Exit Sandbox: Why 2025 Was The Year Tokenization Became More Than An Experiment

In 2018, venture capital poured into platforms like Harbor and Polymath, promising to unlock trillions in illiquid assets. Harbor alone raised $28 million to tokenize real estate. Its first marquee deal, a $20 million apartment tower, collapsed before closing. Polymath raised $59 million in a token sale and saw 120 security token offerings created on its platform. Only five made it to sale, and none hit their fundraising caps.

For the better part of a decade since then, nearly every major financial institution ran a pilot that garnered attention and interest, but deals fell apart, tokens sat on platforms with no buyers, and the exchanges built to trade them never found sufficient volume.

That all started to shift in 2025: regulatory frameworks have begun to take shape, infrastructure standards are converging, and real volume has appeared in repo markets, private credit, and trade finance. Multiple structural barriers that have kept tokenization confined to controlled environments finally gave way simultaneously.

The Decade of Expensive Demos

The disconnect was never about skepticism. Banks understood the efficiencies that atomic settlement, programmable compliance, and 24/7 markets could unlock. However, deploying new systems that handle trillions in assets presented a complex web of challenges. Three particular barriers kept tokenization trapped.

First, regulatory frameworks were vague for tokenized securities and treated them as novelties. Every project required bespoke legal opinions and extended dialogues with cautious regulators. Another issue was that the market was nascent and remained fragmented. Competing platforms developed incompatible standards. Assets tokenized on one platform couldn't interact with another, and liquidity was locked in isolated pools. Lastly, there was no overwhelming incentive. Traditional infrastructure is slow and expensive, but institutions have built robust operating and compliance models around it. Custody arrangements are well-understood, and settlement has decades of legal precedent. Institutions had no reason to absorb switching costs.

What Actually Changed in 2025?

While regulatory frameworks worldwide have progressed in a slow but meaningful way, the real driver for tokenization this year has been economics:

Interest rates created opportunity cost. With Treasury yields at 4%, stablecoin holders collectively sacrifice roughly $8 billion in annual interest by holding non-yield-bearing assets (1). Tokenized Treasury funds solved that problem. BlackRock's BUIDL fund launched in March 2024 and hit $1 billion in assets by March 2025, peaking at nearly $2.9 billion by mid-year (2). Demand came from an unexpected source–DeFi protocols needing yield-bearing reserves for their stablecoins. Ethena allocated $200 million to back its USDtb token, which now holds $1.8 billion of BUIDL as reserve. Ondo, Frax, and others followed (3).

Stablecoins as a Treasury buyer drove institutional-grade crypto infrastructure. Stablecoin infrastructure is creating massive, consistent demand for short-term government debt. Tether’s last attestation report showed a $135 billion exposure to U.S. Treasuries. Circle's $76 billion USDC reserve holds roughly $27 billion in short-term Treasuries and $40 billion in overnight Treasury repo agreements. Servicing reserves at this scale required building institutional-grade custody, compliance frameworks, banking relationships, and on/off ramps. The very same rails and infrastructure that other tokenized assets can plug into, propping the door wide open for bringing new instruments on-chain.

Private credit found its use case. The asset class grew tremendously in recent years, but its outdated structure with multi-year lock-ups and minimal secondary market was ripe for disruption. As investors demand liquidity options, tokenization offers programmable redemption mechanisms, enables fractional secondary trading, and provides real-time transparency. As a result, tokenized private credit now exceeds $19 billion in active loans on-chain (4).

Interoperability matured. The inability for assets tokenized on one platform to be moved across networks resulted in the exact liquidity problems that tokenization was supposed to solve. Cross-chain messaging protocols have changed this. Traditional financial infrastructure started directly integrating with cross-chain protocols. On the token portability side, burn-and-mint mechanisms are displacing liquidity pool bridges for native token transfers, which removes slippage and fragmented token supplies. The results are that a tokenized fund can now launch simultaneously on six blockchains and move seamlessly between them.

Why This Time Is Different

In 2018, tokenization was a solution looking for problems. In 2025, it’s quite the opposite. Higher interest rates penalized idle capital, private credit's liquidity constraints became unsustainable as the market grew, stablecoins required institutional-grade infrastructure, and interoperability made big strides in both TradFi and DeFi. These are real catalysts for change.

The building blocks for bringing assets on-chain are now in place and regulators have signaled that compliant tokenization can proceed. The firms that are tokenizing funds now come with decades of experience as asset managers, and are building sensible new businesses rather than making an innovation bet.

Hurdles Remaining

It’s important to remember there’s still work to be done. Adoption is uneven across asset classes and geography. Cross-border transactions remain complicated, with different jurisdictions imposing varying requirements on tokenized assets, limiting the global access and liquidity that tokenization is meant to enable.

Custody and liability questions still lack a full resolution. Tokenized asset custody involves technical risks like smart contract bugs and key management that don't map neatly onto existing legal structures. Courts have begun addressing this, but comprehensive frameworks will still take years to develop.

Not all incarnations of tokenized assets are superior to their conventional forms. Perhaps most critical, some of the most visible “tokenized stocks” on trading platforms today are not actual equities at all, but synthetic or derivative representations that confer no shareholder rights. Until regulated, on-chain representations of actual securities become widely accessible, tokenization will remain partly disconnected from the core of capital markets.

The Path Forward

We have graduated from the experimentation phase, learning from mistakes and gaining important lessons along the way. The winners in this next phase will be institutions building a practical business on tokenization.

This means identifying specific use cases where tokenization solves genuine business problems rather than copying and pasting existing processes. It also means investing in teams that provide expertise in both traditional market structure and blockchain systems. Most importantly, it means recognizing that tokenization isn't a single decision but a series of incremental choices about which assets, which counterparties, and which workflows to migrate.

2025 may not be a tectonic shift once predicted, but it might be building towards something even more durable. It’s happening gradually as participants adopt common standards, regulatory frameworks stabilize, and economic incentives align. The slow, but essential work of building better market infrastructure has begun.

References
(1) defillama.com/protocol/blackrock-buidl
(2) documents.keyrock.com/hubfs/The-Great-Tokenization-Shift.pdf
(3) gate.com/learn/articles/in-depth-analysis-of-black-rock-s-buidl-fund-how-it-reshapes-the-rwa-landscape/10202
(4) gate.com/learn/articles/in-depth-analysis-of-black-rock-s-buidl-fund-how-it-reshapes-the-rwa-landscape/10202

About the Author
Article authored by Min Wei, Chief Business Officer, Algorand Foundation