Liquidity Determines Tokenization’s Value

Opinion by: Sebastián Serrano, founder and CEO of Ripio.

For much of the past decade, the crypto industry has tried to tokenize niche assets in an attempt to reinvent finance. While creative, this approach has largely missed the core economic truth about where tokenization actually creates value.

In these early stages of blockchain adoption, tokenization works best not at the fringes of the economy, but at its center. The industry’s first instinct — to tokenize illiquid assets — was a miscalculation. The most successful tokenization effort involved the most liquid asset in the world (the US dollar) in the form of USD-backed stablecoins.

Today, companies are piloting tokenized versions of other highly liquid assets like Treasury bills, smaller currencies and increasingly, stocks. This is not accidental. Tokenization is most powerful when applied to assets that already have massive demand and standardized legal and financial frameworks. Liquidity is the precondition that allows tokenization to move from novelty to infrastructure.

Tokenize what people want

Tokenization should start with assets that are already in high demand. Money, sovereign debt and major financial instruments are the base layer of the global economy. They are used daily by governments, corporations and individuals. When you tokenize these assets, you are not trying to create demand from scratch. You are upgrading the rails on which trillions of dollars already move.

If we look into our recent history, we find that electricity obviously wasn’t first used to power fancy art installations, but factories. Blockchains are no different. They reach their potential when they tokenize money and core financial primitives, not edge-case assets. 

Stablecoins succeeded. They mapped directly onto an existing, massive use case. Stablecoins move dollars globally, quickly and cheaply. Tokenized treasuries are gaining traction for the same reason. They represent a real, high-demand asset that institutions already hold at scale.

Tokenization adds the most value where frictions are large and expensive. Bonds move trillions of dollars, but they do so inefficiently. Tokenization compresses settlement from days to minutes. Tokenization allows assets and cash to move together, in real time, without relying on intermediaries. That changes the cost structure and risk profile of financial operations.

Network effects only emerge around assets in very high demand, like money and sovereign debt. When you tokenize them, you create immediate interoperability. Everyone can build around the same unit of account. This is why stablecoins became the backbone of on-chain finance.

Related: Australia’s central bank backs tokenization as pilot finds $16.7B upside

NFTs and highly bespoke RWAs are the opposite. They are fragmented by design. Each asset is unique, legally ambiguous and difficult to standardize. That makes them incapable of becoming a shared economic layer. They may have cultural or speculative value, but they cannot anchor broad financial network effects.

Market effects of tokenizing liquid assets

Adding programmability to illiquid assets, you can fractionalize ownership or automate certain workflows. You do not, however, unlock new forms of economic coordination. The asset still does not trade frequently. It still lacks deep markets. 

With liquid assets, however, tokenization unlocks entirely new financial behaviors. Continuous settlement, streaming payments, automated collateral management. These are just some of the novelties that tokenization can bring.

There are other considerations. Can you use a given tokenized asset as collateral? This is an important question, and the answer is that it mostly depends on liquidity. After all, liquid assets can be safely integrated as collateral into automated systems. Their valuations are transparent and updated in real time. 

Illiquid assets, however, have sporadic trades, subjective valuations and wide bid-ask spreads. Their nature makes them very difficult to use as collateral. Tokenization doesn’t solve that problem. This reduces demand for the asset.

Capital efficiency also improves significantly for liquid assets. Tokenized liquid instruments can potentially be rehypothecated, fractionally deployed and programmatically allocated in real time. Capital moves faster across the system. But tokenization doesn’t produce continuous markets for illiquid assets. 

Reducing risk through clarity

Dollars, government bonds and large corporate debt have well-established legal status, issuer accountability and regulatory frameworks. Tokenization can fit within existing financial law, making institutional adoption far more straightforward.

It’s harder for NFTs. Questions about ownership, custody, enforceability and investor protection can outweigh technical benefits. In practice, these uncertainties raise risk rather than reduce it. It’s natural for large, institutional tokenization endeavours to focus on liquid assets first. 

The future of tokenization will be defined by assets that are economically central. Obviously, the crypto sector’s early experiments with NFTs were necessary and understandable. It was difficult for NFTs to succeed in the long term. They were focused on the wrong type of asset.

Stablecoins proved this by upgrading the most liquid asset in the world. Tokenized government bonds and equities are the logical next step. This is how blockchains move from experimental technology to foundational financial infrastructure.

Opinion by: Sebastián Serrano, founder and CEO of Ripio.