Token liquidity: promise versus reality

Almost every tokenization pitch has a slide about liquidity. The idea is simple: a property, a loan or a fund unit, which used to sit in a portfolio for years, is split into tokens that can be sold at any time, to anyone, anywhere.

This article analyzes why that promise, as of October 2026, has almost never materialized. The references are reports from the International Organization of Securities Commissions (IOSCO), the Financial Stability Board (FSB), the Organisation for Economic Co-operation and Development (OECD) and the European Securities and Markets Authority (ESMA), plus an academic study with real trading data. How and where token resale is permitted is the subject of another article: the secondary market for tokenized assets.

Transferring is not the same as selling

Liquidity is the ease of turning an asset into cash, quickly and without having to accept a large discount. It has three ingredients: someone willing to buy, enough trading volume and a price close to the asset’s value.

Blockchain solves a different problem: recording and transfer. It allows ownership of a token to pass from one digital wallet to another in minutes or seconds. That is transferability, not liquidity. A house can also be transferred quickly if the buyer is already sitting at the notary’s table. The hard part is finding the buyer.

When a platform says a token “is liquid” because it “can be traded 24 hours a day,” it is talking about transferability. The question that matters is a different one: how many people bought and sold this token in the last month, and at what price?

What the data shows so far

International bodies have reached similar conclusions.

IOSCO, which brings together the world’s securities regulators, states in its final report of November 2025 that many of the promised benefits, “particularly in relation to secondary market liquidity,” appear not to have been achieved so far. On securities issued directly on blockchain, the report notes “low levels of secondary market liquidity,” because the industry has focused its trials on infrastructure, issuance and settlement rather than active trading. The lack of liquidity, according to IOSCO, ends up discouraging those who considered buying these securities to trade (IOSCO, Tokenization of Financial Assets, 2025).

The OECD describes a fragmented environment, with “pockets” of liquid platforms and rare projects in production that have reached significant size; most tokenized operations are still pilots (OECD, 2025).

In the European Union, the pilot regime that allows securities to be traded and settled on blockchain took effect in March 2023. In its review published in June 2025, ESMA counted only three authorized infrastructures and “minimal live trading activity” (ESMA, June 2025).

A measured case: tokenized houses in the United States

The most cited study with trading data is by Laurens Swinkels of Erasmus University Rotterdam, published in January 2023 in the journal Financial Innovation. He analyzed 58 rental houses in the United States, 52 of them in Detroit, tokenized by the company RealT between October 2019 and February 2021 (Swinkels, 2023).

The numbers help calibrate expectations:

• Each property had a median of 254 token holders, with cases ranging from 15 to 776.
• According to the paper’s abstract, ownership of a property “changes about once a year.” Average monthly turnover fell from about 15% in the first half of the period to about 5% in the second.
• Only 13 of the tokens could be traded on a decentralized exchange; these saw more trading than the others.
• To buy, investors had to go through registration and prior approval. Buybacks by the company itself were limited to US$2,000 per week.

The author concludes that token prices generally tracked the Detroit house price index, but with more volatility, and that they may not fully reflect the property’s economic value. Later legal problems involving the same company are described in real estate tokenization in the United States.

In the editorial team’s assessment, the case is useful because it shows the pattern: small fractions attracted hundreds of investors, but that did not create a market with frequent trading.

Why liquidity does not show up

The underlying asset remains illiquid

A token inherits the characteristics of the asset it represents. If the property, the loan or the stake in a private company is hard to sell, a fraction of it tends to be too.

The FSB warns that a token representing part of an asset can give a “false impression” of ample liquidity, even though the reference asset is not liquid. If many holders want to exit at the same time, the issuer may be forced to sell the asset in an illiquid market, which can drive down the price of the tokens (FSB, October 2024). This is the same liquidity mismatch familiar from funds: promising a quick exit on an asset that takes time to turn into cash.

Not everyone can buy

A token that is a security remains subject to the rules on who can buy it. In practice, this means lists of pre-approved wallets, called whitelists, identity verification and, often, limits by investor type.

IOSCO observes that, in the tokenized short-term funds analyzed, secondary trading is limited and restricted to whitelisted investors. In the example of a tokenized fund described in the report, only qualified investors approved by the transfer agent can trade with each other, and the transfer on the blockchain only has legal effect after it is reconciled with the record kept off-chain. The FSB adds that restricted-access networks, preferred by regulated institutions, can limit the formation of deep secondary markets precisely because they restrict participants.

Each filter is a protection for investors or an anti-money laundering requirement. But each filter also shrinks the number of possible buyers. In Brazil, the resale restrictions in crowdfunding are explained in tokenization and capital markets: regulatory limits. In the United States, the minimum holding periods for reselling securities from private offerings are covered in real estate tokenization in the United States.

The market is split into islands

The same type of asset can be on different blockchains, on different platforms, that do not communicate with each other. IOSCO points out that this proliferation of networks can leave liquidity “trapped” across multiple networks and fragment trading across separate venues. The OECD goes further: when the same asset exists both on and off the network, liquidity can be split between the two worlds and the token’s price can decouple from the price of the original asset.

For sellers, this means a token’s buyers may all be on a single platform. If it has no activity, or shuts down, there is nowhere to take the token.

There is no critical mass

The OECD describes a vicious circle. The lack of liquid markets keeps large-scale investors away. Without a critical mass of investors, issuers are reluctant to launch new tokenized assets. And without issuance, no critical mass forms. According to the report, a catalyst, such as a government issuing bonds on blockchain, could help break this cycle, at least locally.

ESMA points to similar problems in the European regime: lack of communication between networks, difficulty accessing central bank money to settle trades and size limits on admitted assets that, according to the report, restrict participation.

No one is obliged to buy

On traditional exchanges, the liquidity of many assets is supported by market makers, institutions hired to maintain buy and sell quotes at the same time. On most token platforms, this role does not exist, and it is sometimes prohibited by the applicable rules. Without it, investors depend on another investor wanting exactly that token at that moment.

Some platforms offer to buy back tokens. That is not a market: it is a promise by the company itself, with limits, as in the case studied by Swinkels, and it depends on the financial health of whoever makes the promise.

Where technology can help

The analysis is not purely negative. IOSCO cites research by the Hong Kong Monetary Authority according to which tokenized bonds showed a bid-ask spread 5.3% narrower than conventional bonds, and 10.8% narrower when accessible to retail investors. The gains would come from faster settlement, fewer intermediaries and smaller fractions.

The point is that these gains appear when demand and a trading venue already exist. Technology can make an existing market cheaper and faster. It does not create buyers where there are none.

How to read a liquidity promise

Before accepting that a token “is liquid,” you can ask:

• Where is it traded today? An authorized venue, a single platform or nowhere yet?
• How many trades have there been in recent months? Ask for the volume and price history, not the network’s technical capacity.
• Who can buy from me? Anyone, only the platform’s registered users or only qualified investors?
• Is there a market maker or a buyback? If there is a buyback, what are the limits and who guarantees it?
• Is the underlying asset liquid? If the property or the loan takes time to sell, the token tends to inherit that timeline.
• What happens if the platform shuts down? Can the token be moved to another venue?

Promised liquidity that does not materialize has concrete consequences: you may have to wait a long time to sell, accept a price well below what you expected or be unable to sell at all. As with any risky investment, it is also possible to lose the entire amount invested. Other risks of tokenization are covered in why tokenizing an asset does not eliminate risk.

Key takeaways

• Transferring a token in seconds is a technical feature. Liquidity requires buyers, volume and price, and blockchain does not provide that on its own.
• As of October 2026, IOSCO, the FSB, the OECD and ESMA report scarce secondary trading in tokenized assets, and a study of tokenized houses found about one change of ownership per property per year.
• The causes are structural: illiquid underlying assets, restrictions on who can buy, fragmented markets, lack of critical mass and the absence of market makers.