Tokenized stock liquidity fragmentation poses structural threat

A research note from Tiger Research flags liquidity fragmentation as a structural threat to the tokenized stock market, a space still searching for scale. Director Ryan Yoon described the breakup of previously consolidated, centralized liquidity in traditional finance as a “serious structural threat” to the emerging asset class.

The Fragmentation Mechanism

Tokenized stocks – digital representations of traditional equities on blockchain networks – rely on deep, unified liquidity to function efficiently. When order flow is scattered across multiple platforms, protocols, or jurisdictions, execution costs rise. Spreads widen. Settlement delays creep in. The core value proposition of 24/7 trading, instant settlement, and global access erodes.

Centralized liquidity built over decades in TradFi is hard to replicate on-chain. Tokenized stocks currently trade on a patchwork of decentralized and semi-decentralized networks. That structural mismatch creates shallow pools rather than a single deep market. Yoon’s analysis points to this tension as the root cause of the liquidity problem.

Revenue Fragmentation Follows

The report identifies revenue fragmentation as a second-order consequence. When trading volume scatters across fragmented liquidity, platforms struggle to generate sustainable fee income. Market makers pull back, volume drops further, and the economics tighten. Platforms then face a choice: raise fees on a shrinking user base or accept thinner margins.

This dynamic is already visible. Several tokenized stock platforms have scaled back or shut down entirely. The pattern echoes the three crypto infrastructure projects that shut down on May 21. Without a clear revenue model tied to consolidated liquidity, projects dependent on thin order books often fail.