Tokenization: How Assets Become Investable On-Chain

Though financial markets have become increasingly digital, not all assets have made the transition in the same way. 

Stocks and bonds, for example, are already commonly represented through electronic records. Meanwhile, assets such as real estate still remain outside of the digital financial infrastructure.

That is not to mention even digitally recorded assets often still exist within separate systems operated by different institutions. The coordination process makes things ever more complex and time-consuming. 

These limitations have created a growing interest in tokenization.

The Definition of Tokenization

Tokenization is defined by the U.S. Securities and Exchange Commission (SEC) as the creation of a digital representation of an asset using distributed ledger technology (DLT). This asset can either be tangible or intangible (or both…?).

The resulting token represents the asset or a legally defined right associated with it. Meanwhile, the underlying asset remains offline and is governed by its existing legal and operational framework.

Tokenization is the creation of a blockchain-based digital representation of an asset or related legal right.

What Can Be Tokenized?

In theory, almost any asset can be tokenized, provided it has clearly defined ownership or economic rights that can be represented digitally. Today, a large part of tokenization activity focuses on real-world assets (RWAs).

Bonds and Money Market Funds

Government bonds, corporate bonds, and money market funds are particularly well suited to tokenization. This is because they already operate within well-established legal, custody, and valuation frameworks.

Bonds and money market funds are well suited to tokenization.

These fixed-income assets have also seen the strongest institutional adoption. According to Binance, BlackRock's USD Institutional Digital Liquidity Fund (BUIDL) surpassed $2.8 billion in assets under management in 2025. This makes it one of the largest tokenized money market funds. 

Franklin Templeton's BENJI fund is another major example of a tokenized money market fund. Ondo Finance has, likewise, brought U.S. Treasury exposure on-chain through its tokenized Treasury products. 

Real Estate

With properties requiring a lot of upfront investment, participation in real estate markets has long been limited to institutional and high-net-worth investors.

Tokenization addresses this barrier by dividing an asset into smaller investment units represented by blockchain tokens. This could simultaneously broaden investors' access to real estate markets and improve capital raising for property owners and developers.

Commodities

Commodities with standardized value and established custody infrastructure are particularly well suited to tokenization.

Gold is the most mature example. Tokenized gold products typically represent ownership of a specific amount of physical gold, which is held in a secure vault by a regulated custodian. Thanks to tokenization, investors can gain exposure to gold without having to store or physically move the gold themselves. 

Tokenized commodities, especially gold, let investors gain blockchain-based exposure to standardized physical assets.

What Does a Tokenized Asset Actually Represent?

Buying a token doesn't automatically mean owning the underlying asset, which is why regulators such as the U.S. Securities and Exchange Commission (SEC) evaluate tokenized products based on their legal structure rather than the assets they reference.

Direct ownership

Under this legal structure, the token represents ownership of the underlying asset or a fractional share of it. This structure is commonly found in tokenized real estate projects, where each token represents a direct fractional ownership interest in a property.

SPV equity

Some tokenization projects place the underlying asset under the control of a separate legal entity known as a special purpose vehicle (SPV). Instead of owning the asset directly, investors will own shares in this SPV·.

This structure is widely used in tokenized real estate, infrastructure projects, and investment funds. This is because it creates a clear legal owner for the asset while making it easier to add or remove investors without transferring the asset itself each time. 

As shareholders of the SPV, investors may also receive rights such as dividends or voting power, depending on how the SPV is structured.

SPV-based tokenization gives investors shares in a legal entity that owns the asset.

Revenue right

Revenue-right tokens give holders a contractual claim to a portion of the future revenue generated by a business or asset.

This structure is particularly useful for assets that generate recurring income, allowing investors to participate in those cash flows without needing to hold the asset itself. Common examples include royalty-sharing platforms and revenue-sharing tokens linked to music, entertainment, and other intellectual property.

Debt claim

A token can also represent a contractual right to receive scheduled repayments from a borrower. This structure is a natural fit for fixed-income investments, since the underlying financial relationship is already based on debt. 

Typical examples of debt claim, hence, include tokenized corporate bonds, government bonds, and private credit.

A debt-claim token represents a contractual right to receive borrower repayments.

Custodial entitlement

Some assets cannot realistically be handed over to every investor. A gold bar, for example, is normally kept in a secure vault rather than being physically delivered each time ownership changes.

Instead, a regulated custodian will hold the asset on behalf of investors, while the blockchain token records who is entitled to it. This model is usually used for gold and certain stock products.

Synthetic exposure

Synthetic tokens give investors returns linked to an asset's price without representing the asset itself.To see why synthetic exposure exists, it may help to look at an example.

Synthetic tokens provide price exposure to an asset without direct ownership.

A company's shares, for instance, may be publicly traded but not offered as tokenized shares. Investors can then use a synthetic token to gain exposure to these shares' prices.

The trade-off is that investors generally do not receive rights such as voting or direct ownership, since their rights come from agreement with the token issuer rather than from the underlying asset itself.

Benefits of Tokenization

After long lists and explanations, perhaps it’s the time to point out the advantages that tokenization brings to the crypto market as a whole.

Tokenization can benefit markets in multiple ways.

Lower Barriers to Investment Through Fractional Ownership

Instead of requiring investors to purchase a large ownership position, tokenization makes dividing that asset into smaller units possible. With less capital tied up in each investment, investors can spread their funds across multiple investment opportunities.

More Efficient Asset Management

Throughout an asset’s lifecycle, ownership records must be maintained, and income also has to be distributed. Undoubtedly, regulatory requirements must be continuously enforced, too.

Traditionally, these responsibilities are handled by different parties and go through multiple administrative processes. As the number of participants increases, so do the costs and operational complexity.

Tokenization allows many of these workflows to be embedded directly into smart contracts. Once predefined conditions are met, these tasks can be carried out without human manual intervention. This greatly reduces administrative costs and minimizes human error.

More Efficient Markets 

Because ownership is recorded on a shared blockchain ledger, every participant references the same transaction history. This removes much of the reconciliation required when different parties maintain separate ownership records.

As a result, transactions can be completed much more quickly. Shorter settlement cycles, in turn, reduce the risk that a transaction is disrupted before ownership and payment are fully completed. They also allow capital to be reused sooner.

The same shared record also makes market information easier to verify directly on-chain. Thanks to this, reliance on reports published solely by the issuer is greatly reduced.

Tokenized assets can also interact with wallets, exchanges, lending protocols, and other blockchain applications without requiring custom infrastructure. This is because they all follow standardized token formats. 

This interoperability - commonly known as composability - enables new financial use cases. They include (but are not limited to) using tokenized government bonds as collateral in lending protocols, or integrating tokenized funds with on-chain asset management platforms.

Risks of Tokenization and How to Evaluate Them 

That said, tokenization’s upsides should not blind investors from considering the cons that come with it.

Investors should also considers the risks of tokenization.

Liquidity and Exit Risk

While tokenization makes assets easier to divide into smaller units, it does not guarantee that those units can be sold quickly or at a fair price. 

If trading activity is too limited, investors may have to rely on the issuer's redemption process. This process allows investors to return the token to the issuer in exchange for cash or, in some cases, the underlying asset. 

Some projects allow on-demand redemption, while others impose redemption windows, minimum redemption amounts, lock-up periods, fees, or regulatory restrictions. 

Technical Risk

Like any software, smart contracts can contain programming errors, security vulnerabilities, or flawed logic. These issues may lead to frozen assets, incorrect transactions, or unintended behavior. 

To deal with these issues, some projects allow administrators to pause transfers, upgrade contracts, or blacklist wallets. While these controls can support regulatory compliance, they also introduce governance and centralization risks.

At the same time, because blockchains cannot directly access information outside their own network, they have to rely on external data providers known as oracles. 

These oracles supply information such as asset prices, reserve balances, and net asset values. In case the data is inaccurate or delayed, the smart contract would likely still execute exactly as programmed while producing incorrect results.

For this reason, investors should evaluate whether the smart contracts have been independently audited, who controls administrative permissions, and how oracle data is sourced and verified. All of these need to be done before any investment is made.

Legal and Counterparty Risk

Legal risk arises because different tokenization structures give investors different levels of protection. Owning a share of an asset or an entity is not the same as having a contractual right to receive payments, for instance. When things go wrong, what an investor can claim will depend on the specific rights attached to the token.

The legal structure can also determine who stands between the investor and the underlying asset. In case one of these third parties becomes insolvent, mismanages the asset, or fails to meet its obligations, recovering the investment can become more difficult.

A Final Word on Tokenization

Coinminutes' final goal when writing this article is not to tell you to buy or sell any cryptocurrencies. Rather, we hope to provide you with the information needed to make an informed decision on tokenized assets.

Now that you've somewhat grasped some of the main concepts of tokenization, perhaps a more in-depth look into them is in queue. Or maybe following social sentiment or price moves around tokenized assets is more so your cup of tea? 

If those are the kinds of crypto coverage you are looking for, check out our website at https://coinminutes.com/ for more updates.