Tokenization

A token acts as a digital record of ownership that can be transferred directly between parties on a shared ledger. Tokenization can apply to financial assets, such as bonds and funds, and to real-world assets, such as property, art or commodities.

Supporters argue that tokenization can make transactions faster and cheaper by reducing intermediaries, allow assets to be split into smaller units so more investors can participate, enable trading at any time and improve transparency.

For example, a property worth 10,000,000 could be divided into 10,000 tokens worth 1,000 each, allowing investors to own small shares and trade them more easily than whole buildings.

Several banks, asset managers and governments have issued tokenized bonds and fund units. Challenges include legal recognition of token ownership, regulatory requirements, connecting tokens with existing payment systems, custody and security. The term tokenization also has a separate meaning in payments, where card numbers are replaced with unique codes to protect them from fraud.