Finance tokenization is a new technique that is shifting the way traditional financial markets work by letting users tokenize and trade any asset using blockchain. This unlocks a whole new set of opportunities for both institutions and investors – enhanced liquidity, lower costs, increased transparency, and new markets available 24/7 around the world.
Essentially, tokenization means turning things like company stocks, bonds, real estate, or commodities into digital tokens that exist on a blockchain. Next, the clear and secure nature of distributed ledger technology makes it easy to manage, complete trades for, and track these tokens.
The global finance tokenization market size is expected to grow from $3.95 billion in 2025 to $12.83 billion by 2032 at a CAGR of 18.3%. As the technology matures and sees increasing adoption, tokenization has the potential to fundamentally reshape capital markets around the world.
This article explores the basics of asset tokenization, its associated benefits, use cases being explored, challenges still being addressed, outlook for the future, and ultimately, why it presents new opportunities for both large institutions and everyday investors over the coming years.
Table of contents
How Tokenization Works
Finance tokenization is basically turning real assets into digital tokens that are stored on a blockchain, a process often facilitated by a reliable fiat to crypto onramp to ensure smooth capital conversion for initial investments. Let’s quickly run through how asset tokenization takes place:
First, we define what asset we are tokenizing – company stock, real estate, commodities, art, etc. The issuer then writes a smart contract which programmatically enforces ownership rights, transfer restrictions, dividends or revenue share, voting rights, etc.
Many digital tokens represent fractional ownership of the digital asset. The smart contract codes ownership, rights, restrictions, etc., data directly into each token. Data about ownership, rights, restrictions, etc., is coded directly into each token via the smart contract.
On a blockchain network, ownership records are immutable and easily auditable, and tokens are issued on it. A blockchain can be public, as in the case of Ethereum, or a private network run by institutions.
Once purchased, investors can buy tokens with cryptocurrencies or fiat money. They can also be freely traded peer-to-peer on supported exchanges or marketplaces.
Token ownership rights are baked directly into tokens in such a way as to mirror shares in traditional capital markets. But there’s global 24/7 trading, near-instant settlement, and no middlemen.
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In summary, tokenization turns assets into programmable digital tokens that enable new opportunities for investment, trading, and unlocking liquidity previously trapped in slow or siloed markets.
Key Benefits of Asset Finance Tokenization
Several major benefits are driving the adoption of tokenization by financial institutions and investors:
Improved Liquidity
The most important benefit is that it provides greater liquidity on assets that were previously difficult to trade frequently. Token markets are always open, with near-instantaneous settlement, allowing assets like real estate, private equity, fine art, etc., to be as liquid as public stocks. Moreover, it allows retail investors to access illiquid assets.
Lower Costs & Frictionless Trading
Tokenized assets can greatly reduce many transaction and settlement costs by operating on blockchain rails instead of slow manual processes. Automated compliance and removal of middlemen also decrease fees. Together with 24/7 markets, this enables frictionless global trading.
Enhanced Transparency
Putting ownership and transaction data on public blockchains lets anyone audit and view the information at any time. Because everyone trusts the same source for information on asset provenance, trust is built throughout the process.
Increased Accessibility
Because of small trade sizes, round-the-clock access for investors worldwide, and built-in ownership, tokenized assets are now open to people who once had a hard time investing. It is now possible for retail investors to own parts of assets such as real estate.
Better Regulatory Oversight
Regulators also benefit from the transparency of tokenized markets across jurisdictions. Regulators gain from the openness of tokenized systems in different parts of the world. Having compliance automated, standard reports, and the ability to see fraudulent activities can support regulatory control.
All of these benefits are making it possible for both institutions and investors in financial services to try new things. Many large organizations in the sector are improving their tokenization systems because they expect tokenization to grow fast over the next decade.
Major Use Cases and Traction
Many new tokenization use cases are already gaining strong traction across different sectors in finance. While still nascent, the technology has moved well beyond the proof-of-concept stage as real-world deployment now accelerates.
Equity Token Offerings
Also called Security Token Offerings (STOs), equity tokenization allows companies to represent shares of company stock as digital tokens. These can be issued and traded in regulated public markets to broaden investor access. For example, the Long Blockchain Corp executed a $6 million STO in 2018. Overstock issued an STO, raising $134 million.
Debt Tokenization
Tokens can also be used to digitize bonds, loans, mortgages, and other forms of enterprise and consumer debt. This process brings increased liquidity to fixed-income assets for investors. For example, Cadence successfully issued a $4 million real estate debt token offering in 2018. Securitize has also created a DS Token representing debt that allows fractional ownership.
Tokenized Real Estate
By dividing a development project or physical property into multiple tokens, real estate can be fractionalized to enable shared ownership. Retail investors even gain exposure to assets normally requiring millions in capital. For example, Red Swan CRE tokenized $2.2 billion in real estate in 2020.
Security Tokens
Financial institutions like stock exchanges are also directly tokenizing traditional assets like public equities to test efficiencies. For example, the Australian Securities Exchange (ASX) is replacing CHESS for clearing, settlement, and asset registration with a blockchain system enabling tokenization.
Commodities & Trade Finance
Commodity producers, agricultural companies, miners, and global exporters are also digitizing shipments, inventory, invoices, and trade finance vehicles into tokens. Supply chain tokenization brings greater visibility and efficiency. TradeFinex already offers tokenized financing for commodities like wheat and soybeans.
While most traction has focused on tokenizing conventional assets so far, the technology is expected to expand across risk transfer markets, insurance, decentralized finance, loyalty rewards programs, and potentially even central bank digital currencies over the next 5-10 years.
Key Challenges Still Being Addressed
Despite accelerating momentum, asset tokenization still faces some challenges constraining widespread enterprise adoption. Fortunately, many of these issues are already being addressed and overcome:
Technical Complexity
Issuing tokenized securities under regulations is still a major technical challenge for financial firms. If you manage cap table data, shareholder rights, voting privileges, and dividends on the blockchain, it may require you to use several different systems. However, new issuance platforms are abstracting this complexity away into easy-to-use systems.
Unclear Regulation
Since assets can be moved around the world digitally day and night, regulatory challenges continue to arise with regard to compliance, reporting and taxation. Fortunately, global regulatory guidance for asset tokenization is quickly maturing. Most G20 countries already define rules for securities tokens, with increasing cross-border collaboration underway.
Market Fragmentation
Talking about token bridges, early adopters are distributed over different public chains, private chains, asset-specific blockchains, and traditional clearing systems. Reducing fragmentation will be based on interoperability standards.
Privacy Concerns
The privacy issues of public transparency are of concern to institutions used to closed systems. However, decentralized identity standards and zero-knowledge proofs are coming to a middle ground between transparency and confidentiality.
These challenges are expected to decrease over the next 5 years as solutions become evident in each of governance, interoperability, regulation, and privacy.
Outlook for Mainstream Adoption
As technology and regulatory barriers fall, asset finance tokenization is expected to achieve mainstream enterprise adoption on this timeline.
Advances across major areas driving adoption include:
- Infrastructure maturation enabling scalability, interoperability, speed, and security as turn-key solutions
- Regulatory clarity led by global guidance, with most G20 nations already defining security token frameworks
- New issuance platforms abstracting away blockchain complexity for easier enterprise onboarding
- Incumbents like stock exchanges, custodians, and clearing houses are launching their own tokenized asset capabilities
- Emergence of new blockchain-native financial assets previously unavailable to mainstream investors
With foundational infrastructure now in place, the next 5 years will see a steep growth trajectory for asset tokenization across mainstream markets:
- Public equities trading in tokenized form across major stock exchanges to improve accessibility
- Tokenized bonds are improving liquidity in fixed income markets, currently valued at over $128 trillion
- Surge in fractional real estate tokens democratizing property investment for retail
- Tokenization of existing funds like ETFs and mutual funds is bringing down costs
- Central banks are piloting digital currency projects tied to blockchain tokens
The World Economic Forum even forecasts 10% of global GDP will be tokenized and stored on blockchains by 2027 – equivalent to $10 trillion worth of assets.
New Opportunities for Institutions & Investors
From this perspective, asset tokenization is primed to move from early adoption into the mainstream over the next 5 years. This unlocks new opportunities for both large financial institutions and everyday investors:
Opportunities for Large Institutions
- Launch new revenue streams with tokenized assets and on-chain financing
- Attract broader retail and institutional investor bases to new tokenized markets
- Improve operational efficiency, lower costs, and reduce risk exposure
- Meet client demand for new blockchain-based digital asset products
- Leverage automation for regulatory reporting, compliance, and surveillance
- Build next-generation tokenized market infrastructure to stay competitive
Opportunities for Investors
- Access new asset classes beyond conventional securities, like private equity
- Invest in fractional ownership of assets previously inaccessible, like real estate or fine art collectibles
- Trade 24/7 in tokenized stocks, bonds, commodities, currencies, and more
- Reduce fees through disintermediation and automated processing
- Benefit from transparency when selecting investments
- Use programmable tokens for innovations like automated dividend reinvestment
Together, this leads to the emergence of entirely new global markets that look very different from siloed and opaque systems still prevalent in traditional finance today.
Conclusion
Tokenizing assets means you can take advantage of the unchangeable, clear, and open nature of blockchain when investing in real properties. As a result, markets can run more efficiently, and settlements are finalized instantly at any time.
The essential building blocks are now falling into place, and adoption by financial institutions and investors is expected to grow rapidly over the next 5 years. Asset tokenization removes previous barriers to entry, supercharges liquidity, reduces costs, increases transparency, and opens up opportunities for worldwide retail and institutional participants alike.
As global assets across equities, fixed income, real estate, commodities, currencies, trade finance, and risk transfer markets move on-chain over the coming decade, finance tokenization is set to transform capital markets fundamentally as we know them. This revolution will unfold new opportunities at the institutional and retail levels to access digitized and programmable on-chain assets. Fasten your seatbelts; the most exciting changes for global finance are just beginning!
