i. What Tokenization Actually Changes (and What It Doesn’t)

Separating representation from liquidity myths.

Overview

Tokenization is often described as a breakthrough that will transform real estate overnight—unlocking liquidity, democratizing access, and bypassing traditional intermediaries. These claims are not entirely wrong, but they are frequently overstated. Market analysis shows tokenized real-world assets grew over 60% to $13.5 billion as of December 2024, yet this remains negligible compared to conventional markets. The St. Regis Aspen resort, one of the earliest tokenized properties in 2018, raised $18 million—a successful pilot that nonetheless reveals tokenization's limited current scale despite six years of development.

Tokenization does change important mechanics in capital markets. It does not change the underlying requirements for trust, valuation, compliance, or risk. Understanding this distinction is critical for anyone evaluating tokenization as infrastructure rather than hype. The Bank for International Settlements describes tokenization as potentially "the next logical step in the evolution of money and payments," integrating messaging, reconciliation, and settlement into seamless operations. However, the same research emphasizes that potential benefits are unproven and involve trade-offs including increased operational complexity, liquidity pressures, and regulatory uncertainty.

The practical question is not whether tokenization matters but what it actually accomplishes and what foundational work it requires rather than replaces.

What Tokenization Actually Is

At its core, tokenization is the representation of ownership, rights, or claims in a digital format that can be issued, transferred, and governed using software on programmable platforms. It introduces programmable ownership logic where smart contracts can automate compliance checks, dividend distributions, and governance rules. Standardized transfer mechanisms replace manual processes with coded protocols. Automated compliance rules enforce restrictions programmatically rather than through intermediary verification. Improved settlement efficiency reduces multi-day clearing cycles to near-instantaneous settlement.

These are meaningful improvements to transaction mechanics. They are also narrowly scoped. Tokenization changes how assets are represented and transacted—the format and infrastructure of exchange—not what makes them valuable or investable. A token representing fractional ownership in a commercial property is not inherently more or less valuable than a traditional equity interest in the same property. The asset's location, tenant quality, lease structure, condition, and market positioning determine value; the representation format affects transaction efficiency and access but not fundamental worth.

Research on tokenization implementations confirms that the technology enables platform-based intermediation across the end-to-end lifecycle of financial assets. This integration can decrease transaction costs and enable innovative use cases. However, realizing these benefits requires sound governance and risk management, as the risks typically associated with financial market infrastructures apply to token arrangements—they simply may materialize differently due to changes in market structure.

What Tokenization Clearly Improves

Settlement and transfer mechanics benefit directly from tokenization. Traditional securities settlement involves multiple intermediaries—broker-dealers, custodians, clearinghouses, central securities depositories—each maintaining separate records requiring reconciliation. This fragmentation creates multi-day settlement cycles and reconciliation complexity. Tokenized instruments can reduce friction in issuance, transfer, and reconciliation by consolidating these functions on shared infrastructure. Settlement becomes faster when delivery-versus-payment occurs simultaneously on the same platform. Ownership tracking becomes clearer with transparent ledger recording every transaction. Post-trade processes become more automated as smart contracts handle tasks requiring manual intervention in traditional systems.

Rule enforcement improves through programmability. Smart contracts allow certain rules—transfer restrictions ensuring securities comply with regulations limiting ownership to accredited investors, investment caps preventing individual holders from exceeding position limits, eligibility checks verifying compliance with anti-money laundering requirements—to be enforced automatically at the protocol level rather than requiring manual verification by intermediaries. This automation reduces compliance costs while potentially improving consistency and eliminating human error in rule application.

Composability enables new product structures. Tokenized assets can interact more easily with other digital financial infrastructure through standardized protocols. This interoperability enables structured products combining multiple tokens, automated reporting extracting data directly from on-chain activity, and integration with new market venues without requiring custom integration for each platform. The potential extends to enabling derivatives, benchmarks, and synthetic products built programmatically from underlying tokenized assets.

These improvements are real and materially valuable for reducing transaction friction. They are also downstream of asset quality and documentation. The efficiency gains from faster settlement matter more when the asset being settled is well-understood; automation amplifies whatever information quality exists rather than compensating for deficiencies.

What Tokenization Does Not Change

Asset quality remains entirely independent of tokenization. Tokenization does not improve the physical condition, performance, or economics of an underlying asset. A poorly maintained building with deferred maintenance, tenant problems, and substandard systems remains exactly that after tokenization. The token represents claims on the asset's cash flows and value, but those fundamental characteristics are unaffected by representation format. If documentation is incomplete, systems are aging, and performance is uncertain, tokenization simply creates digital claims on an asset whose quality and trajectory remain unclear.

Valuation fundamentals persist unchanged. Tokenization does not eliminate the need for appraisals, underwriting, or risk assessment. Determining what a property is worth requires evaluating comparable sales, analyzing income potential, assessing condition and market positioning—evidence-based judgment exercises that tokenization does not automate or shortcut. An appraiser valuing a tokenized property faces the same information requirements as one valuing a traditional holding: verified square footage, documented occupancy, validated income and expense histories, comparable transaction evidence. The token provides no additional valuation information beyond representing fractional ownership that may affect marketability.

Regulatory reality remains binding. Tokenized assets remain subject to securities law defining what constitutes a security and how it must be registered or exempted, property law governing ownership rights and transfer mechanisms, tax regimes determining treatment of transactions and income, and jurisdictional constraints limiting where and to whom tokens can be sold. Tokenization does not bypass regulation—it relocates compliance logic from intermediary verification to programmatic enforcement. This shift may improve efficiency but does not eliminate regulatory requirements. Many tokenized bonds to date are either dual-listed with traditional custody or operate on permissioned networks because fully public, freely tradable security tokens are still constrained by regulatory compliance requirements.

Investor demand remains a function of asset attractiveness rather than representation format. Tokenization does not create investors seeking exposure to real estate or specific properties. It changes the format in which opportunities are offered—fractional shares rather than fund interests, 24/7 trading rather than capital call structures—not whether the underlying investment is attractive at prevailing prices. A mediocre property in a weak market will not suddenly find eager investors simply because it is tokenized. The fundamental investment case must compel capital regardless of whether ownership is represented traditionally or digitally.

Why Liquidity Claims Are Often Misleading

Liquidity is not a property of technology. It is a property of markets requiring willing buyers and sellers transacting at prices reflecting information. For an asset to be liquid, participants must understand what they are buying through available documentation and disclosures, trust the information presented as accurate and verifiable, believe pricing reflects reality rather than manipulation or information asymmetry, and expect counterparties to exist when they wish to trade.

Tokenization may lower transaction friction by enabling faster settlement and broader access, but it does not solve information asymmetry. In many cases, it exposes information problems by making them operationally relevant. Traditional illiquid investments like real estate funds could maintain information opacity because transactions occurred infrequently between sophisticated counterparties conducting extensive diligence. Tokenization enabling continuous trading makes information quality immediately visible—when documentation is incomplete or inconsistent, liquidity evaporates as participants refuse to transact without confidence in what they own.

Assets that lack transparency do not become liquid simply because they are tokenized. The Financial Stability Board's analysis notes that fractional ownership, lack of transparency, and resulting challenges in asset valuation could lead to excessive risk-taking by investors not qualified to assess exposure to some tokenized assets. When investment platforms offer fractional real estate tokens to retail investors but underlying properties lack verifiable documentation supporting valuations or performance claims, the result is not democratized access but uninformed speculation vulnerable to manipulation and loss.

Research comparing tokenized real estate implementations confirms that while technology enables fractional ownership and automated processes, widespread adoption faces challenges including regulatory clarity, market education, and critically, ensuring robust underlying data quality. Projects tokenizing luxury properties in 2018-2019 raised capital from accredited investors but did not create liquid secondary markets because few investors understood the assets well enough to trade confidently without extensive diligence.

Tokenization Amplifies Data Quality—Good and Bad

One of tokenization's most important effects is amplification of underlying information quality. When assets are well-documented with structured data, verifiable records, and clear performance histories, tokenization accelerates participation by reducing diligence requirements and enabling automated verification. Verification supports secondary market activity as buyers can confirm representations programmatically. Structured data enables creation of derivatives, benchmarks, and analytical tools that further increase market sophistication and efficiency.

When assets are poorly documented with incomplete records, inconsistent reporting, and unverified claims, tokenization surfaces these problems immediately. Uncertainty becomes visible to all market participants rather than discovered gradually through bilateral diligence. Inconsistencies propagate quickly as automated systems attempt to process conflicting information. Risk gets priced defensively as participants apply wide margins to compensate for information gaps they cannot close through additional investigation.

Tokenization does not hide deficiencies—it surfaces them in operationally consequential ways. Traditional markets could function with moderate information quality because intermediaries provided buffer and validation. Tokenized markets require information quality sufficient to support automated processes and decentralized verification. Assets that barely met minimum standards for traditional financing often fail to meet requirements for tokenization not because the technology is inadequate but because automation exposes information problems that manual processes accommodated.

Why Tokenization Shifts Where Trust Is Built

In traditional markets, trust is embedded in institutions serving as guarantors of accuracy and enforceability. Custodians hold assets and verify ownership. Registrars maintain authoritative records of who owns what. Clearinghouses guarantee settlement performance. Intermediaries perform due diligence and assume liability for misrepresentation. Participants trust the system because regulated institutions with capital at risk vouch for accuracy.

Tokenization shifts trust toward different foundations: data integrity verified through cryptographic proofs rather than institutional certification, verification mechanisms establishing that tokens correspond to actual rights rather than relying on custodian attestation, governance logic programmed into smart contracts rather than enforced by intermediaries, and ongoing observability where transaction history and current state are transparent rather than accessible only to authorized parties.

This shift does not eliminate intermediaries—custodians still hold physical assets, oracles provide off-chain data, platforms operate infrastructure, and service providers maintain protocols. However, it changes what these intermediaries are responsible for and how they establish credibility. Rather than vouching generally for asset quality, they provide specific verifiable services: storing assets securely, delivering accurate data feeds, maintaining platform uptime, updating code reliably. Trust becomes less about authority and more about evidence that specific functions are being performed correctly.

The implication is that tokenization demands information infrastructure capable of supporting this verification-based trust model. Assets without verifiable documentation, clear ownership records, and transparent performance data cannot build trust in tokenized format regardless of platform sophistication. The technology enables efficient verification but cannot verify what does not exist in verifiable form.

Tokenization as a Forcing Function

The most durable impact of tokenization may be behavioral rather than technical. Tokenization forces asset owners to confront fundamental questions that traditional formats allowed them to defer: whether their records are coherent enough to support programmatic processing, whether rights are clearly defined enough to code into smart contracts, whether risk can be explained with sufficient precision to enable automated assessment.

Assets meeting these requirements can benefit substantially from tokenization through improved efficiency, broader access, and reduced costs. Assets that cannot meet these requirements struggle to benefit from tokenization regardless of platform selection or jurisdictional strategy. The technology does not compensate for poor information infrastructure—it demands quality sufficient to support automation and transparency.

This forcing function may be tokenization's most valuable contribution. Organizations that treat tokenization implementation as primarily a technology project frequently fail because the binding constraint is information quality rather than technical capability. Organizations that treat tokenization as a catalyst for improving documentation, clarifying rights, and establishing verifiable governance infrastructure realize benefits that extend beyond tokenization itself—they build asset legibility valuable for traditional financing and operations as well.

Why This Guide Matters

Tokenization is neither a panacea solving all real estate market inefficiencies nor a gimmick delivering no meaningful value. It is infrastructure that meaningfully improves the mechanics of ownership representation, transfer execution, and governance enforcement. However, it does not replace the foundational work of making assets legible through comprehensive documentation, verifiable through maintained records, and finance-ready through clear rights and risk articulation.

Those who treat tokenization as a shortcut—assuming that digitizing ownership will unlock liquidity and democratize access without addressing underlying information quality—will be disappointed. Market data shows that despite six years of development since early pilots, tokenized real-world assets remain less than 1% of conventional markets. This limited adoption reflects not technological immaturity but the difficulty of achieving information quality sufficient to support tokenization's verification-based trust model.

Those who treat tokenization as an amplifier of existing information infrastructure will be better prepared. Organizations investing in documentation quality, establishing verifiable data systems, and building governance practices transparent enough to be coded into smart contracts position themselves to benefit from tokenization when regulatory frameworks mature and market infrastructure develops. More importantly, they build capabilities valuable independent of tokenization—verified asset information, clear ownership records, and systematic governance improve outcomes in traditional financing, operations, and portfolio management.

The practical guidance is direct: evaluate tokenization not as replacement for documentation but as technology that demands and amplifies information quality. Invest in making assets legible before attempting to tokenize them. Establish verification practices sufficient to support programmatic trust rather than institutional vouching. Recognize that efficiency gains from tokenization flow primarily to well-documented assets where automation reduces costs of processes that currently require manual effort.

Tokenization will likely transform certain aspects of financial markets over the coming decade as BIS research suggests. However, this transformation will be selective, benefiting assets and organizations that first build information infrastructure capable of supporting verification-based trust. The question is not whether your assets should be tokenized but whether they can be—and whether addressing the prerequisites for tokenization will deliver value regardless of ultimate adoption timeline.

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Keywords: asset tokenization, digital capital markets, blockchain finance, real estate tokenization, market liquidity, smart contracts, financial infrastructure, programmable platforms, settlement efficiency

References

• Bank for International Settlements. (2024). Tokenisation in the Context of Money and Other Assets: Concepts and Implications for Central Banks. Report to G20 analyzing how tokenization integrates messaging, reconciliation, and settlement while noting risks may materialize differently than in conventional systems.

• Bank for International Settlements. (2025). Annual Economic Report 2025: Unified Ledger Blueprint. Analysis of how tokenization combining central bank reserves, commercial bank money, and government bonds could transform financial system infrastructure.

• Coinbase. (2024). Crypto Market Outlook Report. Market data showing tokenized real-world assets grew 60%+ to $13.5 billion, with analysis of adoption barriers and implementation challenges.

• DTCC. Tokenization and the Modernization of Market Infrastructure. Analysis of how tokenization affects clearing, settlement, and custody functions in capital markets.

• Financial Stability Board. (2024). The Financial Stability Implications of Tokenisation. Comprehensive assessment identifying five categories of vulnerabilities and noting that many claimed benefits remain unproven with significant trade-offs.

• International Organization of Securities Commissions. Policy Considerations for Crypto and Tokenized Assets. Regulatory framework considerations for ensuring investor protection while enabling innovation.

• World Economic Forum. (2025). Asset Tokenization in Financial Markets: The Next Generation of Value Exchange. Analysis of how tokenization may increase accessibility while noting challenges including limited interoperability and unclear legal frameworks.