entered the market before. For now, trading volumes stay modest, and most activity comes from existing collectors, but liquidity is improving.
Beyond Technology: What Needs to Happen Next
Technology lays the tracks, but rails alone don’t create liquidity. Real liquidity depends on how people actually use those systems: how easily they can onboard, understand their assets, and trade with confidence.
Recent articles highlight that user experience is one of the biggest barriers to wider adoption. As one puts it, “if the experience is not at that level, most users will not stick around.” (Real World Asset Tokenization, 2025)
In other words, even the most advanced blockchain infrastructure won’t bring in new participants unless it feels familiar, safe, and simple. For tokenization to consistently generate new liquidity, several foundations must come together:
- Interoperability: liquidity must move freely across chains and platforms.
- Trusted settlement assets: digital cash from banks or central banks that ensures reliability and confidence.
- Regulatory clarity: investors need enforceable rights and transparent protection frameworks.
- User-first product design: accessible interfaces, clear data, and well-structured tokens that represent genuine ownership.
When these elements align, tokenization can evolve from a technical upgrade into genuine market growth.
A Market Still Taking Shape
For now, tokenization is more about speed and access than expansion. It helps liquidity move faster, not necessarily further.
But as standards mature, infrastructure improves, and platforms become more intuitive, liquidity could start to grow in places where it’s long been scarce - from private credit to alternative assets like art or wine.
