Why tokenized assets aren’t liquid (yet)

Tokenized assets proved to be one of the main use cases of blockchains. Over the course of crypto history, multiple models of tokenization have been proposed and tested. In 2025, tokenization accelerated by leaps and bounds, but tokenized real-world assets (RWA) remain comparatively illiquid. In this guide, we will discuss why tokenization doesn’t create liquidity without additional on-chain tools and financial structure.

Tokenized asset liquidity is a question that has been raised multiple times after projects launched various on-chain bonds, money markets, and stocks. Once the assets were on-chain, RWA liquidity was difficult to achieve due to a range of factors, including regulations, real demand, and general caution about supply, redemption, and other technical issues. 

The tokenization liquidity myth

Tokenizing an asset means it will forever exist on-chain, be transferable, and generally share most of its features of a crypto token. Early crypto tokens were first traded informally and existed without demand and liquidity. Real-world assets’ crypto liquidity is a more complex issue. 

For some token creators, a dominant narrative emerged, conflating on-chain assets with immediate liquidity. RWA tokens arrived relatively late, when crypto markets were already mature. New token launches happen all the time, with immediate trading. 

RWA tokens, on the other hand, could be transferable, but were not tradeable in any manner usual to coins, altcoins, or tokens. Holders may move their tokens between wallets or even into a DeFi vault, but for some assets, the transactions are limited. Tokenization meant a potentially valuable reserve that, however, did not necessarily have an easily attainable market. 

For instance, exchange-traded funds (ETFs) offer a structure to wrap real value, but an ETF ticker still needs to find a trading platform with liquidity.

What liquidity actually requires 

Real-world asset crypto liquidity needs an ecosystem of buyers and sellers, along with a suitable platform to build order books or other trading mechanisms, such as algorithmic curves. The willing buyers and sellers alone do not ensure liquidity without a way to efficiently and quickly match orders at scale. Only when the asset has achieved liquidity can its value be determined by market forces. 

An asset would need active market traders willing to take risks on price fluctuations. Additionally, there would have to be a constant two-sided order flow. To achieve that, the exchange or platform must attract active market makers who are willing to place a spread of bid and ask orders on each token. 

Tokenized assets must also have a form of risk warehousing, where an entity manages the underlying inventory and tracks the rules on token minting and redemptions. 

Tokenized assets can, in theory, be traded across different venues, including centralized or decentralized markets. Those venues will provide the price discovery for the assets, based on predetermined rules and their underlying value. 

Finally, tokenized securities trading must have clear rules on ownership and the final settlement and transfer of ownership. 

Putting assets on-chain can solve only some of those requirements, with some limitations. For instance, on-chain trading can create pairs, but would still require market makers. Centralized exchanges can list assets, but they have internal rules and are often reluctant to trade stock-like assets, fearing additional regulatory requirements.

Fragmented markets kill liquidity

Tokenization expanded quickly in crypto markets, becoming one of the major hype narratives. This led to several types of tokenized assets, using multiple available chains. Each issuer had a different approach to launching tokenized RWAs, and some came with additional limitations on eligible users. 

Tokenized assets are usually created or redeemed at a single venue, depending on the issuer. Some creators control their inventory tightly, as in the case of tokenized money market funds. When analyzing on-chain vs. off-chain liquidity, an asset may be cashed out, but almost no on-chain trading. As a result, when comparing on-chain and off-chain liquidity, a token may be redeemable through the issuer while showing little to no on-chain trading. Other types of RWA crypto assets may have active markets, but no way to swap for the underlying stocks.

In tokenized securities trading, there is also no consolidated tape or an electronic system to continuously report price data. Instead, platforms choose ad-hoc solutions through existing crypto oracles, testing out a novel information system. 

After the initial tokenization, some assets had thin secondary markets, once again showing the difficulty of securing liquidity for on-chain assets. 

Crypto spot markets often launch with already well-known rules and easily available tools such as in-wallet trading, centralized platforms, or DEXs. Tokenized bonds or funds are usually limited to accredited investors or institutions. 

Who is supposed to make the market?

When launching a tokenized RWA, the immediate question is who will ensure a market with sufficient orders. Usually, markets for digital assets are highly dynamic and easily draw in market makers. For RWAs, their underlying limitations for tokenized bonds, stocks, or even real estate, mean potential market makers may not be able to perform their usual trades.

In extreme cases, tokenization of physical assets in the form of an NFT may require an entirely different market structure, usually a platform with auctions. Those markets are very illiquid and depend on deliberate actions from potential buyers. 

Unlike for crypto tokens, tokenized RWAs lack structurally viable market makers. Traditional stock traders are wary about on-chain actions, which are often irreversible. 

Tokenized stocks also pose balance sheet constraints such as the actual legal ownership of underlying shares, as in the case of dividend payments, stock splits, or other activities from traditional finance. There is also no unified standard of reporting in company balances whether some of their stocks have been tokenized. 

Capital ownership and regulations also pose a problem, especially for cross-border holdings. 

Equities and ETFs rely on the traditional market infrastructure, including live trading, brokerages, and specialized market makers. Crypto trading is different, with 24/7 trading and deep liquidity for coins like BTC and ETH. However, tokenized funds or equities rarely achieve similar liquidity. 

Due to issuance constraints, RWAs often rely on issuer-supported liquidity, where the only way to redeem the securities or bonds is through their issuer. This liquidity setup does not scale, and some issuers only work with a limited circle of clients, as in the case of the BUIDL token.

Legal & settlement frictions

On-chain token creation is trivial and can make claims to represent any external value. When it comes to off-chain legal ownership, the regulations are not as clear. Usually, the issuer will hold and control the underlying assets. But for some tokenized assets, there will be no way to switch between owning a token and transferring the title of shares. 

Share ownership rules may depend on jurisdictions, so not all types of tokenized assets will have redemption rights. Buying a tokenized stock does not necessarily come with a path to transferring the stock through a brokerage. Owning a token may not be accepted as a claim on stock ownership. Usually, stock tokenizers will pre-empt any claims on owning or transferring the underlying shares. 

For some tokenized shares, ownership is not permissionless. Buying into the tokens may be limited to accredited investors, or at least by KYC, background checks for whitelisting, or locking up transfers. 

All of this means tokenized RWAs may not be suitable for high-velocity trading and arbitrage. When liquidity exists, it is often fragmented and confined to specific protocols or controlled redemption pathways. Some RWA tokens are also not redeemable.

Why DeFi liquidity models don’t port cleanly to RWAs

DeFi liquidity seems like an extremely easy way to access the tokenization market. Yet newly created RWA tokens rarely make it into decentralized platforms. One of the reasons is the mechanism of price discovery in DeFi, using automated market makers. The price of an asset depends on the available liquidity. 

However, stocks are already priced through trading on traditional markets. AMM cannot ensure that the decentralized trading pair will be able to support the tokenized share’s real price coming from traditional order books. 

Usually, assets with variable prices rely on oracles, which fetch pricing information. For high-frequency trading, those oracles are simply too slow. 

There is also the risk of pricing stale assets, meaning a disparity between the real stock and its tokenized version. With a slower oracle, traders may end up with a skewed market and accrue losses in comparison to trading the stock itself through another platform. 

Tokenized assets may also face difficulties in DeFi lending due to overcollateralization constraints. Due to the volatile nature of crypto, DeFi uses over-collateralization, which may not be suitable for the far less volatile tokenized assets. 

Tokenized RWAs behave like bonds, or credit instruments, in that they represent a promise of value. However, they are not tangible and do not confer true ownership. They can be traded for value, but the carrier does not own the underlying value. This peculiarity may hinder investors, while traders remain for the short-term price action where applicable.

Tokenization improves settlement, not demand

Tokenization is still a valuable tool that can improve asset trading. Tokens are extremely suitable to track transfers and general operations, as well as settlement. Tokenized markets can easily support 24/7 trading or payments, as the distributed ledger is always updated, with no need for downtime or a weekly settlement period. Blockchains thus created an exact accounting tool, which could replace other forms of settlement. 

Tokenization is also transparent and allows for detailed tracking of participants. 

When an asset is tokenized, this does not immediately invite buyers. Limited trading platforms and ownership rights may stop buyers. Risk appetite may also differ between stock and native crypto traders. 

Crypto tokens are often riskier compared to traditional assets. As a result, tokenized assets may not be suitable for crypto-native risk appetites.

Speculative flow of liquidity is also a factor in creating lively markets. In crypto, that flow is extremely unpredictable and usually tracks assets showing the potential for directional moves. Stagnant tokenized assets may be unattractive for speculative traders.

Why tokenized treasuries are the exception

One of the best use cases for tokenization is tokenized government debt. As of January 2026, tokenized government debt has grown to over $9.21B with no signs of abating from its near-vertical expansion. 

Most of the tokenized treasuries are US Government debt, in the form of short-term T-bills or other types of bonds. The tokenized portion is a small share of the $38.5T in outstanding government debt, of which $9.5B is tokenized US Government debt. Despite this, tokenized bonds are a growing source of security for crypto projects.

Tokenized government debt has clear pricing benchmarks based on an extremely predictable risk profile. It relies on liquid off-chain markets with significant depth. 

Holding government bonds is already routine for institutions, and those assets offer predictable cash flows. Products related to government debt are still in the testing stage, with several institutional pilot programs by large US banks. 

Government debt is also one of the key assets in the creation of some stablecoins, which are a private case of RWA tokenization. 

What would actually make tokenized assets liquid

The crypto market has been waiting to make tokenized assets liquid, and add new types of tokens into its trading ecosystem. There are multiple steps in securing the infrastructure for truly seamless RWA trading on crypto rails. 

Projects must secure a proprietary prime brokerage layer for off-chain settlement, official ownership, and redemptions where deemed possible. For now, tokenization companies hold the assets in a centralized account, and do not offer redemptions to retail traders. 

In crypto, multi-exchange, cross-venue trading is the norm. For tokens, infrastructure exists to settle across platforms. However, tokenized equities or bonds usually have limited markets or specialized trading venues. 

RWA tokens also do not have a standardized issuance framework. Several issuers are competing, creating tokenized stocks with different standards. Some projects seek workarounds with no asset backing, merely generating tokens to represent the price of stocks. 

As token trading is global, there is no regulatory clarity on custody and redemption. In the early stages, most RWA tokens are based on US stocks or government bonds, but attempting to tokenize international equities makes the issue even more complex. 

Tokenization also challenges the TradFi side, which also faces the challenge of integrating tokens into a TradFi stack. Brokerages, TradFi exchanges, and other participants may need to answer the questions of the blockchain industry on an optimal approach to carrying stocks and bonds.

Liquidity is earned, not minted

The main element of asset tokenization is to build a new market with a wider access and transparent, low-cost, reliable settlement across blockchain rails. So far, the crypto market has shown it can attract multiple sources of liquidity, sparking hopes for RWA tokens trading. 

However, tokenization works as infrastructure and settlement rails, but it does not guarantee liquidity. On the one side, international and US-based traders may seek easier ways to trade debt or equities, as newer generations of investors are used to app-based environments and instant access to investment decisions. 

Liquidity is a function of participants and access, giving opportunities to either institutions or retail. When it comes to RWA tokenization, retail may be the best marker of adoption, showing the relatively frictionless settlement on blockchains. Yet tokenization itself is not enough to launch liquid, low-risk trading, and there are more elements to be secured before RWA tokens catch up with crypto-native pairs. 

RWA tokenization is a long-running game, only lately expanding to more significant levels. Before that, for years RWA tokens were a low-grade experiment, with very small value locked compared even to altcoins or tokens. Tokenization will not have a fast adoption similar to DeFi, which started out as a permissionless unregulated activity. Tokenization still requires an extra layer of credibility and TradFi infrastructure to ensure that tokens indeed represent assets held by trusted intermediaries, rather than a representation of market prices.