Author: Theo
Translator: Jiahua, ChainCatcher
The core of tokenization is to eliminate all friction.
Most people think of speculative digital tokens when they hear "tokenization." They are completely missing the point.
The real story lies in settlement speed, 24/7 liquidity, fragmented ownership, and the slow demise of financial intermediaries: these seemingly dull infrastructure changes are the true forces reshaping the market.
Here is a phrase that seems ordinary at first glance, but is profound upon reflection: when you sell a stock today, you actually have to wait two business days to get your money. Not two seconds, not two minutes, but a full two days.
This is called T+2 settlement, and it is so mundane, so thoroughly embedded in the architecture of modern finance, that most investors never stop to ask why.
The answer is: because transferring ownership of assets between two parties requires a chain involving custodians, clearing houses, and counterparty reconciliation systems. This is a bureaucratic relay race invented before the birth of the internet, which has never undergone fundamentally redesign.
Each link in this chain requires time to confirm, record, and guarantee transactions. The two-day wait is the accumulated friction of institutions, which has ultimately calcified into standard practice.
This is the real meaning of asset tokenization: it's not about coins, not about speculation, and not about NFT avatars, but a bet—betting that the entire settlement and custody infrastructure of global finance can be rebuilt on a programmable ledger.
When that day comes, the two-day wait, intermediary fees, accredited investor thresholds, and trading time restrictions will seem as ancient and outdated as a fax machine.
Overview of Real World Assets
So, what exactly is asset tokenization?
Asset tokenization is the process of representing ownership of real-world assets (a building, a bond, a fund share, an artwork, a private equity) in the form of digital tokens on a blockchain. These tokens are programmable ownership records that exist on a shared, tamper-proof ledger, separate from the assets themselves.
Layman's definition: Think of a token as a digital contract. When you purchase a tokenized share of a commercial property, your digital wallet receives a token that represents your ownership share.
This token automatically records who owns it, when it changed hands, and under what conditions it can be transferred, without the need for a registrar to update spreadsheets.
Unlike paper contracts or broker account records maintained by third-party custodians, blockchain-based tokens are designed to be self-custodied: ownership records are maintained by the network itself, rather than controlled by any single entity that might freeze, lose, or distort them.
The underlying operational mechanisms vary; some tokenization projects use public blockchains like Ethereum, while others use permissioned enterprise chains operated by banking consortia.
What specific ledger is used is not important; what matters is the structural shift: ownership records that previously existed in isolated institutional databases now exist in a shared, interoperable system. This is the change with far-reaching effects.
Four Problems Tokenization Actually Solves
Problem 1: Settlement Speed
The T+2 settlement window exists because it takes time to reconcile trades among multiple intermediaries (exchanges, clearing brokers, central securities depositories). Each institution maintains its own records; synchronizing these records requires a sequential handover process.
On the blockchain, settlement is atomic. When a trade is executed, the token moves from one wallet to another within the same transaction. No handover, no reconciliation, and no counterparty risk window.
Settlement happens in seconds, or in the current implementations, even for more complex trades, in less than a minute. The U.S. stock market transitioned from T+3 to T+2 in 2017 and will move to T+1 in 2024; meanwhile, the tokenization market has directly skipped all these stages to achieve almost instantaneous settlement.
For institutional traders, the difference between T+1 and T+0 is not just speed; it's also about capital efficiency. Every day between trade execution and settlement is a day when capital is locked in a limbo state, unable to be redeployed.
At the scale of the global stock markets, this trapped capital represents tens of billions of dollars in opportunity cost.
"The two-day settlement window is the cumulative institutional friction that has ultimately calcified into standard practice, while tokenization is the first viable solution capable of dismantling it."
Problem 2: Liquidity, or the Lack of Liquidity
A $50 million commercial real estate property is a highly valuable asset on paper. In practice, it is nearly completely illiquid.
Selling it requires finding a buyer willing to make an offer, negotiating a price, hiring lawyers for both parties, conducting due diligence, and then waiting months to complete the closing. There is no exchange, no bid-ask spread, and if you urgently need $200,000 in cash on a Thursday, you can't simply sell a fraction of that building.
This is not a phenomenon unique to real estate. Private equity, infrastructure assets, art pieces, venture capital fund shares, litigation finance rights: vast pools of wealth remain trapped in assets that have extremely low trading frequencies, high opacity, and are cycled only among large institutions with patience and resources.
Tokenization does not automatically make illiquid assets liquid. But it creates the infrastructure for secondary markets to exist.
If ownership of a building can be split into tokens traded on digital exchanges, then a limited partner needing liquidity does not have to wait for a fund's redemption window or seek a buyer for their entire stake. They can sell tokens. Not selling the entire asset, but just slices of it. This changes the investment logic for every asset class that has historically deterred investors due to illiquidity premiums.
More experienced builders in this space have already recognized a deeper lesson: issuing tokens is only half the job done.
A tokenized asset without a secondary market, an accepted collateral framework, or integration into trading venues is functionally a non-starter. It is just a better proof of ownership, but not yet a better financial instrument.
A handful of platforms are now beginning to incorporate liquidity as a first-day design requirement, rather than letting it develop naturally after launch. Theo, founded by former market makers from IMC Trading and Optiver, launched thBILL (a chain-based exposure invested in institution-grade U.S. Treasury strategies managed by Wellington Management, in collaboration with Standard Chartered's Libeara).
The product integrates market making, lending protocol support, and cross-chain deployment (covering Ethereum, Base, Arbitrum, and HyperEVM) from its inception. This token can be traded, used as collateral, or directly put to work in DeFi protocols without conversion.
This is a vivid demonstration of what it truly takes to solve the liquidity problem: not just issuing infrastructure, but requiring a complete market structure that endows tokenized assets with tangible holding value.
Problem 3: Fragmented Ownership and Access Barriers
The minimum investment in most private credit funds is $500,000. Many commercial real estate syndicates have a minimum investment of $100,000.
These thresholds exist not because small-scale investors would harm the economics, but because the cost of managing relationships with many small investors is extremely high: tracking ownership, handling distributions, managing redemptions. The paperwork cost per investor does not proportionately decline as the investment amount decreases.
Traditional Ownership vs. Tokenized Ownership
Smart contracts eliminate most of the management overhead. Dividend distributions can be programmed to execute automatically when conditions are met, without manual processing or custodial fees. Ownership records are updated in real-time. Investor communication can occur on-chain.
The management cost allocated to each investor approaches zero, meaning minimum investment thresholds can drop by several orders of magnitude without disrupting the fund's economic model.
The regulatory environment here is indeed very complex: most jurisdictions' securities laws still require specific investments to qualify as accredited investors, and tokenization does not change these rules.
What it changes is: once regulations allow, or in the growing asset classes where those regulations have already allowed, the economic feasibility of serving a broader investor base.
Problem 4: Removing Intermediaries (Actual Mechanism)
Every intermediary in financial transactions exists to solve the trust issue. Custodian agents ensure that neither party runs away with the money during property delivery. Clearing houses guarantee that if your counterparty defaults, you still receive your securities. Custodians hold assets for clients who cannot be trusted to safely self-custody.
Smart contracts replace trust with code. A tokenized bond can be programmed to automatically pay coupons to token holders on specific dates, release collateral upon loan repayment, and execute early redemptions upon triggering certain conditions.
All this does not require trustees, payment agents, or contract administrators. The terms of the contract are enforced by the network, not by any entity that could be corrupt, bankrupt, or simply negligent.
Assets Represented as Tokens Legal ownership is encoded into smart contracts on the blockchain, with tokens serving as transferable proof of these rights.
Terms Programmed into Contracts Payment schedules, transfer restrictions, redemption conditions, and governance rights are embedded in code, self-executing without human intermediaries.
Tokens Traded on Secondary Markets Token holders can sell their positions in exchanges built specifically for tokenized assets, with settlement completed in seconds, and without clearing intermediaries.
Cash Flows Automatically Allocated Rental income, coupon payments, and other distributions go directly into the token holders' wallets when triggered, without payment agents, funds sitting around, or processing delays.
Why This is Not Related to Cryptocurrency
It is understandable to conflate tokenization with cryptocurrency speculation, but this is of little help. Yes, tokenization uses blockchain technology. Yes, the same ledger infrastructure also supports Bitcoin. But those similarities end there.
The value of Bitcoin and its speculative derivatives comes from scarcity and narrative. In contrast, tokenized real estate, bonds, and private equity are representations of assets whose value arises from income, cash flows, and tangible operations. Tokenization is a new layer of ownership and settlement atop existing asset classes.
Institutions building tokenization infrastructure include JPMorgan, BlackRock, Franklin Templeton, Goldman Sachs, and HSBC, all of which base their entire business models on managing real assets for real clients.
JPMorgan's Onyx platform has processed hundreds of billions in tokenized repo transactions. BlackRock's BUIDL fund (a tokenized money market fund) exceeded $500 million in assets within weeks of its launch. These are all infrastructure investments in faster, cheaper settlement layers.
"Organizations building tokenization infrastructure include companies like BlackRock, Franklin Templeton, and JPMorgan, whose survival depends on reliably managing core assets."
Unavoidable Realities as Barriers
Portraying tokenization as an absolute inevitability is dishonest. There are structural barriers that will slow its adoption, and these barriers have nothing to do with the technology itself.
Most jurisdictions' legal frameworks still define asset ownership in terms of paper records, registered agents, and custodial accounts. Tokens on a blockchain do not automatically carry legal status; they require explicit regulatory recognition, which varies greatly between countries and asset classes.
Some governments are taking action. The EU's DLT Pilot Regime and the UK's Property (Digital Assets etc.) Bill are early examples. But legal certainty for tokenized assets remains patchwork.
Interoperability between different blockchain platforms is another outstanding issue. Tokenized bonds issued on JPMorgan's Onyx chain cannot be settled automatically with tokenized fund shares issued on Ethereum without a cross-chain bridge, which reintroduces another form of counterparty risk.
Ironically, the proliferation of numerous competing settlement networks is reintroducing the very "isolated institutional database" problem that tokenization was supposed to solve.
Finally, there is the issue of利益分配. The intermediaries being replaced are not passive bystanders. Custodians, clearinghouses, and transfer agents provide hefty fee income that supports institutions also trying to build tokenization platforms. These existing vested interests have every incentive to adopt this technology slowly, while pushing to protect their current revenue streams.
What Is Changing and What Has Not Changed
Portraying the endpoint of tokenization as a frictionless perfect market is unrealistic. It is absolutely not a frictionless utopian market. Settlement risks have not disappeared; they have merely shifted from counterparty credit risk to smart contract code risk, which has its own vulnerabilities.
Fragmented ownership does not automatically create deep liquidity: a thousand small retail investors in a tokenized building still cannot forcibly initiate an asset sale, and unless market makers are actively involved, the market for tokens will still be very thin.
What is truly changing is the cost structure of the entire "underlying pipeline."
The T+2 window is increasingly being compressed towards zero. The minimum viable investment amounts for illiquid asset classes are declining. The single transaction costs of handling payments or recording ownership transfers are becoming closer to the cost of a database write rather than the administrative costs of manual operations.
These changes, taken in isolation, may not seem drastic. However, when they compound across all the assets currently locked in slow, costly, heavily intermediated structures, this constitutes the largest restructuring of financial infrastructure since electronic trading replaced open outcry.
It is a story about infrastructure. Your investment logic, your probing of regulation, your prediction about timelines, all hinge on whether you truly grasp this fact. Yet, at present, most individuals focusing on tokenization still do not see through it.
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