Tokenization Gains Wall Street Credibility, But Profit Pathways Remain Unclear

Wall Street is increasingly acknowledging a future where traditional financial assets migrate onto blockchain networks, a concept long championed by crypto proponents. This shift gained significant mainstream validation last week with a comprehensive 79-page report from Citrini Research, an influential firm typically focused on broader technology and market trends.

Citrini's report, titled "Breaking the Wall," highlights a pivotal moment for blockchain technology. For years, the burgeoning crypto infrastructure, featuring decentralized exchanges and automated lending protocols, appeared to be a sophisticated solution awaiting a compelling problem. Now, real-world assets (RWAs) — including U.S. Treasuries, credit, stocks, and funds — are beginning to leverage this decade-old digital framework.

Why it matters

The significance of this migration extends beyond enabling 24/7 trading. Citrini argues that tokenization fundamentally transforms financial assets, allowing them to function more like software. This means assets can move seamlessly between applications, serve as collateral, be lent, or integrate into other financial products without each platform needing to rebuild custody and settlement systems from the ground up. This evolution could unlock significant efficiencies and new product innovation across finance.

The necessary foundational elements are also maturing. Stablecoins provide on-chain cash, while crypto wallets, exchanges, and decentralised finance (DeFi) protocols have developed robust capabilities. Furthermore, regulators globally are starting to establish clearer pathways for tokenized securities, fostering greater market certainty.

The Profit Puzzle

While the broader crypto ecosystem stands to benefit from increased on-chain activity, the key challenge for investors lies in discerning where the revenue will ultimately land. More assets moving onto blockchains does not automatically translate to higher valuations for existing cryptocurrencies like Bitcoin or Ethereum, according to Citrini.

Arthur Hayes, co-founder of BitMEX and CIO of Maelstrom, expressed this sentiment bluntly. He questioned the value of simply re-recording a security that already exists in a digital database, suggesting it might amount to little more than improved bookkeeping without clear profit generation. However, potential revenue streams are diverse, including issuance fees, trading revenue, increased demand for stablecoins, lending activity, and collateral usage.

Industry figures offer varied perspectives on potential beneficiaries. Christian Magoon, CEO of Amplify ETFs, which manages the tokenization-focused TKNQ fund, envisions infrastructure providers becoming "toll booths on the blockchain toll roads." He also points to the value of distribution channels like Coinbase, Robinhood, traditional banks, and wealth management platforms that possess established customer relationships.

Jeff Dorman, CIO of investment firm Arca, anticipates the actual tokenization process will become increasingly commoditized due to growing competition. He believes the more enduring economics will emerge after an asset is on-chain, through activities such as trading, lending, or serving as collateral. Firms like Securitize, alongside crypto protocols such as Hyperliquid, Aave, and Aerodrome, are positioned to capture value here.

Zach Pandl, head of digital asset research at Grayscale, suggests a simpler approach: investing in the underlying networks. He identifies Ethereum, BNB Chain, and Solana as current leaders in hosting RWAs and processing transactions. Other networks, including Avalanche and Canton, are pursuing institutionally focused strategies that could see increased demand as banks and asset managers deepen their on-chain engagement.

What to watch

Looking further ahead, Hayes and Citrini both highlight a transformative potential: the integration of tokenized assets with artificial intelligence. They envision AI agents autonomously managing financial services, continuously rebalancing portfolios, optimising yields, securing loans, or adjusting collateral based on market conditions. This requires programmatic access to assets, always-on markets, smart-contract lending, and near-instant settlement—precisely the infrastructure crypto has been building.

Despite the growing momentum, the market remains in its nascent stages. Amplify’s Magoon stresses that tokenized assets represent a tiny fraction of global financial markets. This long runway ahead increases the likelihood that future market leaders may differ significantly from those prominent today, underscoring the dynamic nature of this evolving financial landscape.