Concept

A tokenized product is defined as 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

The main examples of tokenized products are tokenized equity, tokenized bond, tokenized gold and tokenized loans:

• Tokenized equity: a stake of ownership in a company or asset that is represented by means of digital tokens on a blockchain. Equity tokenization involves creating and issuing crypto coins or digital tokens that are represented as equity shares in a company (collection of assets) or individual assets. Similar to traditional stocks or shares, these coins or tokens are digital representation of equity stake except that tokenized equity is not in a certificate form or accounting entry. Basically, tokenized equity is a form of security that is issued as a digital token programmable and secured by cryptography.
• Tokenized bonds: 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.
• Tokenized gold: a gold amount that is represented as a token on the blockchain. The process involves converting physical gold into a digital asset. Particularly, it involves converting physical gold bullion in a digital form- where its ownership rights are stored as digital tokens on a blockchain. Gold tokenization is the process of minting digital tokens on a blockchain to represent ownership rights of physical gold bullion or coins, which are typically held in custody by a third party. For example, one onchain token may represent ten grams of physical gold stored offchain. This way, market participants can invest in gold without physically owning, storing, or securing the metal. Instead, investors can hold digital tokens on a blockchain, which track and provide an evidence of ownership of the gold represented by each token.
• Tokenized loans: a type of tokenized debt that involves the conversion of a loan into a digital representation (token) on a network (blockchain). The token is registered and documented on-chain by means of a smart contract. It represents a creditor’s claim in the loan, including rights to future cash flows from the receivables. By origin, it belongs to the broader category of security tokens that are generally linked to a real life asset (real world asset, RWA) such as a real estate or a share or debt of a company. In the specific case of a loan, it can also be the representation of a financial instrument/ financial assets (the loan).