Tokenisation Is Moving Beyond the Liquidity Narrative. Here’s What Banks Need to Decide

For years, tokenisation has often been presented as a way to make traditionally illiquid assets more accessible and potentially more liquid. But as financial institutions move from experimentation towards real-world implementation, the more immediate opportunity may lie elsewhere: making settlement faster, more programmable and more efficient.

That is one of the central conclusions of a new Viewpoint from global management consultancy Arthur D. Little (ADL), titled Bank Tokenization: Choosing Between Wrapping & Originating. The report argues that the industry’s focus is shifting from the idea of tokenisation as a liquidity unlock towards its role in improving the infrastructure through which financial assets are issued, transferred and settled.

The distinction matters because putting an asset on a blockchain does not, by itself, create a deeper market for that asset.

As Arjun Vir Singh, Partner and co-author of the ADL report, has put it, tokenising an asset does not automatically create liquidity. Instead, the more immediate value comes from how transactions and settlement can operate on-chain.

Tokenisation does not automatically create liquidity

The distinction between liquidity and settlement efficiency is becoming increasingly important as tokenisation moves into mainstream financial infrastructure.

An asset can be represented through a token and still face the same underlying constraints as before. There may be limited buyers, limited market makers, restricted transferability or no established secondary market.

In other words, changing the format in which ownership is recorded does not necessarily change the economics of the underlying asset.

This is particularly relevant for assets such as real estate, private credit and other traditionally less-liquid investments. Tokenisation can potentially make ownership more divisible or transactions more efficient, but it cannot independently create sustained demand or reliable price discovery.

ADL's analysis makes this distinction explicit. Its report notes that forecasts for the size of the tokenised asset market vary widely partly because different estimates include different categories of assets. Some projections include large pools of assets that could technically be represented on-chain, even when tokenisation does not fundamentally alter their liquidity characteristics.

The more immediate institutional use cases are therefore emerging around areas such as tokenised funds, tokenised deposits, repo and collateral management, where settlement efficiency can translate into tangible operational benefits.

Wrapping versus originating: two very different strategies

For banks, the question is no longer simply whether to participate in tokenisation. The more important question is how.

ADL's report separates the opportunity into two broad approaches: wrapping and originating.

Wrapping essentially means representing an existing financial asset or product on a blockchain while much of the underlying legal, custodial and servicing infrastructure remains unchanged.

A tokenised money market fund, for example, may provide additional functionality around transfer, distribution or settlement, but the underlying fund continues to operate largely according to its existing structure.

Originating goes a step further.

Here, the financial product itself is designed to operate natively on-chain, with elements such as cash flows, collateral, compliance or execution potentially being embedded into programmable infrastructure.

That distinction can determine the capabilities a bank needs, the regulatory considerations it faces and the economics of the business it is trying to build.

As ADL notes, wrapping is likely to be the more natural entry point for many commercial banks because it can build on existing strengths in distribution, compliance and client relationships. Origination, meanwhile, requires deeper technical capabilities and a stronger case for genuine client demand for on-chain execution.

Four paths are emerging for banks

ADL identifies four strategic positions available to commercial banks:

1. Wrap

Banks can tokenise or represent existing products while leveraging their established distribution and servicing infrastructure. For many institutions, this may offer the most practical starting point.

2. Originate

Banks with the required technology, regulatory environment and client demand can develop products designed specifically for on-chain execution.

3. Partner

Instead of building the entire infrastructure internally, banks can work with technology providers or shared networks to participate in tokenised financial markets while retaining flexibility.

4. Stay out

For some institutions, choosing not to participate immediately may still be rational if client demand, economics or regulatory conditions do not justify investment. However, ADL argues that remaining outside the ecosystem indefinitely could become increasingly difficult as financial infrastructure moves further on-chain.

The important point is that these are not simply different technology choices. They represent different business models.

A bank that wraps assets is primarily competing on distribution, client access, compliance and operating efficiency. An institution that originates on-chain products is competing on technology, integration, programmability and the ability to build network effects.

Where tokenisation may gain traction first

The next phase of adoption is unlikely to be evenly distributed across every asset class.

Tokenisation is more likely to scale where there is already an established market, identifiable demand and a clear operational problem that on-chain infrastructure can solve.

Money market funds, collateral and short-term financing are examples of areas where faster settlement and greater programmability can have immediate institutional relevance.

ADL points to the growing use of tokenised infrastructure by major financial institutions as evidence that tokenisation is moving beyond proof-of-concept exercises and into financial market plumbing. The report highlights developments involving institutions such as J.P. Morgan, DTCC and other market infrastructure providers.

This also changes how the opportunity should be evaluated.

Instead of asking only “How much of the world's assets can be tokenised?”, financial institutions may need to ask:

What problem does tokenisation solve for this particular asset or transaction?

If the answer is faster settlement, more efficient collateral movement, programmable payments or reduced reconciliation, the business case can be considerably clearer.

Dubai offers an interesting example

Dubai's real estate tokenisation initiative illustrates both the potential and the limitations of the technology.

ADL highlights the Dubai Land Department's tokenisation project as an example where tokenised ownership is connected directly to registered title deeds, while transactions take place within a regulated framework. The project demonstrates how blockchain infrastructure can be integrated with established legal and ownership systems.

But it also reinforces a critical point: tokenising an asset is not the same as creating a liquid market for that asset.

If there are only a limited number of properties, buyers and sellers, tokenisation alone cannot create the market depth required for continuous price discovery.

The technology can improve the rails. It cannot manufacture demand.

The next debate is about what gets built on-chain

The tokenisation conversation is therefore entering a more mature phase.

The early narrative centred heavily on fractional ownership, accessibility and unlocking liquidity in traditionally illiquid assets. Those benefits may still matter in specific use cases, but the institutional opportunity is increasingly being defined by what happens after an asset becomes digital.

Can collateral move more efficiently?

Can settlement happen with fewer intermediaries?

Can financial contracts respond automatically to predefined conditions?

Can assets and payments interact programmatically?

Can compliance be embedded into the transaction itself?

These questions move tokenisation away from simply creating a digital representation of an existing asset and towards redesigning parts of financial market infrastructure.

For banks, that creates a strategic decision rather than merely a technology project.

The winners may not necessarily be the institutions that tokenise the largest number of assets. They may be the ones that identify where on-chain infrastructure creates a meaningful economic advantage, choose their role accordingly and build the capabilities required to support it.

As Arthur D. Little's analysis suggests, the key decision for banks is no longer whether tokenisation will matter. It is which business they want to build around it — and whether they want to wrap existing products, originate new ones, partner with the emerging ecosystem, or deliberately wait.