What Is Tokenization?

How It Works

The tokenization process involves a legal structure and a technical structure working together. On the legal side, a company or trust holds the underlying asset — say, a commercial property worth $10 million. It issues tokens that represent fractional ownership of that asset, with each token entitling the holder to a proportional share of the value and income. Buying 100 tokens out of 10,000 means owning 1% of the asset and receiving 1% of any rental income.

On the technical side, those tokens are smart contracts on a blockchain. Transfer of ownership is recorded instantly on the public ledger. There are no paper certificates, no manual settlement, and no need for a broker to match buyers and sellers during business hours. Two parties can exchange tokens peer-to-peer, 24/7, with settlement in seconds.

Tokenization can apply to virtually any asset that has clear legal ownership: government bonds, corporate bonds, equities, real estate, commodities, private credit, infrastructure projects, and even intellectual property or carbon credits. Major financial institutions — including BlackRock, Franklin Templeton, JPMorgan, and BNY Mellon — have launched tokenized asset products, tokenizing US Treasury funds on public blockchains.

The programmability of tokens adds a dimension traditional assets lack. A tokenized bond can automatically pay interest to all holders the moment it is due. A tokenized real estate fund can automatically distribute rental income proportionally. Smart contracts can enforce restrictions on who can hold the token (for securities law compliance) without any manual administration.

Why It Matters

Tokenization could be the largest structural change in capital markets since electronic trading replaced physical trading floors in the 1980s. Traditional asset markets are plagued by inefficiency: settlement takes days, minimum investment sizes exclude most people, assets are hard to value and trade, and the paperwork burden is enormous.

Tokenization addresses all of these simultaneously. Settlement becomes instant. Assets become divisible into small fractions, democratizing access to institutional investments that currently require $100,000 minimum purchases. Liquidity improves because tokens can trade on global markets 24/7. Compliance can be automated into the smart contract itself.

BlackRock's CEO Larry Fink has stated publicly that he believes tokenization of every financial asset is inevitable. The Bank for International Settlements estimates that up to $16 trillion of assets could be tokenized by 2030.

Real-World Example

Franklin Templeton launched a tokenized money market fund on the Stellar and Polygon blockchains. The fund holds US Treasury bills and other government securities — among the safest assets in the world. Each share of the fund is represented by a blockchain token. Investors buy shares, hold the token in their wallet, and receive daily interest automatically. Transfers of ownership happen on-chain in seconds, with no custodian required to manually process settlement.