The Future of Tokenization: Insights from the OECD

Tokenization might be one of the most exciting advancements in financial technology today. In October 2024, The Boston Consulting Group, Aptos Labs, and Invesco published a report on Tokenized Funds: The Third Revolution in Asset Management Decoded, arguing for tokenization's great potential. At that time, I wrote about fund tokenization and how, with effective regulation, sufficient oversight, technological reliability, and interoperability, it could add value to the financial system and decrease costs while empowering retail investors.

By leveraging distributed ledger technology (DLT), tokenization converts real-world assets into digital tokens that can be traded on a blockchain. This innovation can make it easier for everyday people to own a slice of previously inaccessible assets, such as real estate, art, or even rare collectibles. But what does this mean for the average investor, and why has tokenization not revolutionized finance yet? The OECD provides a comprehensive view of this matter in its analysis.

Why is the OECD’s Opinion Relevant?

The OECD is a unique forum where 37 market-driven economies regularly collaborate to develop policy standards. As a globally respected intergovernmental organization, the OECD provides independent, rigorous policy analyses that draw on comprehensive scientific, technological, and market knowledge. Unlike national policy bodies, the OECD's approach transcends individual country agendas, offering balanced, multilateral perspectives on complex global economic challenges.

The OECD’s Report in 2020

Regarding tokenization, the OECD started investigating its potential a few years back and published a Report on theTokenisation of Assets and Potential Implications for Financial Markets already in 2020.

The 2020 report evaluated distributed ledger technology's (DLT) promise to transform financial markets through asset tokenization, finding a significant gap between theoretical benefits and practical evidence. While acknowledging potential efficiency gains through automation and improved liquidity, the report highlighted major challenges, including regulatory uncertainty, technological limitations, and the need for trusted intermediaries to bridge digital and traditional markets.

In the 2020 report, the OECD concluded that tokenization might be most viable in illiquid markets with multiple intermediaries while questioning its benefits for developed markets with efficient processes. The report emphasized that implementation should be driven by clear business rationales rather than technological novelty and highlighted the importance of regulatory frameworks and cross-border coordination and implementation for successful adoption.

OECD’s 2025 Policy Paper: Experimentation Yes, Adoption Minimal

On January 9, 2025, the OECD published a newPolicy Paper on the Tokenisation of Assets in Financial Markets. The Policy Paper highlights the key missing elements needed for the successful tokenization of financial assets.The 2025 OECD Policy Paper reveals several examples of financial institutions and central banks conducting experimental initiatives, while noticing that the actual market adoption remains minimal. Switzerland's Helvetia III stands out, successfully settling tokenized bond transactions using wholesale CBDC and the UK's Digital Securities Sandbox meanwhile facilitates innovative experiments, as only few governmental sandboxes do. Central banks from Australia, South Africa, Thailand, and Canada have conducted pilots, exploring tokenisation's efficiency gains. However, legal and regulatory uncertainties continue to impede widespread adoption.

Despite growing institutional interest, tokenization still faces significant market barriers. Most current efforts remain experimental, with few live projects reaching meaningful scale. Initiatives include tokenized repo transactions, money market fund share tokenization, and smart contract-based bank guarantees.

The On-Going Hurdles

Despite its promise, tokenization continues to face several significant hurdles:

1. Regulatory Uncertainty: The lack of consistent global regulatory frameworks creates market fragmentation. Different jurisdictions maintain varying rules about tokenized asset classification and trading, impeding widespread adoption;
2. Infrastructure Development: The ecosystem requires robust trading platforms, custodial services, and secure wallets. While progress is being made, the supporting infrastructure remains in early stages of development;
3. Legal Framework Gaps: The relationship between token ownership and underlying asset rights remains complex. Legal systems struggle to keep pace with technological innovation, creating uncertainty about enforcement and ownership rights;
4. Market Liquidity: Successful tokenized asset markets require a critical mass of participants. Without sufficient trading volume, sufficient investors and companies investing time and money in such products, the promised liquidity advantages may not materialize.

The Signs of Institutional Oppenness

Despite the above stated hurdles, several developments signal growing momentum:

• Digital Bonds in Slovenia: The issuance of the country’s first digital bond in 2024.
• Established Exchange Integration: Platforms like SIX Digital Exchange and Deutsche Börse are increasingly integrating tokenization initiatives.
• CBDC Experiments: Switzerland’s Project Helvetia and similar efforts by other central banks highlight tokenization’s role in future monetary systems.

These initiatives underscore tokenization's potential and institutional openness to them with the view of reshaping financial markets. Still, success will depend on addressing foundational challenges.

Path Forward: Collaboration and Clarity

The path to tokenization demands multilateral collaboration among governments, financial institutions, researchers and technology innovators. Policymakers must craft clear regulatory frameworks that balance innovation with investor protection, while the private sector builds the infrastructure necessary to support scaled adoption.

For investors, the following practical steps can help navigate this emerging space:

1. Research Platforms: Investigate providers offering tokenized assets;
2. Verify Compliance: Ensure platforms meet regulatory and security standards;
3. Understand Rights: Know the legal implications of token ownership;
4. Stay Informed: Monitor institutional developments and regulatory changes;

Conclusion: Continue to Experiment and Ask Critical Questions

Similarly as in 2020, the OECD sees the potential of tokenization also in 2025. The key potential being an opportunity to modernize and democratize financial markets, offering increased transparency, enhanced liquidity, and broader accessibility. However, its successful implementation requires careful navigation of a complex landscape with plentiful of issues that technology alone will simply not solve.

While existing regulatory frameworks and traditional tools are applicable in many cases, the unique attributes of DLT-based finance and tokenization introduce new risks that warrant additional policy considerations. These risks include, but are not limited to, technological and cybersecurity vulnerabilities, pseudonymity and anonymity enabled by DLT, anti-money laundering (AML) and combating the financing of terrorism (CFT) risks, and investor and market protection concerns.

Other critical challenges include a lack of visibility into control structures, potential conflicts of interest or collusion, and risks associated with smart contracts, such as code errors, private key compromises, and re-entrancy attacks.

As OECD points out, even when existing regulatory tools could theoretically address these risks, the distinct differences in how DLT-based finance operates compared to traditional financial systems may lead to enforcement gaps in some jurisdictions. For instance, regulations designed for conventional finance may fail to capture tokenized transactions due to differences in the mapping of entities or activities. Data collection poses an additional challenge, as the opacity of off-chain activities, limited interpretability of on-chain data, and pseudonymous counterparties hinder market surveillance and risk monitoring. Activities occurring across multiple blockchains further complicate regulators’ ability to assess interconnections and evolving risks.

Finally, the adoption of tokenization introduces significant changes to financial market practices, such as the near real-time settlement of tokenized assets. While these innovations offer potential efficiencies, they may also disrupt existing trading and settlement frameworks, requiring participants to adapt operational models and risk management practices accordingly. Policymakers, regulators, and financial supervisors have a critical role in tracking these developments and ensuring that regulatory frameworks are sufficiently robust and adaptable to address these emerging risks without stifling innovation.