by Yogi Nelson
Champions of tokenization promise many things: transparency, portability, programmability, and global access to assets that once sat quietly in vaults. In the case of precious metals, tokenization holds out an especially attractive vision—gold, silver, and even more exotic metals moving at internet speed rather than banker speed. But there’s a stubborn, unglamorous problem standing in the way of those champions–liquidity.
It’s true—tokenization can digitize metal. However, it cannot, by itself, guarantee that someone is always there to buy or sell the asset.
This article explores what the liquidity problem actually is, why it matters, why some metals are more liquid than others, and therefore better candidates for tokenization, and what would need to happen for tokenized metals to approach true global volume. First, we start with the basic question, what is liquidity?
LIQUIDITY IS THE KEY!
What Do We Mean by “Liquidity,” Really?
Liquidity is one of those financial terms that everyone uses and almost no one pauses to define; let’s not be another one of those people. According to Investopedia, liquidity refers to:
“The degree to which an asset can be quickly bought or sold in the market at a price reflecting its intrinsic value.”
In plain English, liquidity answers three practical questions:
- Can I sell this when I want?
- Can I sell it in meaningful size?
- Can I do so without materially moving the price?
Liquidity is not about whether an asset is valuable. It is about whether that value can be realized efficiently. As smart investors, we know: there is no profit until and unless the profit is realized!
Examples of highly liquid assets
- Cash
- U.S. Treasury bills
- Major currencies (USD, EURO, JPY)
- Large-cap public equities
- Spot gold in standard bar form
These assets trade constantly, have many buyers and sellers, and allow large transactions with minimal price impact.
Examples of illiquid assets
- Private equity stakes
- Fine art
- Rare collectibles
- Thinly traded commodities
- Certain real estate markets
- Exotic metals like rhodium
These assets may be valuable, even extremely valuable—but converting them into cash can take time, negotiation, and often a price concession.
Liquidity, in short, is not a judgment about worth. It is a measure of market readiness. Period.
Why Liquidity Matters More Than Tokenization
Tokenization solves representation. Liquidity solves usability. This distinction matters more than most marketing materials admit, and for clear conflict of interest reasons!
History is full of assets that were perfectly “ownable” but practically unusable due to liquidity constraints. Below are just three examples:
- privately held companies with no secondary market,
- thinly traded bonds,
- structured products that looked attractive on paper but could not be exited without loss.
In each case, the problem was not ownership—it was exit. Without sufficient liquidity:
- prices become unreliable,
- bid–ask spreads widen,
- volatility increases,
- and confidence erodes.
An asset that cannot be exited predictably becomes a theoretical investment, not a functional one. Tokenization does not automatically fix this. A token can make ownership easier to track, transfer, and audit—but if no one is consistently willing to trade, liquidity remains scarce.
This is why liquidity is not a secondary issue. It is the gatekeeper between innovation and adoption.
The Liquidity Problem in Tokenized Metals
As if one challenge isn’t enough, tokenized metals face a double liquidity challenge. Let’s go through those two now.
First: the underlying metal. Not all metals trade the same way. While I love them all, some are more “equal” than others. Take for example gold.
Gold enjoys:
- global spot markets,
- deep futures markets,
- central bank participation,
- standardized bars and settlement norms.
Liquidity already exists. Tokenization plugs into it. A perfect fit. What about silver?
Silver is liquid, but thinner:
- more industrial demand,
- more volatility,
- fewer institutional holders.
Tokenization can help—but it cannot smooth silver’s inherent swings. Silver, being a dual metal, monetary and industrial, is much more volatile.
Platinum and palladium are:
- industrially driven,
- dependent on specific sectors,
- subject to sudden demand shifts.
Liquidity exists, but it is episodic.
Rhodium is the extreme case and completely likely unsuitable for tokenization:
- no meaningful futures market,
- very thin spot trading,
- prices that can move violently.
Tokenizing rhodium does not create liquidity. It simply makes scarcity visible in real time.
Problems Caused by Poor Liquidity
Low liquidity is not an abstract inconvenience. It creates concrete problems. Below are four problems, listed in no particular order of importance, because they are all equally critical.
1. Wide bid–ask spreads
Thin markets punish participation. Buyers pay up; sellers accept discounts. The worse of both worlds.
2. Price distortion
In illiquid markets, small trades can create misleading price signals, undermining trust. Once trust is gone, bringing it back is an uphill climb.
3. Redemption pressure
If token holders cannot sell easily, they may redeem for physical metal instead—stressing vaulting and logistics systems.
4. Institutional hesitation
Institutions care deeply about exit risk. If they cannot move size without disruption, they simply stay away.
Liquidity attracts participants. Participants create liquidity. Without the first step, the cycle never starts.
Why Gold Has a Structural Advantage
Gold begins the liquidity race several laps ahead. Its advantages are not technological; they are historical and institutional and those maybe more important at this stage:
- centuries of trust,
- standardized market conventions,
- global clearing mechanisms,
- and deep participation.
This is why tokenized gold products have a realistic path to scale. They are not inventing liquidity—they are digitizing access to existing liquidity. Silver may follow. Other metals face steeper climbs.
Can Tokenized Metals Create New Liquidity?
Sometimes—but not by access alone. Liquidity is not created by opening the doors. It is created when:
- pricing is reliable,
- settlement is predictable,
- custody is trusted,
- and exit is assured.
Liquidity is a social and institutional phenomenon, not a purely technical one.
The Role of Market Makers
What the heck is a market maker? The answer according to Investopedia is: a firm or individual that provides liquidity to a market by continuously offering to buy and sell a particular asset at publicly quoted prices, profiting from the bid–ask spread while helping ensure orderly trading. If that sounds complicated, try this definition in plain English: a market maker is the party that stands ready to buy when others want to sell—and sell when others want to buy—so markets don’t freeze up. In essence liquidity is “engineered” by professionals.
Market makers:
- quote continuous buy and sell prices,
- absorb short-term imbalances,
- and take risk so others don’t have to.
In tokenized metals, market makers face unique challenges:
- fragmented venues,
- regulatory uncertainty,
- redemption complexity,
- and thin underlying markets for non-gold metals.
Without professional market makers, global volume remains aspirational.
Other Essential Players
No man is an island and in tokenized metals liquidity requires an entire ecosystem. The ecosystem consists of but is not limited to:
- trusted custodians,
- independent auditors,
- compliant exchanges,
- predictable settlement systems,
- and regulatory clarity.
Tokenization reduces friction—but it does not replace these foundations.
How Liquidity Could Improve Over Time
A realistic path forward exists:
- Focus on metals that already trade.
- Encourage institutional participation.
- Build predictable redemption systems.
- Allow consolidation rather than fragmentation.
Liquidity grows slowly. Then suddenly. Let’s hope so.
Final Answer: Can Tokenized Metals Reach Global Volume?
- Gold: yes, over time
- Silver: possibly, with patience
- Other metals: niche, specialized use cases only
Tokenization is not a volume generator. It is a volume amplifier—but only where volume already exists. Liquidity is earned, not engineered.
Closing Thought
Tokenized metals are still early. Tokenization technology is ahead of the market structure and vision is ahead of the plumbing. Enthusiasm is always present where success is found. But as Larry David, the comedian said–Curb Your Enthusiasm! But that’s not failure. It’s market reality.
Liquidity comes last—not first. And when it arrives, it will come not because metals were tokenized, but because trust, structure, and participation grew around them.
Until next time,
Yogi Nelson
This article is part of an ongoing, long-form series examining the tokenization of precious metals—one of the few sustained efforts to explore the topic across custody, liquidity, redemption, and market structure over the course of 2026.
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