Tokenization of assets: How it’s reshaping finance and markets
Tokenization is redefining ownership by converting real-world and digital assets—like stocks, real estate, and money market funds—into blockchain-based tokens, unlocking liquidity, transparency, and global access.
What if owning a piece of a skyscraper or a rare painting was as simple as buying a stock online? That’s the promise of asset tokenization—using technology to turn difficult to access real-world value into tradeable digital tokens.
What is asset tokenization?
Asset tokenization is the process of creating a digital representation—called a token—of a real-world asset. Various types of assets can be tokenized: financial assets like stocks, funds, bonds; real-assets like commodities and real estate; and even unique assets like art.
Tokenization is already making its mark in financial markets today. One example is the rapid adoption of stablecoins: tokenized representations of fiat currency, fixed at a rate of 1:1, which are being adopted as a means of international payments among other uses.
Digitizing ownership makes assets easier to trade, transfer, lend, and borrow. This transformation brings both costs and benefits to investors, intermediaries, and issuers—though not evenly. Ultimately, it has the potential to reshape how value moves through the financial system.
Foundational principles of asset tokenization
The foundational component of asset tokenization is blockchain and distributed ledger technology (DLT). It is the infrastructure—the rails—on which tokenized assets are recorded.
Two properties make these ledgers innovative. One is the ability to codify key information about an asset—information needed to value, account, and trade it—onto the asset itself. The other is that the ledger is replicated among participants, which is key to ensuring security when control over it is shared. These two features can make trade settlement highly efficient—it can be instant, it can be direct between assets (i.e. avoiding the cash leg), and it can involve a considerable degree of automation. This is a material improvement over what today’s infrastructure makes possible.
In simple terms, the introduction of a programmable ledger is like the buildout of maglev rails. They are superfast compared to traditional rails. And the tokens—digital containers representing assets such as fund shares or commodities—are the railcars that move along it.
Although tokenization is a rather complex process, its impact on assets is straightforward: In tokenized form, assets are easier to move, and hence easier to trade, transfer, lend, and borrow. For commerce, this is transformative. Taken in aggregate, the shift to tokenized assets in financial markets may be as significant as the shift from DVDs to streaming was in television.
How asset tokenization works
The process is generally as follows.
- Identify the asset, like a bond, piece of real estate, or fund
- Create of a digital representation of the asset on the digital ledger. The software code of the token would include:
a. Key information about the asset (e.g. type, issuer, unique identifiers)
b. Embedded rights (e.g. voter participation, interest payments)
c. Compliance rules (e.g. jurisdiction or regulatory limits rules governing trading and ownership)
d. Ownership information, including any claims or encumbrances
e. Provenance (e.g. transaction and ownership history, which builds once it starts trading)
f. Other controls
- Implement smart contracts. Certain actions—such as the provision of financial reports or payments of dividends—can also be programmed into the token itself, automatically executing predefined actions when certain conditions are met (e.g. on certain dates)
- Immobilize the real-world asset. Once “locked”, investors trade, hold, and settle using the tokens, and have the ability to redeem the underlying reference asset. For non-material assets, e.g. company shares or bonds, it is theoretically possible to avoid having a “conventional” reference asset backing the token. This is called “on-chain” issuance. For now, this model of tokenization is still in its early days
- Token issuance. Create or mint and distribute the tokens according to the defined structure. Once issued, the tokens follow a life cycle as defined by the parameters of the reference asset—they are traded, pay coupons/dividends, and mature (if applicable) or are redeemed
Consider stablecoins, for example. Once tokenized, a fiat currency (e.g. USD) acquires new capabilities: Stablecoins live on public blockchains, accessible to anyone with an internet connection. They can move around the world and avoid the cumbersome system of correspondent banking. Fees to move stablecoins from one wallet to another are much lower than traditional wire costs. That makes them attractive for overseas remittances and other types of international payments.
The benefits of tokenization
For financial intermediaries, tokenization is driven today by new revenue potential. The digital asset market has grown to several trillion dollars and has strong potential.1 Tokenizing assets is a way for traditional financial players to tap into this market—fees from issuance or custody for banks, and fees from assets under management for fund managers. Market competition, growing regulatory clarity—like the adoption of the GENIUS Act in the US, which brings regulated stablecoins to market—as well as maturity of the technology itself has made tokenization both more urgent and less risky.
Investors sometimes see asset tokenization as just another wrapper, like an ETF. This view is understandable—a tokenized bond is still a bond for example—but this view is too narrow. It understates the transformative nature of the technology on financial markets themselves. As more real-world assets are tokenized, investors should see the impact through the following channels:
Figure 1: Impacts of tokenization
Details |
|
|---|---|
| Investment portfolio | Asset tokenization expands the universe of investable assets and redirects capital flows among them (e.g. towards private markets). Inflows into some may be outflows for others, which may affect price and liquidity. |
| Balance sheet efficiency | Tokenized assets can better interact and integrate with each other than what is currently possible, i.e. better composability. This allows for more efficient use of the balance sheet, as collateral is more mobile and assets are more fungible. There will be more cash-like instruments. |
| Capital efficiency | Tokenization can reduce settlement and liquidity risks, allowing for better use of capital. |
| Flexible custodial | In today’s system, virtually all financial assets require intermediaries for safekeeping. Tokenization allows greater flexibility, including self-custody through private keys. |
| Lower costs | Efficient settlement and the ability to code transaction logic creating substantial opportunities for cost savings in back office processes. Although not immediately visible because intermediaries still need to run traditional systems alongside new ones, future cost savings will ultimately create value. |
| Risk management | A more efficient settlement system reduces settlement and liquidity risks. A shared system of record enhances information symmetry and increases transparency. |
Source: State Street Investment Management.
Challenges of tokenization
The adoption of a transformative technology is not a linear process. The following are some of the current challenges that the industry is grappling with as tokenization moves forward.
New investment considerations
Tokenized assets create some new considerations that are particular to the asset class. Some stem from the link between the token and the reference assets—reliance on third-party audits; bankruptcy remoteness; and the redemption process, among others. Operationally, cyber-risks are also higher. For example, flexible custody arrangements give rise to greater risks from cybersecurity and lost keys. In other words, while from a financial structure perspective tokenized assets are the same as their conventional counterparts, their real-world implementation introduces some nuance.
Regulatory fragmentation
Recent developments at the policy level have created a strong tailwind for tokenization. However, the global landscape for digital assets remains an incomplete patchwork. As of November 2025, the EU is the only place that has a comprehensive regulatory framework for digital assets. The US has the deepest market, and regulations like the GENIUS Act are a step forward towards digital asset regulatory frameworks, but US regulations outside of stablecoins are still lacking. But there is legislation moving through Congress, like the Digital Asset Market Clarity Act, that may provide clearer guidelines.
Technology and integration of private blockchains
The crypto world grew up on the promise of open public blockchains, whereas in traditional finance, blockchain has manifested itself in the form of closed private ecosystems. While these can be very large—the networks of large global banks, for example—the digital assets that move across them are still trapped. The challenge, which is partly technological and partly procedural, is to connect these pools of capital while still adhering to requirements around data secrecy, security, and compliance. Once connected, network effects can take hold.
The outlook for tokenization: From niche to mainstream?
Asset tokenization is not a passing fad but rather the beginning of a fundamental transformation in how the financial sector operates. Digital infrastructure is superior in many ways to the current system for settling trades, keeping track of ownership, and servicing assets. And the core tenets of the technology today are well-tested.
Tokenization represents an overall net benefit to financial markets and to investors in it. But to financial intermediaries it is a strategic challenge; they must ensure their relevance in a changing market. And regulators must find a balance between innovation and systemic risks. For these reasons, asset tokenization cannot happen overnight; but it is here to stay and will gradually diffuse into different corners of financial markets.