As examined in our previous analysis, tokenisation stands at a potential inflection point with companies such as Ripple making strategic infrastructure acquisitions to position themselves for widespread adoption. Yet, despite growing institutional interest and technological advancements, tokenisation remains primarily in the pilot and experimental phase across most financial sectors. This second article explores the critical factors required for tokenisation to transition from promising innovation to mainstream financial practice.
But, before assessing future requirements, it is important to understand where tokenisation stands today. The European Banking Authority's December 2024 survey found that 17% of 85 surveyed credit institutions in the European Economic Area anticipate engaging with tokenised deposits within the next one to two years. Most institutions are adopting a “wait and see” approach - whilst they acknowledge the potential, they are hesitant to invest significant resources until key fundamental conditions are met. However, this hesitancy persists despite notable success stories. For instance, Singapore's DBS Bank has experienced increase in digital asset trading volume on its tokenisation platform whilst Swiss digital asset bank, Sygnum, has tokenised a variety of assets from fine art to premium wines, so demonstrating the versatility of the technology. But what exactly is holding back broader adoption? And what conditions must be met for tokenisation to truly take off?
Bank of America’s CEO waiting for regulations so it can issue a stablecoin
Source: X
Perhaps the most frequently cited pre-requisite for tokenisation adoption is regulatory clarity. Without clear regulatory frameworks, financial institutions face significant compliance risks that discourage meaningful investment. Regulatory uncertainty leads to paralysis because institutions need assurance that their investments in tokenisation will not encounter regulatory challenges or reversals in the future. Certainly, recent developments have begun addressing this concern; the Markets in Crypto-Assets (MiCA) regulation in Europe provides a comprehensive framework for digital assets, whilst Singapore's Payment Services Act and Switzerland's Distributed Ledger Technology (DLT) Act offer clarity within their respective jurisdictions. But, global regulatory harmonisation is limited, posing challenges for cross-border tokenisation applications and ambiguities also persist in the classification of tokens (security, utility, payment, etc.). Compliance requirements, especially regarding KYC/AML procedures for tokenised assets, remain unclear. Additionally, the regulatory treatment of emerging tokenisation models lacks established precedents. Financial regulatory experts at Global Compliance Partners suggest that “regulatory sandboxes” represent an effective approach for advancing tokenisation whilst regulatory frameworks evolve. These controlled environments allow financial institutions to test tokenisation applications with regulatory oversight but also temporary exemptions from certain requirements. There is a need for smart regulation that strikes a balance between innovation and protection as the jurisdictions that achieve this balance are likely to become key hubs for tokenisation activity. Moreover, beyond regulatory considerations, technical infrastructure requirements present another critical barrier to mainstream adoption and, whilst blockchain technology has matured significantly, several technical challenges must be addressed, including:\
· interoperability - for tokenisation to reach its potential, tokens must be able to move seamlessly across different blockchains and interact with various financial systems. The current landscape remains fragmented, with limited cross-chain functionality. Interoperability is a crucial requirement, not simply a technical add-on, for developing liquid and efficient tokenised markets. Without it, we risk creating isolated digital ecosystems that could undermine the core benefits tokenisation aims to deliver. Recent initiatives such as the Interledger Protocol (ILP) and cross-chain bridges represent progress, but comprehensive interoperability remains elusive. Industry standardisation efforts through organisations such as the International Organisation for Standardisation (ISO) and the Blockchain Association are working to establish common frameworks for token representation, transfer protocols and metadata standards.
· scalability - as tokenisation expands beyond experimental use cases, scalability becomes increasingly important. High transaction throughput, low latency and reasonable cost structures are necessary for tokenised assets to compete with traditional financial instruments. Next-generation blockchain architectures and Layer 2 scaling solutions are essential for enabling institutional-grade tokenisation. Without the required performance standards, tokenisation will be restricted to specialised use cases.
· enterprise integration - for financial institutions with substantial legacy systems, integration represents a significant challenge. Tokenisation solutions must complement existing infrastructure rather than requiring wholesale replacement.
A report by MuleSoft highlights that 86% of financial services organisations face integration challenges that impede their digital transformation initiatives. Issues such as outdated infrastructure, siloed data and the need for custom integrations are particularly significant when adopting emerging technologies such as tokenisation. The most successful tokenisation solutions will be those that provide clean APIs and middleware to connect traditional financial systems with blockchain networks. Beyond technical and regulatory considerations, broader market infrastructure must evolve to support tokenised asset ecosystems. As highlighted in our previous analysis of Ripple's acquisition strategy, custody represents a fundamental requirement for institutional participation. Deloitte's 2021 Global Blockchain Survey revealed that 77% of financial services industry (FSI) respondents regarded safe custody as a top concern when it comes to central bank digital currencies (CBDCs), underscoring the critical role of secure custody in digital asset investments. Furthermore, institutional-grade custody solutions that balance security with usability will be crucial for the adoption of tokenisation. Multi-party computation, hardware security modules and robust governance frameworks are the minimum standards required to ensure effective implementation. And for tokenised assets to function effectively, sufficient liquidity is critical. Market makers, trading venues and price discovery mechanisms must develop to support efficient trading of tokenised assets. Illiquid tokens tie up capital and so, despite the theoretical advantages of tokenisation, without the ability to buy and sell easily at fair prices, its practical utility remains constrained. Therefore, to ensure markets function effectively, especially for less liquid assets such as private equity or real estate, dedicated liquidity pools and specialised market makers for tokenised assets will be essential. Settlement, clearing and other post-trade functions must be adapted for tokenised assets and whilst blockchain technology has the potential to streamline some of these processes through automation, integrating with existing systems presents significant challenges. Achieving T+0 settlement for tokenised assets requires not only advanced technology but also a rethinking of business processes and governance models.
Beyond external factors, internal readiness within financial institutions represents another critical factor for tokenisation adoption. A report by the European Banking Authority reveals that most tokenisation projects are still in pilot phases or early stages, indicating that many institutions may lack the internal expertise necessary for large-scale implementation. The knowledge gap remains significant, with institutions requiring not only technical know-how but also a clear operational understanding of how tokenisation impacts their existing business processes. Progressive institutions have begun addressing this through dedicated digital asset teams, training programmes and strategic partnerships with technology providers. JPMorgan's Kinexys platform and BNY Mellon's digital asset custody initiative represent examples of traditional institutions developing internal capabilities. Perhaps most fundamentally, tokenisation requires compelling use cases that deliver clear value beyond what existing systems provide. Early tokenisation initiatives often focused on the technology rather than specific business problems or inefficiencies. Successful tokenisation will gain traction in areas where traditional systems generate high friction or costs. Use cases such as cross-border payments, trade finance and fractional ownership of illiquid assets offer particularly strong potential for early adoption. Recent implementations highlight a value-driven approach to tokenisation. Singapore’s Project Guardian has shown notable efficiency improvements in foreign exchange and government bond transactions. HSBC’s Digital Vault has significantly cut settlement times for private placement deals, reducing them from weeks to just days. Meanwhile, JPMorgan’s Kinexys platform has handled more than $300 billion in short-term lending using tokenised collateral, underscoring the practical benefits already being realised. The most impactful tokenisation efforts focus on solving real-world inefficiencies, rather than introducing technology for its own sake.
So, whilst institutional adoption dominates current discussions, ultimate mainstream success requires engagement from end users and consumers. Currently, user experience challenges limit broader participation. Tokenisation delivers the greatest value when it directly addresses tangible inefficiencies in existing systems, rather than being applied as a solution in search of a problem. Progress in this area includes simplified wallet interfaces, familiar authentication mechanisms and integration with existing banking applications. However, significant work remains to make tokenised assets accessible to typical investors or consumers. Given these various requirements, experts suggest tokenisation will likely follow a phased adoption trajectory rather than experiencing a sudden tipping point. The evolution of institutional tokenisation can be viewed as a three-phase journey. In Phase 1, we are seeing controlled pilots across limited asset classes, with a focus on regulatory-compliant designs, foundational infrastructure and governance models. Phase 2, now beginning, is characterised by targeted deployments in high-value areas, development of specialised infrastructure and increasing platform interoperability supported by expanding regulatory clarity. Looking ahead, Phase 3 will mark full-scale adoption - defined by integration with legacy financial systems, standardised protocols, comprehensive regulation and intuitive user access for institutions and retail participants alike. The market is now shifting from early experimentation to more serious implementation, with strategic infrastructure investments such as those by Ripple, signalling increased confidence in tokenisation’s readiness for broader adoption.
Therefore, for tokenisation to truly reshape financial markets, progress must happen on several fronts - clearer regulation, scalable infrastructure, efficient market systems and institutional readiness. Tokenisation represents one of the most significant opportunities to modernise financial infrastructure in decades but its success hinges on coordinated advancement across regulatory, technical and organisational domains. Strategic investments by firms such as Ripple (in areas such as custody, payments and market-making) signal growing confidence that key conditions are aligning. For financial institutions, succeeding in this shift requires more than just adopting new technology; it demands regulatory engagement, internal capability building and a focus on high-value, practical use cases. The question is no longer if tokenisation will transform markets, but which institutions will lead the way - and which will be forced to catch up. The groundwork being laid today will shape the financial architecture of the future.
This article first appeared in Digital Bytes (20th of May, 2025), a weekly newsletter by Jonny Fry of Team Blockchain.