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Points of Focus
- A new report warns tokenization could fragment rather than deepen liquidity.
- The risk depends on whether tokens share the same legal claim.
- Instant settlement could also raise firms’ capital requirements, the report finds.
A new report from the Canadian Forum for Financial Markets argues that tokenization’s most commonly cited benefit, deeper liquidity, is not guaranteed and could work in the opposite direction.
Authored by Duane Block, a managing director at Alvarez and Marsal Crypto Advisory, the report states that liquidity “ultimately depends on the presence of buyers, sellers, market makers, and investors willing to transact,” not on the technology used to represent an asset.
Fragmentation is a foundational problem for tokenization
The fragmentation risk stems from a classification problem the report treats as foundational. A token can represent direct ownership of a security, a beneficial entitlement held through an intermediary, or a separate contractual wrapper created by a third party. These three legally distinct products are frequently marketed under the same tokenized equity label.
If multiple platforms each issue their own wrapper referencing the same underlying stock or bond, trading activity and pricing information are split across instruments that are not legally fungible with one another. The report states this could “increase complexity rather than reduce it,” the opposite of what consolidation tokenization is usually pitched to deliver.
The fragmentation is not hypothetical. Data from RWA.xyz shows a distributed asset value of $38.08 billion against a Represented Asset Value of $366.31 billion as of August 18, 2026, a roughly $328 billion gap between assets actually issued onchain and the much larger value of assets that tokenized products merely reference or track.
A capital cost hiding inside the speed pitch
The report raises a second, related tension around settlement speed. Tokenization’s promise of atomic, near-instant delivery-versus-payment is typically framed as pure upside, less counterparty risk, faster finality. But the current market structure relies on netting arrangements that let firms hold substantially less cash and securities than their total trading volume would otherwise demand.
Settling every transaction instantly and on a gross basis removes that netting benefit, and the report concludes firms “may need significantly larger amounts of prefunded cash and securities” as a result, even as counterparty risk falls.
Both findings point to the same underlying argument: tokenization does not automatically deliver the efficiency gains attached to it.
The report states plainly that “liquidity is not created by tokenization alone,” and separately notes that whether fragmentation or consolidation wins out depends on “the extent to which tokenized instruments are legally recognized, operationally accepted, and integrated” into existing trading and settlement systems.
Legal clarity, not technology, decides which risk wins out
The report frames tokenization as evolutionary in the near term and potentially transformative over a longer horizon, but only if legal and infrastructure questions get resolved first.
Until token classification standards or infrastructure design address which wrapper counts as the real security, fragmented liquidity remains a live risk sitting underneath tokenization’s efficiency pitch.
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