Liquidity, not novelty, determines tokenization’s value

The crypto industry's initial focus on tokenizing niche assets was a miscalculation, according to Sebastián Serrano, founder and CEO of Ripio. The most significant success in tokenization has been with the most liquid asset globally: the US dollar, in the form of USD-backed stablecoins. This indicates that tokenization creates the most value when applied to the core of the economy, rather than its fringes.

Tokenizing High-Demand Assets

Tokenization is most powerful when applied to assets with massive existing demand and established legal and financial frameworks, such as money, sovereign debt, and major financial instruments. These assets form the base layer of the global economy and are used daily by governments, corporations, and individuals. By tokenizing these assets, the goal is to upgrade existing financial rails rather than create demand from scratch. This approach mirrors the historical adoption of technologies like electricity, which were first used to power factories rather than art installations.

Stablecoins have succeeded because they mapped directly onto a massive, existing use case: moving dollars globally, quickly, and cheaply. Similarly, tokenized treasuries are gaining traction because they represent a real, high-demand asset that institutions already hold at scale. Tokenization adds the most value where financial frictions are large and expensive, such as in the inefficient movement of trillions of dollars in bonds. It can compress settlement times from days to minutes and allow assets and cash to move together in real time, reducing costs and risks.

In contrast, NFTs and highly bespoke real-world assets (RWAs) are fragmented, unique, and legally ambiguous, making them incapable of becoming a shared economic layer. While they may hold cultural or speculative value, they cannot foster broad financial network effects.

Market Effects of Tokenizing Liquid Assets

Tokenizing illiquid assets may allow for fractional ownership or automated workflows but does not unlock new forms of economic coordination due to their infrequent trading and lack of deep markets. However, tokenizing liquid assets unlocks entirely new financial behaviors, including continuous settlement, streaming payments, and automated collateral management.

The ability to use a tokenized asset as collateral largely depends on its liquidity. Liquid assets have transparent, real-time valuations, making them suitable for integration into automated systems. Currently, roughly $96 billion in liquid assets are locked and used across DeFi protocols. Illiquid assets, with their sporadic trades, subjective valuations, and wide bid-ask spreads, are difficult to use as collateral, which reduces demand for them. Tokenization does not solve these inherent problems.

Capital efficiency also improves significantly for liquid assets. Tokenized liquid instruments can be rehypothecated, fractionally deployed, and programmatically allocated in real time, allowing capital to move faster. Tokenization does not, however, create continuous markets for illiquid assets.

Reducing Risk Through Clarity and Standardization

Assets like dollars, government bonds, and large corporate debt have well-established legal status, issuer accountability, and regulatory frameworks. Tokenization can fit within existing financial law, facilitating institutional adoption. For NFTs, however, questions surrounding ownership, custody, enforceability, and investor protection can outweigh technical benefits, increasing risk rather than reducing it.

The future of tokenization will be defined by economically central assets. While early experiments with NFTs were understandable, their focus on the wrong type of asset hindered long-term success. Stablecoins have demonstrated the power of upgrading the most liquid asset, and tokenized government bonds and equities represent the logical next steps. This evolution will enable blockchains to transition from experimental technology to foundational financial infrastructure.