To Become a Multi-Trillion-Dollar Industry, Real-World Asset Tokenization Will Need to Work With, Not Replace, Current Frameworks

When BlackRock CEO Larry Fink declared tokenization would transform financial markets, the blockchain world celebrated. Finally, one of traditional finance's most influential figures validated what crypto enthusiasts had long proclaimed. Yet the industry faces a critical choice: continue pushing for disruption at all costs, or embrace existing legal frameworks to unlock mainstream adoption. This is especially true with the tokenization of real-world assets.
From Manhattan skyscrapers to gold reserves, the tokenization of real-world assets has moved beyond theory to practice. But unlike cryptocurrencies, which initially grew by sidestepping traditional financial systems, real-world asset tokenization cannot simply ignore established legal structures. The rights to a building, the ownership of precious metals, or the transfer of regulated securities all exist within complex legal frameworks developed over centuries.
The path to a multi-trillion-dollar industry will not be paved with regulatory disruption—it will be built on legal compliance. The question isn't whether tokenization will transform asset markets but rather how the industry will adapt to work within existing laws while leveraging blockchain's potential.

Tokenization, Today
The current state of real-world asset tokenization reveals a market at a turning point. Traditional financial institutions, once skeptical of blockchain technology, are now leading the charge, with billions of dollars worth of real-world assets recorded on-chain, and trillions transacted. This institutional adoption marks a significant shift from the early days of dabbling and pilot tokenizations.

Now, we're seeing tokenization applied across diverse asset classes: funds, equity, rental properties, foreign exchange, art, airline tickets, commodities, and shipping cargo.

The appeal is clear: unified ledgers, smart contracting, and atomic settlement bring new efficiencies to previously fragmented markets. Tokens representing gold reserves held in Switzerland on U.S. treasuries can be used to collateralize an interest rate derivative in Singapore, any time of day or night.
But this growth comes with conditions and the successful examples share a common thread: strict adherence to existing legal frameworks. The projects gaining traction aren't those attempting to circumvent regulations, but those embracing compliance as a core feature. They recognize that for real-world assets, the blockchain serves as a new technological layer – not a replacement for fundamental legal structures.

Blockchain Can’t Do It Alone
Building the infrastructure to support large-scale, multi-trillion-dollar asset tokenization requires more than technological solutions. While blockchain platforms provide the technical foundation, the supporting legal and regulatory infrastructure demands equal attention.

Financial institutions entering the tokenization space need robust compliance systems that bridge traditional and digital finance. This includes developing standardized frameworks for asset verification, ownership validation, and transfer procedures.

KYC and AML compliance presents another crucial infrastructure component. Unlike permissionless cryptocurrency networks, platforms for tokenized real-world assets must often implement comprehensive verification. Every participant in the ecosystem, from issuers to investors, must be properly identified and screened.

Legal and technical frameworks also need to be aligned for smart contracts to be enforceable and have real-world meaning. The judicial system must recognize and uphold on-chain title transfers. If digital ledgers are to faithfully represent the real world, they must be capable of being updated in response to off-chain legal events such as court-ordered asset seizure or sequestration.

Modernizing The Traditional Approach
Traditional investors have no desire to abandon familiar protections. They want regulated brokers, licensed exchanges, and clear legal recourse if something goes wrong. The success of real-world asset tokenization depends on providing these assurances. When Fink speaks about tokenization, he's not envisioning a “not your keys - not your coins”, “code is law” system in which the state plays no role. He's describing a modernized financial infrastructure that operates within, and is supported by the law.

The key to non-crypto user adoption lies in this seamless integration. Investors should be able to purchase tokenized real estate through their existing investment accounts. Property owners should be able to tokenize assets through their regular financial institutions. The technological complexity should be abstracted away, leaving only the benefits visible to end users.

The path to widespread adoption of tokenized assets will be done through traditional financial institutions, not via hardware wallets, private keys, and DeFi protocols. For the average investor or property owner, blockchain technology will not be the star, it will be the protocol behind the scenes, the means to an end.

The path to multi-trillion in tokenized assets is becoming clearer, but the path is still arduous. As regulatory frameworks mature and institutional infrastructure develops, we're seeing the early signs of mainstream adoption. The question isn't if real-world asset tokenization will reach this scale, but when and how.

Regulatory clarity continues to emerge across major markets. The European Union's Markets in Crypto-Assets (MiCA) regulation provides a framework for digital asset services. Singapore's progressive regulatory approach offers a model for other jurisdictions. The U.S. Securities and Exchange Commission, despite its cautious stance on cryptocurrencies, has shown openness to properly regulated tokenization initiatives.

Transform, Don’t Replace
The tokenization of real-world assets represents a transformation of market infrastructure, not a replacement of market fundamentals. Technology's true power lies in its ability to enhance existing systems while operating within established legal frameworks.

The vision of a multi-trillion tokenized asset market may seem like a blockchain fantasy, but it is part of a natural evolution of traditional finance. Reaching this milestone requires the blockchain space to embrace its role within existing legal structures fully.

The technology is ready. The legal frameworks exist or will be developed. The path to $2 trillion lies in bringing them together, not keeping them apart.

About the Author
Article authored by Eric Wragge, Global Head of Business Development & Capital Markets at the Algorand Foundation