JPMorgan slams tokenization hype, claims it is "disappointing"

• JPMorgan analysts stated that tokenization has seen low institutional growth despite the growing trend around it.
• The analysts stated that much of the hype surrounding tokenization is driven by crypto-native firms.
• The statement comes amid the SEC's Project Crypto initiative, which aims to advance the tokenization of the US financial market.

JPMorgan Chase analyst Panigirtzoglou stated in a report on Wednesday that the hype surrounding tokenization has yet to attract much institutional adoption.

Tokenization yet to gain wide institutional adoption: JPMorgan

The asset tokenization trend still lags behind expectations and has failed to rally strong attention from traditional financial institutions, according to JPMorgan's Nikolaos Panigirtzoglou in a Wednesday report.

The report stated that much of the hype around the sector is influenced by crypto-native firms, with little effort from traditional banks. 

"There is also little evidence so far of banks or customers moving from traditional bank deposits to tokenized bank deposits on blockchains," said Panigirtzoglou.

He added that while initiatives like BlackRock's BUIDL and Broadridge's Distributed Ledger Repo (DLR) platform offer efficiency improvements, they still fall short in terms of scale.

The report also highlighted that many traditional finance firms are speeding up settlement times through fintech, while blockchains are still trying to catch up with current transaction speeds.

"In our mind, in addition to the regulatory and legal hurdles, this rather disappointing picture on tokenization also reflects traditional investors not seeing a need for it thus far," added Panigirtzoglou.

He further explained that the limited adoption is tied to investor skepticism, as many traditional institutions remain cautious of blockchains' transparency. As a result, much of the institutional interest in crypto is limited to Bitcoin exposure.

The report follows the Securities and Exchange Commission's (SEC) Project Crypto initiative, which aims to modernize securities regulations to enable the US financial markets to move on-chain.

Several crypto industry experts, including Bitwise CIO Matt Hougan, expect trillions of dollars to flow into the on-chain economy over the coming years.

Despite its cautious outlook, JPMorgan has been testing tokenized transactions on its Kinexys blockchain in the past few months via partnerships with Ondo Finance and Chainlink.