Tokenization Ecosystem: 11 Strategies for Liquidity

Unlock liquidity in tokenization with 11 key strategies. From attracting investors to regulatory innovation, transform your assets now!

11 Key Strategies to Boost Liquidity in the Tokenization Ecosystem

Solving the liquidity problem in the security token market is no small feat. It's an ecosystem issue that requires a multi-faceted approach. Here are my strong opinions on how to bring liquidity into the system. 

Before we get to our list, I asked several of the most influential tokenization experts their opinions on the liquidity situation and this is what they told me: 

Claus Skaaning, CEO of DigiShares, “Liquidity in the security token markets has been sorely lacking. But it is developing quite fast now from a low starting point. New exchanges are launching, including our own RealEstate.  Exchange. With more exchanges comes lower prices and more competition. More and more high quality assets are tokenized. And users are increasingly getting wallets and learning about real estate as an investment opportunity. All trends are going in the right direction.”

Eduard Nwokedi,  “Tokenization of RWAs like institutional real estate provides an encouraging benefit of liquidity that most traditional crowdfunding platforms cannot. The obligation of investing in real estate for 5-10 years is no longer an obstacle for average investors. Tokenized real estate into compliant digital securities eliminates investment illiquidity.”

"Alongside regulatory clarity, liquidity remains the key constraint for tokenized assets. One of the reasons for this is the fact that the tokenization industry has yet not focused on the demand side. We first needed supply - from real estate to tbills and equity which is now available. The next step is to solve discover, onboarding, UI, demand aggregation and exchange," said Milind Bansia, Head of Strategy, Business Polytrade

"To overcome the liquidity problem in the secondary token market, we must embrace innovation and inclusivity. By fostering decentralized exchanges, liquidity pools, and incentivized tokenomics, we can unlock liquidity, empower investors, and create a vibrant ecosystem where tokens flow freely, driving growth and opportunity." Alvin Foo, Co-Founder, DAOventures

Advisor, NASDEX

"Establishing liquidity within a system involves channeling capital into both primary and secondary market transactions. For a company kicking off a fundraise, having access to initial capital pools is crucial to generate the necessary momentum to achieve escape velocity. Simultaneously, a robust trading market enables the earliest and most risk-tolerant investors to recapitalize and ready themselves for their next active positions. In both situations, the emphasis should be on introducing deals to the market that are genuinely appealing to investors. We often see that the highest-quality deals are able to secure funding on their own merits, and in market conditions like those experienced in 2023, this will be key to unlocking the next level of growth for the industry."

Kyle Sonlin, Founding Partner, Security Token Group

And now the 11 strategies: 

1. Establish Robust Marketplaces: First things first, create or partner with well-designed trading platforms that can handle security tokens specifically. The infrastructure has to be there.

2. Attract Institutional Investors: The big money is still sitting on the sidelines. Regulatory clarity and an established track record will help draw in institutional money, which in turn improves liquidity.

3. Liquidity Mining Programs: Offer incentives for market participation. If you make it profitable for people to buy, hold, and trade your tokens, you're going to see an uptick in liquidity. Liquidity mining can distribute rewards in the form of additional tokens or other financial benefits.

4.  Strategic Partnerships: Partner with existing financial services who already have a customer base interested in such assets. By doing so, you instantly tap into a pool of potential traders.

5.  Onramp Solutions : Make it easy for people to convert fiat to tokens and vice versa. Friction kills liquidity, plain and simple.

6.  T+0 Settlements : One of the advantages of blockchain is instant settlement. Leverage this to beat traditional markets and make the asset more appealing.

7.  Regulatory Innovation : Advocate for friendlier regulation that still maintains investor protections. This would make it easier for more types of investors to enter the market.

8.  Community Engagement : An active community can act as market makers themselves, increasing demand and supply by sheer involvement and evangelism.

9.  Data Transparency : Provide clear, real-time data on trading volumes, asset prices, and other market activities. This transparency can attract sophisticated traders who could bring in more liquidity.

10.  Education : Let's not forget that many people don't understand what security tokens even are. Education drives adoption.

11.  Tax Benefits : Work with regulators to provide tax benefits to long-term holders or initial investors. This makes holding the asset more attractive, which can indirectly impact liquidity.

No single solution will solve the liquidity problem overnight, but a strategic blend of these initiatives can make a significant difference. The goal is to build an ecosystem so robust that liquidity naturally flows into it. And trust me, once you solve the liquidity problem, you've cleared one of the biggest hurdles in making tokenized assets mainstream. 

About SmartBlocks

Mark Fidelman

Here at SmartBlocks, we believe it’s time to democratize currency and make it available to anyone, anywhere, anytime.