Tokenization Fails to Deliver on Hype Amid Regulatory and Distribution Challenges

The tokenization of assets has been touted as a revolutionary concept, but despite the hype, it's not taking off at the rate many expected. Franklin Templeton's Chetan Karkhanis examines the market's evolution and identifies several structural barriers that are holding investors back.

The biggest challenges facing the sector are regulation, interoperability, and distribution. Traditional institutions still retain a significant advantage when it comes to distributing tokenized assets, but digital platforms could attract new investors and capital.

Karkhanis notes that investor participation, liquidity, and portfolio use provide stronger adoption measures than issuance volumes. The fragmentation of standards among different blockchains and networks is also a major obstacle.

The Bank for International Settlements (BIS) has outlined how interoperable networks connecting tokenized assets with central bank reserves and commercial bank money could reduce reconciliation, support simultaneous settlement, and enable programmable transactions.

Karkhanis believes that mainstream investors will continue to evaluate returns, risks, costs, liquidity, and suitability rather than the technology recording ownership. He expects blockchain infrastructure to fade into the background as tokenized products become more widely adopted.