Asset Tokenization in Financial Markets 2025

Contents39 Token standards are an important aspect of this global harmonization. ERC-20 today remains the dominant token standard, yet it lacks built-in compliance features.93 It is for this reason that compliance-led tokens, such as ERC-1400 and ERC-3643 (T-REX Protocol), are gaining traction: — ERC-1400 allows for enhanced document management and investor protection, lending itself more to securities. — ERC-3643 embeds identity, know your customer/anti-money laundering (KYC/ AML) and transfer conditions, unlocking new approaches to on-chain compliance. Token standards should continue to evolve towards established regulatory frameworks, such as Markets in Crypto-Assets Regulation (MiCAR) in the Eurozone. 4.3 Cross-chain interoperability Interoperability across private and public ledgers ensures seamless asset movement. Financial services entities had adopted at least 72 distributed or programmable ledgers as of May 2025 and driven 10 market forces that are accelerating the deployment of individual networks.94 These networks are not all inherently interoperable and the importance of cross-chain interoperability is underscored to realize inter-network activity. Emerging techniques reduce concerns regarding cross-chain interoperability, notably “honey-pot attacks”, which result from non- canonical bridging. To mitigate this, Chainlink’s collaboration with ANZ Bank, which successfully linked a private ledger to a public programmable ledger using the Cross-Chain Interoperability Protocol (CCIP), showed the potential for cross-chain liquidity. LayerZero has created its Omnichain Fungible Token (OFT) standard, which transfers fungible tokens across programmable ledgers without asset wrapping or middle chains.954.4 Secondary markets In primary markets, assets are initially issued and purchased. Secondary markets involve trading after initial issuance. Today, there is a lack of sufficient secondary-market liquidity and depth for tokenized assets.96 Secondary markets are critical to liquidity, yet tokenized assets struggle to establish market depth.97 Many tokenized assets could not yet attract sufficient secondary trading volume, leading to illiquidity and difficulty in accurate pricing. In fixed income, more than $15 billion in tokenized assets – bonds, structured products, commercial papers and funds – have been issued, as of 2024. However, nearly half of these initiatives report turnover below $1 million, highlighting a significant gap between expectations and actual activity.98 Therefore, an implicit illiquidity premium can be applied to tokenized assets in today’s markets. However, there is a lack of secondary-market data to fully demonstrate the benefits and drawbacks of the usage of tokenized assets.99 Prominent barriers include insufficient incentives for market makers to provide liquidity in predominantly over-the-counter (OTC) markets; high minimum investment thresholds in private placements, with fractionalization offering only partial relief due to administrative costs; regulatory hurdles hindering cross-border trading and collateralization; investor access often restricted to institutions; and listing fees discouraging dual-listing strategies, which traditionally boost liquidity – though UBS notably dual-listed a digital bond on both SDX and the SIX Swiss Exchange in 2022.100 Enabling this is SIX’s bidirectional bridge between traditional and digital central security depositories (CSDs) that enables assets to be issued, custodied or transferred on either venue. Fragmentation risks emerge when providing liquidity, such as settlement assets, for secondary-market trading. For example, Target 2 is used in the Eurozone to provide security settlement services for all CSDs in the jurisdiction. Furthermore, introducing another on-chain cash system for a distinct secondary market could fragment the unity of cash for settlement. Market makers require incentives to provide liquidity and inspire capital formation. Dual- listing can benefit issuers who seek to issue in their native jurisdiction, whether because of compliance requirements or allegiance to a target jurisdiction, to drive turnover with a dedicated pool of investors. Lastly, despite programmable ledgers’ inherent decentralization goals, liquidity remains fragmented across platforms. Barriers to adoption