What Is Tokenization?

Conventional asset administration is a laborious course of. It typically requires the involvement of quite a few middlemen, together with varied state our bodies and regulators.

Belongings corresponding to shares, bonds, property, and even land can typically be prohibitively costly and time-consuming to handle, placing them past the attain of the overwhelming majority of the world’s inhabitants.

What’s extra, conventional asset administration sometimes entails advanced authorized agreements and many paperwork, which makes all of it very tough to trace and switch possession. It’s a gradual and cumbersome system—and one that usually lacks enough transparency to stop fraud and different types of corruption.

Tokenization, whereas not with out its personal faults and regulatory hurdles, gives a radical new mind-set about asset administration—a reimagining of what’s attainable within the monetary and technological world. We discover this new thought under.

What’s a token? 

Merely put: “A token is one thing representing one thing else, [and] could be rendered in any type of type,” in line with Joseph Lubin, co-founder of Ethereum and founding father of blockchain enterprise studio ConsenSys. “It may be a chunk of paper. It may be an thought. It’s a logo representing one thing,” he mentioned. “Your driver’s license, as an example, is a token that’s listed right into a ledger that the state maintains of who’s authorized to drive.”

You possibly can consider a blockchain-based token as a sort of digital receipt for a slice of an asset. However not like the receipts of outdated, these tokens are immutably logged on an auditable blockchain.

In 2009, Bitcoin launched a peer-to-peer system for transferring worth throughout the Web. The Bitcoin blockchain is what makes it attainable for transactions to be made in a decentralized, trustless, and immutable means—all whereas avoiding the so-called double-spend downside, stopping transactions from being fraudulently copied and duplicated digitally.

The innovation led entrepreneurs to ascertain new use circumstances for Bitcoin’s underlying expertise. In 2015, Ethereum launched the fintech world to a programmable blockchain—a breakthrough made attainable by Ethereum’s sensible contract expertise.

Ethereum took the identical expertise that Bitcoin is constructed on and made it about extra than simply cryptocurrency and shops of worth.

Earlier than lengthy, hundreds of tokens had been developed on the Ethereum community, every with its personal distinct attributes and advantages. In contrast to cryptocurrencies, tokens have varied potential use circumstances—something from managing property, shares, and contracts to powering decentralized purposes and video games.

Token use circumstances

Typically, there are two sorts of tokens: Utility tokens and safety tokens.

Utility tokens are digital belongings that give their homeowners entry to services or products produced by an organization. Because the label implies, these tokens are supposed to be used for one thing, slightly than held or traded. For instance, a utility token can present entry to a future service, corresponding to renting computing energy, inserting a wager at a sports activities sport or casting a legally binding vote.

Courageous Software program, the makers of the privacy-focused Courageous net browser, created the Primary Consideration Token, or BAT—a utility token designed for the promoting trade that monetizes the eye of net customers.

Safety tokens, then again, are digital belongings that characterize an funding of some type, corresponding to a share in an organization, a voting proper in how the corporate operates, a unit of worth, or some mixture of the three. These tokens may also characterize components of real-world belongings, corresponding to gold, traditional automobiles or royalties out of your favourite pop-song.

As such, safety tokens should adjust to the prevailing regulatory frameworks that govern conventional securities, corresponding to shares. In consequence, a complete trade has developed to assist tokenization entrepreneurs adjust to relevant laws.

Securitize, a crypto startup backed by main US cryptocurrency change Coinbase, is one such firm that focuses on the issuance and administration of digital securities, with the specific intention of serving to token issuers stay compliant.

Aside from utility and safety tokens, there are additionally particular non-fungible tokens, generally known as NFTs. These tokens characterize distinctive digital objects, starting from profile image collections corresponding to CryptoPunks and Bored Ape Yacht Membership, to particular person artworks which have offered for tens of tens of millions of {dollars}.

To tokenize or to not tokenize…

The promise of tokenization rests in its potential to democratize entry to digital belongings, in addition to its skill to offer accountability, safety, and provenance for these belongings.

“Creating tokens that characterize real-world belongings that may be traded and supply accountability is enormously helpful,” Paul Snow, founder, and CEO of Factom, informed Decrypt.

A blockchain-based system eliminates the necessity to belief in a intermediary. But it surely additionally gives a greater stage of accounting, Snow defined, which could be significantly helpful for companies that deal in fraud prevention.

That’s in a really perfect world, a minimum of.

In late June 2025, the favored buying and selling app Robinhood unveiled that over 200 shares could be tokenized and tradable on the Ethereum layer-2 community Arbitrum for EU clients. Two of those shares embrace OpenAI and SpaceX, personal firms that Robinhood mentioned gave “oblique publicity to non-public markets.” OpenAI disagreed and issued a public assertion stating that they disapproved of the providing.

Regardless of the backlash, Vladimir Tenev, co-founder and CEO of Robinhood, mentioned in a July 2025 interview with Bloomberg that the personal firm listings weren’t going to cease there.

“We’d prefer to have hundreds of personal firms on the platform, accessible to retail,” Tenev informed Bloomberg. “And, truly, since our announcement, I’ve had a deluge of inquiries [from] personal firms that truly need entry to retail, to have their shares tokenized, to be a part of this revolution.”

Kurt Watkins, founding father of U.S.-based agency Watkins Authorized, informed Decrypt that the providing was doubtless “commercially unviable” within the U.S. as a result of its lack of transparency and authorized ambiguity.

Regulators world wide, and in america particularly, at the moment are paying very shut consideration to the cryptocurrency trade, with an in depth eye on the best way tokens have been purchased, offered, and distributed to this point.

And the principles over the sale, distribution, and administration of tokenized belongings will fluctuate from nation to nation, crypto startups that intention to construct world, borderless programs should now cope with regulatory and compliance measures in every of the jurisdictions that they anticipate to do enterprise.

This, too, has now change into a laborious and costly course of in its personal proper, particularly in america, with many token-based firms opting to as an alternative take their companies abroad the place the principles are much less stringent.

Nonetheless, U.S. regulators have proven current indicators of warming to tokenized belongings, and blockchain entrepreneurs proceed to develop modern makes use of for tokenization, in addition to options to enhance the scalability of their respective networks.

The longer term

Tokenization guarantees a world the place nearly any asset or service could be represented and saved on a blockchain. The probabilities are theoretically infinite. However very similar to the early days of the Web, we’re simply beginning to perceive which concepts are finest suited to this expertise.

It’s nonetheless early days, however the transition towards a tokenized world may change the best way we take into consideration every part that holds actual worth.

This text was revealed in July 2023 and up to date in July 2025.