Tokenized Assets — What They Are and How They Work
Understand what tokenized assets are, how they work, which assets can be tokenized, how to invest in them, the risks involved, and how they differ from cryptocurrency.
Tokenized assets are traditional assets that are represented digitally on a blockchain using cryptographic tokens. Tokenization changes how an asset is owned, transferred and managed, not necessarily what the asset is.
What Are Tokenized Assets?
Tokenized assets are traditional assets that are represented digitally on a blockchain using cryptographic tokens.
Think of a token as a digital certificate of ownership or entitlement. Instead of receiving a paper certificate or relying solely on a traditional financial database, your ownership or investment is recorded on a blockchain.
The underlying asset still exists in the real world—it could be cash, a Treasury bill, a bond, gold, real estate or even carbon credits. Tokenization simply creates a digital representation that can be transferred, tracked and, in many cases, traded more efficiently.
For example, imagine a commercial building worth US$10 million. Rather than requiring one investor to buy the entire building, the property can be divided into one million digital tokens, each representing a small ownership interest. Investors can then purchase only the number of tokens they want, making investing more accessible.
The same concept can apply to government bonds, money market funds, stocks and other financial assets.
Key takeaway: Tokenization changes how an asset is owned, transferred and managed, not necessarily what the asset is.
How Do Tokenized Assets Work?
The process typically follows these steps:
Step 1: A Real Asset Exists
An issuer owns or creates an asset such as:
- Treasury Bills
- Government Bonds
- Money Market Funds
- Gold
- Real Estate
- Corporate Bonds
- Carbon Credits
- Private Credit
Step 2: The Asset Is Tokenized
A regulated institution or issuer creates digital tokens on a blockchain.
Each token represents a specific interest in the underlying asset.
For example:
US Treasury Fund worth $100 million
↓
100 million digital tokens
↓
Each token represents $1 of the fund.
Step 3: Investors Purchase the Tokens
Investors buy tokens through a supported platform or marketplace.
Depending on the issuer, investors may need to:
- Complete identity verification (KYC)
- Meet minimum investment requirements
- Use supported payment methods
Step 4: Ownership Is Recorded on the Blockchain
Instead of a traditional registry alone, ownership is recorded digitally on a blockchain.
This allows transactions to be:
- Faster
- More transparent
- Easier to audit
- Available 24/7 in some cases
Step 5: Investors Receive Returns
Returns depend on the underlying asset.
Returns by Underlying Asset
Examples include:
| Asset | Potential Return |
|---|---|
| Treasury Bills | Interest income |
| Money Market Funds | Daily yield |
| Real Estate | Rental income and capital appreciation |
| Gold | Price appreciation |
| Corporate Bonds | Coupon payments |
| Stocks | Dividends and share price growth |
| Carbon Credits | Potential price appreciation |
What Types of Assets Can Be Tokenized?
Almost any asset with measurable value can potentially be tokenized.
Common examples include:
| Asset Type | Example |
|---|---|
| Government Securities | U.S. Treasury Bills |
| Money Market Funds | Franklin Templeton BENJI Fund |
| Stocks | Tokenized shares (where legally permitted) |
| Corporate Bonds | Tokenized bond issuances |
| Real Estate | Commercial buildings |
| Gold | Gold-backed tokens |
| Private Credit | Institutional lending portfolios |
| Carbon Credits | Verified carbon offsets |
| Collectibles | Art and luxury watches |
Why Are Tokenized Assets Becoming Popular?
Tokenization offers several potential advantages.
- 1Fractional Ownership
Instead of needing $100,000 to invest, investors may be able to invest much smaller amounts.
- 1Faster Settlement
Traditional securities can take one or more business days to settle. Many tokenized assets settle much faster.
- 1Greater Accessibility
Investors from different countries may be able to access investments that were previously available only to institutions, subject to local laws and platform eligibility.
- 1Increased Transparency
Blockchain records provide a transparent history of token transfers.
- 1Automation
Smart contracts can automate:
- Interest payments
- Dividend distributions
- Coupon payments
- Redemptions
How Do I Invest in Tokenized Assets?
The exact process varies by issuer, but it generally involves the following steps:
Step 1
Choose a regulated platform offering tokenized assets.
Examples include:
- Franklin Templeton (BENJI)
- Ondo Finance
- Securitize
- Backed Finance
- Superstate
Availability depends on your country and the product.
Step 2
Create an account.
Step 3
Complete Know Your Customer (KYC) verification if required.
Step 4
Fund your account using supported payment methods.
Depending on the platform, this may include:
- Bank transfer
- Stablecoins
- Cryptocurrency
- Debit or credit card
Step 5
Select the tokenized asset.
Examples:
- Tokenized Treasury Fund
- Tokenized Money Market Fund
- Tokenized Gold
- Tokenized Real Estate
Step 6
Purchase the desired number of tokens.
Step 7
Monitor your investment through the platform.
What Are the Risks?
Although tokenized assets can offer benefits, they also involve risks.
- 1Market Risk
The underlying asset may lose value.
- 1Issuer Risk
Some tokenized assets rely on the issuer to manage the underlying assets properly.
- 1Liquidity Risk
Some tokenized assets may be difficult to sell quickly.
- 1Regulatory Risk
Rules governing tokenized assets continue to evolve in many countries.
- 1Smart Contract Risk
Software bugs or security vulnerabilities could affect blockchain-based systems.
- 1Custody Risk
Some assets rely on third parties to safeguard the underlying investments.
Tokenized Assets vs Cryptocurrency
These terms are often confused.
| Tokenized Assets | Cryptocurrencies |
|---|---|
| Represent real-world assets | Native digital assets |
| Usually backed by an underlying asset | Often not backed by physical assets |
| May generate interest, rent or dividends | Returns generally depend on market price |
| Examples: tokenized Treasuries, tokenized real estate | Examples: Bitcoin, Ether |
Frequently Asked Questions
Are tokenized assets legal?
They are legal in many jurisdictions, but regulations vary by country. Investors should confirm whether a particular product is available and compliant in their jurisdiction.
Do I actually own the underlying asset?
It depends on the product's legal structure. Some tokens provide a direct ownership interest, while others represent a claim against the issuer or a fund. Always review the issuer's offering documents.
Can I sell tokenized assets?
Many tokenized assets can be redeemed with the issuer or traded on supported marketplaces, although liquidity and transfer restrictions vary by product.
Are tokenized assets safe?
Like any investment, they carry risks. Safety depends on the quality of the underlying asset, the issuer, the legal structure, custody arrangements and the technology used.
Can beginners invest?
Yes, although some products are limited to accredited or institutional investors, and availability differs by jurisdiction.
Are tokenized assets the same as NFTs?
No. NFTs are generally unique digital tokens, whereas tokenized assets usually represent divisible ownership or economic interests in financial or real-world assets.
Do tokenized assets pay income?
Some do. For example, tokenized Treasury funds and money market funds may distribute interest or yield, while tokenized real estate may distribute rental income. Others, such as tokenized gold, generally do not generate income.