The Future of Tokenization: Unlocking Real-World Value

Tokenization converts traditional assets into digital tokens, enhancing transaction speed, reducing costs, and broadening access.

Tokenization is the process of converting traditional assets—both tangible and intangible—into digital tokens that can be utilized within blockchain-based infrastructure. This transformation is underpinned by smart contracts, programmable logic that automatically executes on blockchains. The composability of tokenized assets enables them to interact seamlessly with other assets and applications within their network, leading to greater operational efficiency and reduced costs.

Key Benefits of Tokenization

Faster Transaction Settlement 

In traditional finance, settling transactions can take several days, especially in markets like securities and real estate, where asset ownership takes time to verify, and payments flow through intermediaries who additional time to verify funds. Tokenization changes this by enabling near-instantaneous settlements that operate 24/7. This is particularly advantageous in environments where “time is money”, such as high-interest-rate markets. Faster settlements reduce counterparty risk and can significantly lower transaction costs.

Operational Cost Savings 

Tokenization reduces operational costs by automating processes through smart contracts, which are always available and error-free compared to manual handling. For example, in asset classes like corporate bonds, where servicing and issuance are often manual and prone to errors, embedding procedures such as interest calculation and coupon payments within the token’s smart contract can reduce the need for human intervention and minimize errors.

Democratization of Access 

Traditionally, investing in assets like real estate or bonds required significant capital, making them accessible only to wealthy investors. Tokenization democratizes access by breaking these assets into smaller, more affordable pieces, allowing a broader range of investors to participate. This fractional ownership model also makes it easier for financial service providers to serve smaller investors, as the process becomes more efficient and less resource-intensive.

Enhanced Transparency

Smart contracts increase transparency by automating processes and ensuring that transactions are recorded immutably on the blockchain. For instance, in the case of carbon credits, a smart contract could automatically record and transfer credits in a transparent, immutable way, ensuring a clear audit trail.

Use Cases for Tokenization

Tangible Assets

Stablecoins

Stablecoins, including the two largest by market cap, USDT and USDC, are tokenized representations of fiat currencies. They have achieved a strong product-market fit by offering fast settlement and a stable store of value on the blockchain.

The total stablecoin market capitalization has reached $170 billion with $1.5 trillion in volume in the last month. Stablecoins have seen widespread adoption in emerging markets, especially those whose fiat currencies have experienced significant hyperinflation. For example, the Turkish Lira depreciated by more than 27% earlier this year, while Argentina’s inflation rate is expected to exceed 95% by year end. Both Turkey and Argentina are economies where many locals prefer to transact in US dollars. However, this demand often results in a shortage of physical cash (USD bills). Combined with government-imposed restrictions aimed at preserving the local currency, this creates challenges for locals seeking to use USD or other fiat currencies for price stability. Stablecoins are an ideal choice for locals to denominate their cash reserves and/or salaries to protect themselves against hyperinflation. 

The European Union's recent Markets in Crypto-Assets (MiCA) framework, passed in June 2024, has brought regulatory clarity to stablecoins, helping establish their legitimacy within traditional finance.

Financial Assets

Tokenized treasuries have attracted over $2 billion in assets under management, reflecting demand from investors seeking on-chain investment opportunities in a high-interest-rate environment. TradFi giants such as BlackRock and Franklin Templeton are at the forefront of this sector, with their BUIDL and FOBXX products. Tokenization streamlines the trading and settlement of these assets, making them more accessible and efficient. Currently, only $72 million worth of global bond assets are tokenized, a mere fraction of the $130 trillion global bond market. This stark contrast underscores the vast potential for growth in bringing more bond assets on-chain. 

Similarly, the opportunity to tokenize stocks is immense. While achieving regulatory clarity is crucial, the potential to bring stocks on-chain marks a pivotal moment for the industry. We believe that Solana, with its robust technology and strong leadership, is well-positioned to be the blockchain where this transformation occurs, thanks to its speed, scalability and its positioning in the market as a leader in stablecoin payments - recently attracting Paypal to the network with the launch of its new PyUSD stablecoin on the network, in addition to getting the nod from Visa for stablecoin settlement.

Real Estate & Infrastructure 

Real estate has long been considered an illiquid asset, with high barriers to entry. Tokenization changes this by allowing properties to be divided into smaller shares, or tokens, that can be bought and sold like stocks. This not only increases liquidity but also opens up real estate investment to a wider investor base. Fractional ownership makes it possible for investors to diversify their portfolios with real estate holdings without the need for large amounts of capital.

Intangible Assets

Beyond physical assets, tokenization is also advancing into intangible assets such as identity, intellectual property (IP), and data. For example, tokenizing identity can streamline processes such as Know Your Customer (KYC) by enabling individuals to securely control and share their digital identity on the blockchain. This allows for a single, verified source of trust while keeping the identity encrypted and inaccessible to unauthorized parties. When combined with new cryptographic techniques like zero-knowledge proofs (ZK-proofs), individuals gain greater control over their privacy and can selectively share specific information on a need-to-know basis. This can further advance on-chain under-collateralized lending, a much-needed feature that allows for more capital-efficient borrowing and lending on-chain.

Intellectual property rights can be tokenized to enable creators to manage and monetize their work more effectively. A recent example of innovation of this primitive is Story, which raised $80 million at a $2.25 billion valuation to build a blockchain for the business of content IP.

Data tokenization enables individuals and companies to securely control and monetize their data by sharing it with third parties in a transparent manner. This is increasingly vital in the attention economy, where the ownership and source of data are paramount. Similarly, content tokenization allows creators to transform their work into digital assets on the blockchain, ensuring they retain ownership and receive compensation whenever their content is used. In an AI-driven landscape, where models like ChatGPT often rely on vast amounts of online content without direct attribution, tokenization could allow these systems to automatically recognize and compensate original creators, ensuring fair revenue distribution whenever their work is accessed.