How does tokenization work?

What is Tokenization

Tokenization is the method of converting tangible assets like physical assets, securities, and intellectual property into digital tokens on a blockchain. These tokens can be purchased, sold, and exchanged, enabling fractional ownership and enhanced liquidity for assets that were traditionally illiquid. As a result, tokenization introduces fresh opportunities and transforms the conventional methods of asset ownership, trading, and utilization. It promotes innovation and empowers individuals to engage in the decentralized global financial ecosystem.
According to a report published by the World Economic Forum, it is projected that the worldwide market for tokenized securities may reach a value of $24 trillion by the year 2027.

To what it can be applied

The concept of tokenization has opened up a range of possibilities for asset representation. It can be applied to any kind of asset being it physical or abstract. For example, traditional financial instruments, real estate, intellectual property, art and collectibles, commodities, venture capital and private equity, carbon credits and renewable energy, loyalty points and rewards, supply chain assets, etc.

How it works

The tokenization process typically involves the following steps:

  1. Asset identification: The first step is to identify the asset that will be tokenized. It could be a physical property, a company’s shares, or even intellectual property rights.
  2. Legal and regulatory compliance: Before tokenizing an asset, it’s crucial to ensure compliance with relevant legal and regulatory requirements. This involves understanding the jurisdiction-specific rules and regulations governing the asset and ensuring proper documentation and permissions are in place.
  3. Asset valuation: The asset’s value needs to be determined to facilitate the tokenization process. This can be done through various methods, such as conducting appraisals, analyzing market data, or using existing valuation models.
  4. Smart contract creation: Smart contracts are programmable contracts that define the rules and conditions for the tokenized asset. They are typically implemented on a blockchain platform and facilitate the transfer and management of the tokens. Smart contracts can include parameters such as ownership rights, transfer restrictions, profit-sharing arrangements, and other relevant terms.
  5. Token issuance: Once the smart contract is created, the tokens representing the asset can be issued on the chosen blockchain platform. The tokens can be designed to represent a fractional ownership of the asset, allowing for the division of the asset into smaller units.
  6. Investor onboarding and compliance: If the tokenized assets are offered to investors, an onboarding process is typically implemented to ensure compliance with investor accreditation requirements and know-your-customer (KYC) regulations. This involves verifying the identities of investors and ensuring they meet the necessary legal criteria.
  7. Trading and transfer: Once the tokens are issued, they can be traded on secondary markets, subject to applicable regulations. The transfer of tokens representing the asset can be executed peer-to-peer, allowing for faster and more efficient transactions.
  8. Asset management and governance: The tokenization process often includes mechanisms for managing and governing the asset. This can involve voting rights for token holders, distribution of profits or dividends, and other governance-related features.
    It’s important to note that the specific implementation of asset tokenization can vary depending on the platform, blockchain technology, and regulatory framework used.

As we have seen, the process is complex and requires different skills. Therefore it should be supported by knowledgeable advisors and consultant like Brightnode that have already brought to the market several such initiatives.

Tokenization Market Size

In 2021, the tokenization market size reached USD 2.28 Billion, as reported by Emergen Research. The market is projected to experience a revenue compound annual growth rate (CAGR) of 19.0% in the coming years, according to the same report.

Furthermore, a separate report by Grand View Research predicts that tokenization will witness significant expansion with a compound annual growth rate (CAGR) of 24.09% from 2022 to 2030.


Asset tokenization has the potential to revolutionize various industries by digitizing and representing real-world assets as digital tokens on a blockchain. This innovative approach offers benefits such as increased liquidity, fractional ownership, and enhanced accessibility to traditionally illiquid assets.

However, successful implementation of asset tokenization requires addressing regulatory challenges, ensuring security measures, and building trust. By embracing and adapting to this transformative trend, businesses, investors, and regulators can unlock new possibilities and reshape the way assets are owned, traded, and utilized in the global financial ecosystem.

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