Tokenization converts real-world assets into blockchain-based tokens. This process replaces manual and fragmented procedures with programmable digital systems, increasing efficiency in areas such as issuance, settlement, and asset servicing. The insurance and financial sectors are beginning to adopt both permissioned and permissionless tokenization protocols to improve control over assets across networks, according to Beinsure’s report.
According to R3, integrating industry-specific expertise with blockchain infrastructure supports more secure and efficient asset handling. If institutions use appropriate distributed ledger technologies and apply effective tokenization frameworks, they can achieve significant operational improvements and cost reductions.
Benefits and Market Scope
Tokenization allows digital representation of traditional and illiquid assets such as private placements, real estate, and fine art. This not only increases liquidity but also gives investors access to fractional ownership, improving diversification and participation. Tokenized assets bring automation, eliminate intermediaries, and cut down on settlement times.
Key benefits include:
- Efficiency: Blockchain automates processes, reducing settlement times and associated costs.
- Cost Reduction: Blockchain reduces bond issuance costs by up to 90% and fundraising costs by up to 40% compared to traditional private placements.
- Compliance: Financial institutions spend approximately $181 bn annually on compliance. Tokenization reduces human error and embeds compliance rules into tokens.
- Transparency: Blockchain offers a single, updated record, simplifying cap table management and lowering the risk of disputes.
- Innovation: Digital contracts allow creation of fractionalized real estate, liquid revenue-sharing structures, and custom digital financial products.
The blockchain market was valued at $3.6 bn in 2020 and is projected to grow to $24.1 bn by 2025, reflecting a CAGR of 46%, according to GlobalData. Analysts estimate the tokenization market may reach $5 tn over the next five years, led by stablecoins, CBDCs, private market funds, securities, and real estate.
Currency Tokenization and CBDCs
Currency tokenization through stablecoins and CBDCs is expected to cover about 2% of the global money supply—roughly $3 tn. These tokens will be used for on-chain deposits and payments. In China, for example, the CBDC program is driving the deployment of tokenized fiat, while decentralized markets explore yield-generating stablecoin solutions that compete with bank deposits.
Success, however, depends on regulatory recognition of the benefits of blockchain and tokens. Real-time settlement, global access, immutable transactions, and programmable logic depend on crypto tokens as core features of blockchain-based financial systems.
Tokenization and Market Regulation
The Financial Stability Board (FSB) introduced a regulatory framework that outlines supervisory recommendations for cryptoasset activities and global stablecoin arrangements. These proposals promote the principle of “same activity, same risk, same regulation” while remaining flexible and technology-neutral. The framework draws on lessons from market instability and structural weaknesses observed in recent years.
The Financial Action Task Force (FATF) also released updated guidance on crypto-related risks, focusing on virtual asset service providers, NFTs, and DeFi platforms. FATF noted that global implementation and compliance remain low compared to traditional financial services.
Expanding Access and Collateral Mobility
Tokenization simplifies the asset lifecycle, reducing operational costs and streamlining administration. It increases market accessibility by enabling fractional ownership of high-value assets. Investors gain access to previously restricted markets, broadening capital participation.
Asset tokenization also improves collateral usage. By enhancing the mobility of tokenized assets, institutions can better manage borrowing, lending, and risk exposure. Digital footprints such as NFTs enable full-cycle product tracking in supply chains, increasing reliability and authentication.
Adoption in Practice
Financial firms are already implementing real-world asset tokenization. Examples include:
- JPMorgan conducting live trades using tokenized yen and Singapore dollars on Polygon.
- WisdomTree launching ten digital funds using Stellar and Ethereum to maintain secondary share records.
- Deutsche Bank entering digital custody and tokenization through a partnership with Taurus.
- Hong Kong’s central bank issuing a $100 mn tokenized green bond.
- Crédit Agricole CIB and SEB building a blockchain-based platform for digital bonds.
According to S&P Global Ratings, digital bond issuance on blockchains reached $1.5 bn recently, a sharp increase from the year prior.
Tokenization continues to reshape finance and insurance by digitizing asset issuance and management. It reduces costs, increases transparency, enhances liquidity, and expands investment opportunities. To fully implement tokenization, financial institutions must address regulatory challenges, collaborate with public and private stakeholders, and adopt standard frameworks. The technology provides 24/7 markets, improved asset servicing, and real-time settlement—setting the foundation for long-term structural changes in financial systems.
AUTHOR: Oleg Parashchak – CEO Finance Media Holding