Tokenisation: How Digital Assets Are Reshaping Conventional Finance

Tokenisation — the process of representing ownership rights in real or financial assets as digital tokens on a blockchain — has moved decisively from niche experiment to institutional reality. In 2022, tokenised real-world assets (RWAs) were worth roughly $3 billion on public blockchains. By mid-2025, that figure had surpassed $24 billion, a 308% increase in three years. When permissioned and private platforms are included, analysts estimate total tokenised assets exceeded $412 billion in early 2025, with projections reaching $18.7 trillion by 2031. This is not a crypto fad. It is a structural shift in how finance operates, and its consequences for conventional banking, capital markets, and asset management are only beginning to surface.

This article traces the evolution of tokenisation from its conceptual origins through to today's institutional landscape, and examines how it is reshaping everything from settlement infrastructure to asset liquidity, custody practices, and regulatory frameworks.

Part I: The Conceptual Foundations — Tokenisation Before Blockchain

The idea of representing value through tokens is not new. In fact, its roots run deep into the history of money itself. The gold standard was, in essence, a tokenisation system: paper banknotes were tokens redeemable for physical gold, backed by a central authority's promise to honour the peg. When the United States abandoned the gold standard in 1971, fiat currency became a purely sovereign-backed token — valuable because the state said so, not because it represented a specific commodity.

In the 2000s, a different form of tokenisation emerged in financial data security. Companies like TrustCommerce began using "tokenisation" to replace sensitive credit card numbers with non-reversible placeholders, ensuring that merchants never stored raw payment data. This security-oriented tokenisation laid the technical and conceptual groundwork for what came next: the idea that tokens could represent not just a reference to data, but ownership of an asset itself.

Part II: The Blockchain Era — From Coloured Coins to DeFi

The Early Experiments (2012–2017)

The first substantive attempt at blockchain-based asset tokenisation came with "coloured coins" on the Bitcoin network starting in 2012. These were tiny amounts of bitcoin 'coloured' to represent external assets — a share in a company, a unit of real estate, an ounce of gold. The concept was clever but impractical: Bitcoin's scripting language was too limited to express complex ownership logic, and the lack of a standardised protocol meant fragmentation from the start.

The breakthrough arrived with Ethereum in 2015 and its smart contract capabilities. Suddenly, developers could encode arbitrary ownership rules, transfer conditions, and governance mechanisms into programmable tokens. The ERC-20 standard (2017) established a universal interface for fungible tokens, while ERC-721 (2018) introduced non-fungible tokens (NFTs) for unique assets. These standards became the building blocks of tokenised finance.

The DeFi Explosion (2020–2022)

Decentralised finance (DeFi) demonstrated what programmable money could do: automated market making, flash loans, yield aggregation — all without traditional intermediaries. But DeFi's assets were overwhelmingly native crypto assets — ETH, USDC, wrapped bitcoin. The real prize lay in bringing non-crypto assets onto blockchains: Treasury bonds, real estate, private credit, commodities.

The first major step toward this came with stablecoins like USDC and USDT, which tokenised fiat currency itself. By the end of 2022, stablecoins represented roughly $140 billion in on-chain value — proof that tokenised real-world assets could achieve serious scale. The infrastructure was ready. What was missing was institutional participation.

Part III: The Institutional Tipping Point (2023–2026)

The period from 2023 to 2026 marks the most consequential phase in tokenisation's development. A confluence of regulatory clarity, technological maturity, and institutional appetite has turned what was once a crypto-native experiment into a mainstream financial trend.

BlackRock BUIDL and the Fund Tokenisation Wave

The defining moment came in March 2024, when BlackRock launched its BUIDL fund — a tokenised money-market fund on Ethereum, in partnership with Securitize and BNY Mellon. BUIDL offered institutional investors exposure to short-term U.S. Treasuries via a blockchain-based token, with near-instant settlement and 24/7 transferability. Within months, it became the largest tokenised money-market fund by assets under management. BlackRock CEO Larry Fink had already set the tone in 2023: "Tokenisation of securities will be the next generation of markets."

Franklin Templeton had moved earlier, launching its OnChain U.S. Government Money Fund (BENJI) in April 2021 on Stellar, later expanding to Ethereum. By November 2025, the entire tokenised money-market fund sector had grown to $8.7 billion, up from negligible levels three years prior. Other major entrants include Ondo Finance (OUSG and USDY), Superstate (USTB), and asset managers ranging from Goldman Sachs to Hamilton Lane.

The Bond Tokenisation Pipeline

Tokenised bonds have progressed from proof-of-concept to live issuance. The European Investment Bank issued its first digital bond on Ethereum in 2021, followed by a €100 million digital note on the Banque de France's central bank digital currency (CBDC) settlement platform in 2022. The World Bank, Siemens, and the City of Lugano have all issued tokenised debt instruments. What varies across these cases is the choice of blockchain, the degree of regulatory integration, and the settlement mechanism — but the direction of travel is consistent.

The key advantage of tokenised bonds is not changing the economics of the bond itself; it is transforming the operational layer. Issuance costs drop, settlement cycles compress from T+2 to near-instant, and bond coupon payments can be automated via smart contracts. In a world where fixed-income markets still largely operate on fax machines and spreadsheets, this is transformative — not because it creates a new asset, but because it strips out centuries of accumulated operational friction.

Part IV: How Tokenisation Impacts Conventional Finance

1. Settlement and Post-Trade Infrastructure

The most immediate and tangible impact of tokenisation is on settlement. In traditional capital markets, trade settlement takes one to two business days (T+1 or T+2). This lag creates counterparty risk, ties up capital in margin accounts, and limits the speed at which portfolios can be rebalanced. Tokenised assets can settle in seconds on a blockchain, with delivery-versus-payment (DvP) executed atomically — asset tokens and cash tokens change hands simultaneously, eliminating settlement risk entirely.

The implications extend beyond speed. DTCC, the backbone of U.S. securities clearing, has launched AppChain — a permissioned Ethereum-based platform for real-time DvP settlement of tokenised assets. JP Morgan's Kinexys (formerly Onyx) processes billions in real-time cross-border payments on blockchain rails. Euroclear's D-FMI platform enables digital issuance and settlement of native notes. These are not experiments; they are production infrastructure that coexists with, and increasingly competes with, traditional settlement systems.

2. Liquidity and Fractional Ownership

Tokenisation unlocks liquidity in assets that have historically been illiquid. Real estate — the world's largest asset class, valued in the hundreds of trillions of dollars — is a prime candidate. By representing property as divisible digital tokens, tokenisation enables fractional ownership, allowing investors to buy into premium real estate with as little as a few hundred dollars' worth of tokens. BCG projects tokenised real estate could reach $3.2 trillion by 2030, representing roughly 15% of global property assets under management.

The same logic applies to private equity, fine art, commodities, and venture capital. Tokenisation transforms each of these from a buy-and-hold asset into something approaching the liquidity characteristics of public equities — without requiring a traditional IPO or listing. For institutional investors, this means portfolio rebalancing can extend to asset classes that were previously locked in for years.

3. Asset Management and Distribution

Tokenised funds fundamentally alter how asset managers create, distribute, and service investment products. Because tokens can be transferred 24/7 across borders, the distribution model shifts from jurisdiction-by-jurisdiction licensing to global programme chains. Franklin Templeton's BENJI fund, for example, is accessible to qualified investors across multiple jurisdictions from a single blockchain deployment. Custody becomes programmable: smart contracts can enforce investor accreditation, compliance checks, and transfer restrictions at the protocol level rather than through manual verification.

The operational savings are significant. A typical mutual fund involves dozens of intermediaries — transfer agents, custodians, administrators, distributors — each extracting fees. Tokenised funds can operate with dramatically fewer intermediaries, passing the cost savings to investors in the form of lower expense ratios. In an industry where a few basis points can determine competitive advantage, this calculus has not gone unnoticed.

4. Collateral Management and Capital Efficiency

Tokenised assets offer a new paradigm for collateral management. In traditional finance, posting collateral across different counterparties and jurisdictions is slow, opaque, and operationally expensive. Tokenised collateral — whether Treasuries, gold, or money-market fund shares — can be moved on-chain in real time, tracked transparently, and rehypothecated programmatically. DTCC's real-time collateral management platform, built on a permissioned Ethereum framework, is already operational, enabling instant collateral transfers between clearing members.

For banks and broker-dealers, this translates directly to capital efficiency. Lower settlement risk means lower regulatory capital charges. Faster collateral mobility means less capital tied up in margin. Programmable compliance means less manual oversight. The cumulative effect is a structural reduction in the cost of financial intermediation.

5. Impact on Banking

The impact on commercial banking is more complex. Tokenised money-market funds compete directly with bank deposits for short-term cash holdings. If institutional investors can earn competitive yields from tokenised Treasuries that settle instantly and can be moved 24/7, the rationale for holding low-yielding bank deposits weakens. JP Morgan's planned "deposit tokens" — digital representations of commercial bank money on blockchain — represent the banking sector's attempt to adapt rather than be disintermediated.

On the lending side, tokenisation enables new forms of credit. Tokenised private credit — direct lending extended via blockchain — had already reached 61% of total RWA token value by April 2025. This challenges the traditional banking model of originating, holding, and servicing loans by creating a secondary market for credit instruments that were previously bilateral and illiquid. For borrowers, it potentially means cheaper, faster access to capital. For banks, it means either adapting or losing market share in one of their core revenue lines.

Part V: Remaining Friction Points

Tokenisation is not frictionless. Several structural barriers remain:

Regulatory fragmentation is the most significant. A tokenised bond that settles on a public blockchain faces different legal treatment in the United States (where the SEC and CFTC continue to delineate jurisdiction), Europe (where MiCA provides a framework but leaves gaps), Singapore (where MAS has been proactive but cautious), and the Middle East (where Abu Dhabi and Dubai are racing to establish themselves as tokenisation hubs). A global tokenised asset market requires legal clarity that does not yet fully exist.

Custody and liability gaps present another challenge. In traditional finance, custody is well-defined: a bank holds securities on behalf of clients, with clear legal segregation and insurance arrangements. For tokenised assets, the custody chain is still being defined. Who is liable when a smart contract is exploited? What happens if the underlying asset issuer defaults — does the token holder have legal recourse? These questions are being answered, but the answers vary by jurisdiction.

Interoperability between different blockchain platforms remains limited. A token issued on Ethereum cannot easily move to Solana, and institutional infrastructure built on a permissioned ledger like Canton or AppChain may not speak the same protocol as public-chain issuance platforms. Initiatives like Chainlink's CCIP (Cross-Chain Interoperability Protocol) and the broader push for ERC-3643 (the standard for tokenised securities) are addressing this, but full interoperability is likely years away.

Scalability is worth noting but increasingly a non-issue. Ethereum's transition to proof-of-stake and its ongoing Layer-2 scaling roadmap can handle institutional volumes today. Private blockchains like Canton offer even higher throughput. The scalability question has largely shifted from "can the technology handle it" to "can the legal and operational infrastructure keep pace."

Conclusion: The Quiet Infrastructure Shift

Tokenisation's most important feature is also its least flashy: it is not about creating new assets but upgrading the infrastructure through which existing assets are managed, transferred, and serviced. A tokenised Treasury bond still pays interest. A tokenised money-market fund still holds Treasuries and repos. The difference is that settlement happens in seconds rather than days, ownership is transparent rather than opaque, and assets can move programmatically rather than requiring manual intervention at every step.

The numbers tell the story. From $3 billion in tokenised RWAs in 2022 to $24 billion by mid-2025. From a handful of crypto-native projects to participation by BlackRock, JP Morgan, Goldman Sachs, DTCC, Euroclear, and central banks. From theoretical white papers to production infrastructure handling billions in real asset flows. Tokenisation has crossed the chasm from innovation to adoption — and 2026 is shaping up to be the year the gap between crypto finance and conventional finance begins to meaningfully close.

For financial institutions, the strategic question is no longer whether tokenisation will matter. It is whether they will build the infrastructure, develop the products, and navigate the regulatory complexity fast enough to lead — or find themselves trying to catch up.

Key takeaways:

• Tokenised real-world assets grew from $3B (2022) to $24B+ (mid-2025) on public blockchains
• BlackRock's BUIDL and Franklin Templeton's BENJI have driven the tokenised MMF sector to $8.7B
• Major market infrastructure providers (DTCC, Euroclear, JP Morgan) are deploying production tokenisation platforms
• Tokenisation primarily upgrades operational infrastructure — faster settlement, fractional ownership, programmable compliance
• Regulatory fragmentation, custody clarity, and cross-chain interoperability remain the key friction points
• RWA tokenisation is projected to reach $18.7T by 2031, driven by institutional adoption

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