Tokenized Markets Fail in the Absence of Multichain Infrastructure

The race to tokenize trillions of dollars in real-world assets is unmistakably underway. BlackRock, the largest asset manager globally, advances into the realm of tokenized funds following its BUIDL fund exceeding $2 billion. Nasdaq has submitted a filing with the SEC to commence trading in tokenized securities. Meanwhile, firms like Stripe and Robinhood are developing their own blockchain solutions.

The question is no longer whether capital markets will transition on-chain, but rather how this will unfold. The outcome will dictate if tokenization reshapes global finance or devolves into a dysfunctional, inefficient system. This “infrastructure debate” is not a minor issue. It’s the primary challenge that will shape the future of on-chain finance. A misstep could see the promise of tokenization falter under its own implications.

The impending divide in on-chain finance

While the potential is significant, emerging primary methods for constructing financial infrastructure are perilously unstable and flawed. Yes, Ethereum’s (ETH) Layer-2 and Layer-3 strategies are creative. However, they reflect an alignment with technological advancement, while concurrently leaving behind a fragmented collection of systems.

With over 50 L2s currently available, liquidity is becoming fragmented across isolated ecosystems. The challenge lies in the fact that hackers are drawn to environments where transitions between ecosystems depend on fragile bridges: over $700 million was lost to bridge exploits last year alone. This obligates each L2 to establish its services, diminishing the promise of seamless interoperability and leaving users with a disjointed experience.

Conversely, enterprise-designed “walled-garden” blockchains present a different but equally significant drawback. These private networks may provide privacy, yet they detach businesses from the broader crypto economy. Liquidity and users migrate elsewhere, and the silos tokenization aimed to dismantle are reconstructed.

The past illustrates the risks of centralized authority. The GameStop incident, during which Robinhood halted trading, showcased how a singular entity can obstruct market access. This emphasizes the risks posed by tokenized assets encased within closed systems, undermining the essence of open markets. This is the threat that enterprise chains risk reintroducing.

A multichain basis for global markets

So, is a multichain infrastructure founded on horizontal scaling and native interoperability a more promising route?

Primarily, instead of layering on additional structures or building barriers, this approach connects parallel blockchains to share security and finality without relying on frail bridges. Increasing the number of chains resembles adding lanes to a highway, effectively enhancing capacity to accommodate the speed and scale that institutions require.

Crucially, reliance on centralized mediums can be avoided through native interoperability, allowing data and assets to move seamlessly across chains. Consequently, liquidity becomes shared rather than confined, fostering a modular setting for market exploration. This means enterprises can create sovereign, high-performance blockchains while still retaining access to the wider ecosystem. For markets, it offers a neutral, trustworthy, and scalable foundation.

Innovative architectures are already illustrating this in action. They’re establishing a consolidated liquidity pool while enabling specialized applications.

The implications: Trust, liquidity, and regulation

Complex tokenized markets cannot operate effectively with liquidity trapped in silos. In essence, the core advantage of transforming an asset into a token is to enhance its liquidity and accessibility, yet a fragmented ecosystem contradicts that goal.

For instance, if an investor possesses a tokenized security on one L2, they cannot “interact” and trade with a buyer on another, leading to inefficiencies in the market.

Disparate ecosystems of L2s and enterprise silos are ill-equipped to handle large trades that demand deep, unified liquidity pools. They cannot escape slippage.

Moreover, trust is at stake. A transparent and interconnected base layer provides regulators what they need — clear audits and comprehensive tracking of provenance throughout the ecosystem.

In last year’s survey from the World Economic Forum, 79% of respondents emphasized that clear regulations are the foremost prerequisite for adopting on-chain cash. Realistically, it’s impractical to expect regulators to oversee multiple isolated networks. Hence, a multichain foundation affords a clearer perspective on market activities, making risks easier to identify and mitigate. Ultimately, connectivity is crucial for trust, adoption, and scalability.

Connectivity, not control

Global finance stands at a pivotal moment as real-world assets transition on-chain. Trillions of dollars could be rendered more efficient, liquid, and transparent.

Nevertheless, here comes the “if.” If we continue to construct the bunkers of yesteryear under the guise of innovation, what will the future resemble?

Certainly, short-term remedies might surface through fragmented L2s and secluded enterprise chains. Yet, these are likely to fracture markets, impede adoption, and compromise the promise of tokenization.

Tokenization cannot thrive if it’s constructed on silos. The future of global markets hinges on connectivity, not control.

C.J Freeman

C.J Freeman is a developer, published author, and active KoL on Crypto X. He is recognized in the Web3 space not only for his Solidity expertise but also for advocating for crypto assets in the information age. Prior to joining Kadena, C.J co-led startups, worked within LSTs, DAOs, and Oracle networks. Throughout his career, he has contributed to projects at both the technical and strategic levels. Now, at Kadena in Developer Relations, C.J is dedicated to nurturing and supporting a dynamic developer community through tools, content, and events. He has positioned himself as a vital connection between developers and internal teams, transforming feedback into tangible product enhancements.