Transcription of an asset into a digital token on a blockchain
Asset tokenization is the transcription of an asset into a digital token on a blockchain or a digital platform with similar properties.[1] Most tokenized assets to date are stablecoins representing a claim on a monetary reserve. Financial assets such as bonds and shares have also been tokenized and initiatives have extended the model to other types of assets. Tokens can represent ownership, rights, or claims on tangible or intangible assets and may be traded or transferred on digital platforms.[2]
Tokenization is simultaneously a legal and technical operation. According to Lavayssière[1], three components condition the legal certainty, technical robustness, and the subsequent composability of a tokenized asset:
Legal linkbetween token and asset: Tokenisation can be direct (the token natively embodies the asset), or indirect (the token represents the value via intermediary structures).[3]
Characteristics of thetechnical substrate: such as sharedness, trust‑minimisation, and programmability.[4]
Possession model: ranging from self‑custody of cryptographic keys to traditional custodians.
Historical Development
The concept of tokenization gained significant momentum in the 2020s as financial institutions began exploring tokenized securities and digital asset infrastructure.[5][6][7]
By 2024, major banks and fintech firms had launched pilot programs for asset tokenization and wholesale central bank digital currencies (CBDCs), while regulators in jurisdictions such as the United Kingdom, Australia, and others introduced frameworks to support tokenized assets.[8][9][10][11][12][13][14]
Use cases
Asset tokenization leverages blockchain technology to digitize assets such as real estate, equities, commodities, intellectual property, and art.
Real Estate: For example, regulated frameworks at GIFT City in India are being developed to support real estate tokenization.[15]
Private Markets: Private equity and venture capital investments can be tokenized to improve secondary market liquidity.[16]J.P. Morgan's Kinexys platform represents a leading example of institutional infrastructure enabling tokenized asset transfers.[17][18]
Islamic Finance: Tokenization offers a Shariah‑compliant mechanism for fractional ownership, representing a significant innovation in Islamic financial products.[19][20]
Benefits
Proponents of asset tokenization highlight the following benefits:
Increased liquidity: Tokenized assets can be traded on secondary markets, increasing liquidity for traditionally illiquid assets.[21][22]
Fractional ownership: Investors can buy fractions of high‑value assets, such as real estate, fine art, or private equity.[23][22]
Operational efficiency: Blockchain-based settlements reduce reliance on intermediaries, lower costs, and accelerate transactions.[21][23] According to the World Economic Forum, tokenization can enhance efficiency, reduce costs, and broaden access to financial markets by facilitating 24/7 trading and settlement without intermediaries.[2]
Transparency and security: Immutable ledgers enhance trust and security by providing reliable provable records of ownership and transaction history.[23][21] This represents a challenge regarding privacy.
Challenges
Despite its potential, asset tokenization faces several challenges:
Regulatory uncertainty: There is no global standard for regulating tokenized assets. Jurisdictions like Telangana, India, are beginning to develop frameworks to address this issue.[24][25]
Technology integration: Tokenizing real-world assets depends on secure oracles and robust infrastructure to maintain the on-chain/off-chain link, creating potential technical vulnerabilities.[26][27]
Adoption: Traditional investors and financial institutions may be slow to adopt decentralized models due to cultural resistance, lack of education, and slow integration of new systems.[28][29]
Regulatory Developments
Several jurisdictions have modified their laws to facilitate asset tokenisation:[3]
France opened in 2017 the possibility to tokenize shares of unlisted companies and certain treasury bonds.
Liechtenstein adopted a wider approach with tokens as legal containers that can represent a broad range of rights.
At EU level the Distributed Ledger Technology Pilot Regime allows limited‑scale experimentation by regulated market infrastructures, while the Markets in Crypto‑assets Regulation (MiCA) focuses on reserve‑backed stablecoins.
India’s Telangana state and GIFT City have launched pioneering frameworks in Asia.[30][31][32]
International institutions such as the BIS, the FSB, and the IMF assess tokenization’s implications for monetary policy and consumer protection.[33][34][4]
Future Outlook
Analysts and institutions including McKinsey & Company project significant growth in tokenized asset markets, suggesting a transformative impact on capital markets infrastructure. McKinsey estimates tokenized market capitalization across real-world asset classes could reach around US $2 trillion by 2030 in a base-case scenario and up to US $4 trillion in an optimistic one.[35][36] Other forecasts are even more ambitious: for example, a report from Security Token Market cited by CoinDesk projects the market could swell to US $30 trillion by 2030.[37] This growth is expected to be driven by advances in blockchain interoperability, cross-border token standards, and integration with central bank digital currencies (CBDCs).[35][37]
References
1 2 Lavayssière, Xavier (2024). "Research Note on the Heterogeneity of the Tokenization of Financial Assets". 2024 6th Conference on Blockchain Research & Applications for Innovative Networks and Services (BRAINS). pp.1–2. doi:10.1109/BRAINS63024.2024.10732456. ISBN979-8-3503-6784-3.
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