Tokenization Faces $24 Billion Hurdles Legal Uncertainty and Tech Bottlenecks

Billions of dollars in real-world assets have been transferred onto blockchain platforms, but the tokenization trend faces significant hurdles that could impede its progress. These challenges include legal uncertainty, technological bottlenecks, and custody issues.

Tokenization, the process of converting real-world assets into digital tokens on a blockchain, has gained significant traction, with around $24 billion worth of assets now on public ledgers. This includes a variety of assets such as treasuries, real estate, and even whisky casks. However, the rapid growth in value on-chain does not necessarily translate to a robust and sustainable market.

The legal status of tokenized assets remains a major concern. In many jurisdictions, digital securities do not have clear legal recognition, which means that tokens are often treated as representations of ownership rather than actual rights. This legal ambiguity could lead to complications in cases of bankruptcy or disputes, where tokens might not be given the same priority as traditional securities.

Technological fragmentation is another significant barrier. While Ethereum is the primary platform for tokenized assets, it is not the most efficient or cost-effective option. High transaction fees and the need for separate environments for different assets create a disjointed market. Compliance is also a fragmented issue, with each token issuer often having its own permission systems, leading to repeated onboarding processes for users.

Custody and data verification are additional challenges. Tokenized assets rely on external data feeds, known as oracles, to update smart contracts with real-world information. However, these feeds can be unreliable, leading to delays or inaccuracies that could affect redemptions. Custody standards also vary widely, with some custodians lacking transparency and accountability, which could leave investors with tokens that have no verifiable backing.

For tokenization to scale and become a mainstream financial infrastructure, these issues need to be addressed. Legal clarity, shared compliance rails, and stronger custody standards are essential for the market to mature. Without these foundations, tokenization risks remaining a niche market with limited real-world impact.

In summary, while the tokenization trend is gaining momentum, it faces significant challenges that could stall its progress. Legal uncertainty, technological fragmentation, and custody issues are the primary hurdles that need to be overcome for tokenization to become a sustainable and scalable financial infrastructure.