Concept

A tokenized product is a digital representation of real-world assets (RWAs) using distributed ledger or similar technology. More specifically, tokenized products are financial, physical, or virtual assets that are digitized and represented as tokens on a blockchain or distributed ledger (DL). Tokenizing such assets on public blockchains like Ethereum allows the division of these assets into fractionalized tokens, increasing accessibility and improving liquidity in traditionally illiquid markets, such as real estate and debt instruments (notes, bonds, etc), and certain structured products (see: tokenized structured products).

Examples

Tokenized equity, tokenized bond, tokenized gold and tokenized treasury products are all subcategories of tokenized products. For example, a tokenized bond is a digital representation of traditional bonds on a network (blockchain). The digital representation (token) is issued and managed on blockchain infrastructure. Tokenized bonds carry all the features of the traditional bonds, subject matter of tokenization– that is, principal, interest rate, maturity date- and at the same time utilize the leverage provided by blockchain in terms of security, transparency and efficiency. Tokenization is the process of converting physical or financial assets into digital tokens on the blockchain. Bonds are a type of financial assets (debt securities) that can be easily converted into tokens representing whole bonds or fractions of their face value.

Tokenization process

The process of tokenization involves creating digital tokens that represent ownership or specific rights on the underlying asset, allowing these tokens to be traded on digital platforms with automated execution through smart contracts. Certain tokenized products are basically traditional products that are embedded with a tokenization wrapper, but product structuring and arranging impact the nature, features and risks of a tokenized product in the tokenization process. The structuring or arrangement may change the final shape of a product and the category where it belongs. For example, the arrangement for tokenization of fractionalized interests in an real world asset may lead to converting it into a collective investment scheme. By capitalizing on blockchain technology, these products can streamline fractional ownership, improve liquidity, and enhance market efficiency (in areas such as trading and settlement). Tokenized assets belong to a diverse range of categories, including real estate, equities, and commodities. Tokenized products on public blockchain networks, such as Ethereum, reflect a sophisticated application of blockchain technology, with certain advantages such as security, transparency, and decentralization. This all makes trading of digitized assets faster, more efficient, and more inclusive. For example, in the specific case of tokenized bonds, the bonds may be categorized as non-native digital bonds. These smaller units can broaden the investor base where wider participation can come from retail. Moreover, blockchain- based platforms can deploy smart contracts to facilitate compliance procedures, improve record-keeping, and automate interest payments and redemption processes.