author & date of publication: Tomas | 18.7.2025
Tokenization, the process of digitally representing real-world assets on a blockchain, represents a fundamental shift for the world of finance. This is not merely an incremental innovation but a complete replatforming of financial infrastructure. In place of today’s fragmented and incompatible systems that rely on lengthy processes, a unified, programmable, and real-time model is emerging. This shift has the potential to solve long-standing inefficiencies and open markets in ways previously unimaginable.
The primary benefit of tokenization lies in the radical streamlining of financial operations. The traditional financial value chain – comprising separate stages of trading, clearing, settlement, and custody – is consolidated into a single, fully automated layer through blockchain technology and smart contracts. The current system is burdened by inefficiency, best exemplified by the securities settlement cycle, which takes one to two business days.
One of the greatest transformative forces of tokenization is its ability to convert traditionally illiquid assets into easily tradable instruments. Assets such as private equity, private credit, real estate, or art, whose sale in the traditional world is slow, costly, and requires a bespoke approach, are becoming accessible to a broader market. It is estimated that the total value of these real-world assets (RWAs) runs into the hundreds of trillions of dollars.
The key mechanism is fractional ownership, which in practice means that one can own just a fraction of an asset’s unit (for example, 0.5 shares, 10% of a property, etc.). This dramatically expands the pool of potential investors, from large institutions to retail and medium-sized investors, thereby leading to the „democratization“ of investing. This trend is particularly attractive to younger generations of investors seeking new growth opportunities. Furthermore, the creation of standardized digital units (tokens) makes it possible to establish global secondary markets that operate 24/7, further increasing the liquidity of these assets. This rise in liquidity also has deeper implications for asset valuation. In traditional finance, illiquid assets carry a „liquidity premium“ – investors demand a higher return to compensate for the risk of not being able to sell the asset quickly. By creating liquid secondary markets, tokenization reduces or entirely eliminates this premium. For investors, this may mean a potentially lower return, but they gain valuable flexibility in exchange.
Another key advantage is that tokenized assets become „productive“. In the traditional system, many assets, especially illiquid ones, are passive investments. In the on-chain world, however, any tokenized asset can become programmable collateral. An investor can, for example, use their tokenized real estate shares or bonds as collateral to obtain a loan in DeFi. This allows them to unlock liquidity without needing to sell the underlying asset. Moreover, thanks to the native composability in DeFi, these assets can be integrated into various DeFi protocols to generate additional yield beyond the natural return of the asset itself. This transforms the passive holding of assets into an active strategy that maximizes capital efficiency.
Distributed Ledger Technology (DLT) brings a high level of transparency and security. All transactions are recorded on a shared, immutable ledger that serves as a single source of truth, reducing the risk of fraud and errors. Security is enhanced by cryptography, and transparency allows regulators to better assess systemic risks. A key innovation is programmable compliance, where smart contracts embed regulatory rules (e.g., KYC/AML) directly into the token. This ensures that transactions occur only between authorized parties. Unlike the reactive enforcement of rules in the traditional system, here rules are enforced automatically and preventively at the protocol level – an unauthorized transaction simply will not execute. This approach transforms compliance from a manual process into a technologically-enforced certainty, reducing costs and risks for institutions and increasing regulators‘ confidence in the integrity of the market.
The tokenization of equities is revolutionizing the way shares are owned, traded, and managed. It creates global, continuous markets and radically streamlines equity administration through automation.
The bond market, often perceived as rigid and inefficient, is undergoing a fundamental modernization through tokenization, which brings a new level of efficiency, liquidity, and global accessibility.
U.S. Treasury bills (T-bills) are considered one of the safest havens in the financial world, and their tokenization is a key trend. Tokenization removes the geographical and bureaucratic obstacles that prevent foreign investors from accessing these assets, opening the door to this crucial market. Transaction settlement occurs almost instantly instead of the traditional one-day cycle, increasing liquidity and capital efficiency.
This trend, however, is not limited to the United States. Governments around the world are experimenting with tokenizing their debt to make capital markets more efficient. Europe is particularly active in this area, supported by regulatory initiatives like the European Union’s DLT Pilot Regime. Pioneering projects include digital bonds issued by the European Investment Bank (EIB), Luxembourg’s first digital treasury notes, and Slovenia’s sovereign digital bond. Similar initiatives are also being developed by the German development bank KfW.
Asia is also a leader in this field. According to studies, Asian institutions account for the majority of the total volume of tokenized bonds issued. Hong Kong is a prime example, with its government issuing the world’s first tokenized green bond and actively promoting the development of further tokenized products, including government bonds, to strengthen its position as a global financial hub. For governments worldwide, tokenization offers reduced issuance costs, simplified administration, and access to a broader, global investor base.
The most significant impact of government bond tokenization is the creation of new types of on-chain collateral. Tokenized government bonds from various jurisdictions provide stable, yielding, and high-quality collateral for DeFi protocols. This establishes several foundational „on-chain risk-free rates“ on the blockchain. Every mature financial system needs such a reference rate, from which the price of all riskier assets is derived. By bringing this concept to the blockchain, the entire DeFi ecosystem matures. Instead of unstable and speculative yields, protocols can now offer sustainable returns based on real economic value.
The tokenization of corporate bonds addresses many of the problems associated with their issuance and management. The traditional issuance process is costly and lengthy, requiring the coordination of numerous intermediaries. Tokenization moves this process onto the blockchain and automates it with smart contracts, significantly reducing costs and timelines. A real-world example is Siemens, which successfully tokenized its corporate bond.
Fractional ownership also makes high-yield bonds accessible to smaller investors and creates more liquid secondary markets. The administration of the bond is then fully automated – smart contracts handle regular interest (coupon) payments and the repayment of principal at maturity, eliminating the administrative burden for all parties involved.
The private credit market, while enormous in value, suffers from chronic illiquidity, high entry barriers, and a lack of transparency. Tokenization has the potential to unlock this market by creating functional secondary markets and making this asset class accessible to a wider range of investors. Tokenization allows for the trading of shares in credit funds or individual loans directly on secondary markets, 24/7. Thanks to fractional ownership, investors can purchase smaller stakes, democratizing access to an asset class previously reserved for large institutions.
For small and medium-sized enterprises, which are often underserved by traditional banks, tokenization opens a new and more efficient channel for raising capital. Tokenization also enables dynamic and transparent risk pricing in real time. In the traditional model, the value of a private credit asset is often opaque and updated infrequently. When a loan is tokenized and traded on a secondary market, its price constantly adjusts to new information.
The tokenization of physical commodities, such as gold, silver, or oil, removes the logistical and financial barriers associated with their physical ownership and trading. Physical commodities are challenging to store, insure, and transport. Tokenization solves this problem by representing ownership rights with a digital token, while the physical asset is securely held by a trusted custodian or, alternatively, only the security or derivative is tokenized. The link to the real asset is ensured through regular audits, such as Proof of Reserves.
The biggest change, however, is the transformation of commodities from passive stores of value into productive digital assets. Holding physical gold or a gold ETF is a passive investment. A tokenized gold, however, is a programmable digital token. As such, it can be integrated into the broader DeFi ecosystem. An investor can use their tokenized gold as collateral to obtain a loan, deposit it into a liquidity pool to earn transaction fees, or integrate it into more complex financial strategies. This transforms a passive asset into active, productive capital, fundamentally changing its role in an investment portfolio.
To fully realize the potential of tokenized assets, an efficient and reliable payment layer is essential. Stablecoins fulfill this key role in the on-chain ecosystem. Stablecoins are cryptocurrencies whose value is pegged to a stable asset, most often a fiat currency like the U.S. dollar at a 1:1 ratio. This solves the problem of high volatility, which makes traditional cryptocurrencies like Bitcoin unsuitable for payment and settlement purposes.
In the tokenized asset ecosystem, stablecoins play an indispensable role. When trading any tokenized asset—be it a stock, bond, or real estate – a cash equivalent (the „cash leg“) is necessary for settlement. Stablecoins provide this cash component directly on the blockchain, enabling instant and atomic settlement (Delivery-versus-Payment, or DvP). Without them, payments would have to be made off-chain through traditional banking systems, which would negate many of the benefits of tokenization, such as speed and efficiency. Stablecoins are, therefore, the „connective tissue“ and „foundational infrastructure“ for the entire RWA ecosystem. The growth of the tokenized asset market is directly dependent on the availability, liquidity, and reliability of stablecoins.
In addition to their role as a settlement layer, stablecoins are also revolutionizing traditional areas like international payments and corporate treasury management.
A fundamental obstacle preventing the mass adoption of tokenized assets is the persistent uncertainty and inadequate legal framework to firmly and enforceably link a digital token on a blockchain with its physical counterpart in the real world. A digital token, in itself, is not a legally recognized proof of ownership in the same way as, for instance, an entry in a land registry, which creates a fundamental risk. In the event of a dispute or the issuer’s bankruptcy, it is unclear whether the token holder has a direct claim to the underlying asset or is merely an unsecured creditor. This legal gap is further complicated by fragmented jurisdictions and the conflict between the pseudonymity of public blockchains and regulatory requirements for owner identification (KYC/AML).
Regulators worldwide are attempting to address this gap, but progress is slow. In the European Union, the Markets in Crypto-Assets (MiCA) regulation represents a significant step toward creating a unified framework, but its primary focus is on crypto-assets themselves, not the complex issue of ownership rights to the underlying RWAs. It is complemented by the DLT Pilot Regime, which functions as a „regulatory sandbox“ allowing for experimentation with tokenized securities in a controlled environment, indicating that we are still in a testing phase rather than one of full implementation. In the United States, the Securities and Exchange Commission (SEC) approaches tokenized assets through the lens of existing laws, applying the Howey Test to determine if a token is a security. Issuers often rely on exemptions like Regulation D for offerings to accredited investors, but this does not resolve the fundamental question of how an on-chain token is legally tied to an off-chain title. As a result, the institutional RWA market is inevitably shifting toward hybrid models and „permissioned“ environments, where new, trusted intermediaries legally and operationally guarantee the link between the on-chain and off-chain worlds while ensuring regulatory compliance.
While the theoretical benefits of tokenization are immense, actual adoption depends on the readiness of the technological and regulatory infrastructure. In a follow-up article, we will therefore take a detailed look at the current state and size of the tokenized asset market. We will also explore whether today’s blockchain networks are truly prepared for the massive involvement of traditional finance.
Tokenization introduces a huge transformation of global capital markets by rearchitecting every step of the financial value chain, democratizing access to formerly illiquid assets, and converting passive holdings into programmable, yield‑generating collateral. By unifying trading, clearing, settlement, custody, and compliance on decentralized ledgers, tokenization eliminates the delays, costs, and opacity of legacy systems. The advent of 24/7 secondary markets, fractional ownership, and native DeFi composability not only boosts liquidity and capital efficiency but also embeds regulatory safeguards directly into tokens. Stablecoins then provide the seamless payment layer that makes atomic, cross‑border settlement possible.
Yet, the full promise of tokenization hinges on closing critical legal gaps around on‑chain ownership rights and scaling infrastructure to meet institutional demand. As regulatory frameworks like MiCA and the DLT Pilot Regime evolve alongside more resilient blockchain networks, tokenization stands poised to unlock trillions in dormant assets and usher in a truly programmable, borderless financial ecosystem.