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Asset Tokenization

The process of representing ownership, claims, or economic rights in an asset using blockchain-based tokens.

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Definition

The process of representing ownership, claims, or economic rights in an asset using blockchain-based tokens.

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Why it matters

Tokenization concepts connect blockchain infrastructure with legal or economic rights in real-world assets.

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How it works

The process begins by auditing and valuing the asset, which is then held in a legal structure like a Special Purpose Vehicle. Smart contracts are developed to define token utility and ownership rights. Finally, tokens are minted on a blockchain, verified by auditors, and distributed to investors through regulated platforms.

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Real-world example

Franklin Templeton uses the Stellar blockchain to tokenize its OnChain U.S. Government Money Fund, allowing shareholders to track their holdings on a public ledger.

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Advantages

  • Increased market liquidity for illiquid assets
  • Lower transaction costs through automation
  • Global 24/7 market access
  • Greater transparency and auditability

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Limitations

  • Complex legal and regulatory compliance requirements
  • Interoperability issues between different blockchains
  • Dependency on off-chain asset custodians

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Common misconceptions

  • People often think tokenization is just for digital-native assets, but it actually bridges physical assets to the blockchain. Another misconception is that tokens are always decentralized, but most RWA tokens are highly centralized by design for compliance.
Canonical knowledge ID: glossary:asset-tokenization