How Tokenization Is Reshaping Financial Services Beyond Cryptocurrency

Tokenization Is Becoming Bigger Than Cryptocurrency

For most of the past decade, tokenization was treated as a crypto-industry side project, a way to put Bitcoin or Ethereum on a balance sheet, or to mint an NFT. That's no longer an accurate description of where the technology sits. J.P. Morgan now settles institutional transactions through Kinexys, its blockchain-based settlement platform for cross-border payments. BlackRock's tokenized money market fund, BUIDL, passed close to $3 billion in assets within a year of launching in March 2024. Goldman Sachs, BNY, and UBS have each built or joined tokenization platforms of their own.

A 2025 Ripple and BCG report estimated the tokenized asset market at roughly $6 trillion, with growth toward $19 trillion by 2033. Whether or not that specific projection holds, the direction is clear: banks and asset managers are no longer asking if tokenization works. They're asking where it delivers the most value first, and how fast they can move without outrunning regulation. This article looks at what tokenization actually does inside financial services, where it's already being used, and where the risks sit.

What Is Tokenization & How Does It Work?

Tokenization is the process of representing ownership of an asset as a digital token on a blockchain, a shared digital ledger that records who owns what and tracks any transfer of that ownership. The asset itself doesn't move. What moves is a record of who owns it, along with the rules for how that ownership can change hands.

The basic mechanics work like this: an asset is placed with a custodian (an institution responsible for holding the asset and verifying that the token matches it), a token is created representing a claim on that asset, and the token becomes transferable on the blockchain according to programmed rules.

When a bank decides to send cash to a company across the border, it will only take a moment for tokenized cash to make the transaction. Compare that to SWIFT, which currently serves as the main messaging platform for global cross-border bank payments, such transfers usually take a few more days since such a system is reliant on the batch processing of the network and the sequence of correspondent banks.

Asset tokenization and digital asset tokenization refer to the same underlying process, the difference in phrasing usually depends on whether the asset being tokenized already existed physically (a bond, real estate) or was digital from the start (a fund share, a data asset). In both cases, the concept is similar: a token symbolizes ownership, and the transactions occur on a decentralized ledger which is not an individual database updated nor connected to other databases separately.

What Is Tokenization in Banking?

Inside a bank, tokenization shows in a narrower, more operational form than the broader "tokenize any asset" pitch suggests. Banks use it mainly for two things: moving money between their own entities faster and turning assets like loans or deposits into something that can be transferred or pledged as collateral without manual paperwork.

This is a useful point to separate tokenization in banking from tokenization in crypto. Crypto tokenization usually means representing a cryptocurrency itself or minting a new token on a public blockchain like Ethereum, often without a regulated entity standing behind it. Tokenization in banking almost always involves a real-world asset, cash, a bond, a loan, held by a regulated custodian, with the token acting as a digital claim on something that already has legal and regulatory standing.

Tokenization Use Cases Across Financial Services

Tokenization of assets isn't limited to one corner of finance. A few use cases have moved past pilot stage and into actual deployment. The market-size figures below come from the Ripple/BCG report referenced earlier and are worth treating industry estimates rather than fixed numbers.

1. Bonds. The global bond market is valued around $140 trillion, and it's historically been slow to issue and settle. Several major banks have already issued tokenized bonds on both permission and public blockchains, cutting issuance costs and shortening settlement from days to close to real time.

2. Real estate. Commercial property and infrastructure funds are being tokenized to allow fractional ownership, splitting a building or fund into smaller tradeable units so more investors can hold a stake without buying the whole asset. This addresses one of real estate's core problems: it's an asset class worth roughly $300 trillion globally, but notoriously illiquid, since selling a share of a property has traditionally meant selling the whole thing.

3. Collateral and repo markets. The global repo and collateral market, worth around $16 trillion, depends on assets moving quickly between parties to meet margin calls. Tokenized collateral can be pledged and transferred on chain in real time instead of through fragmented, manual settlement processes, though this depends on interoperable standards that are still being built across institutions.

4. Trade finance. Global trade finance volume exceeds $10 trillion, and much of it still runs on paper-based documentation and manual verification. Tokenized invoices and programmable payments can speed up settlement and give smaller businesses more direct access to financing.

5. Treasury and cash management. Corporate treasurers can use tokenized cash to move funds between accounts and currencies without waiting on traditional banking rails, paired with smart contracts, self-executing code that carries out a transaction automatically once agreed conditions are met, that allocate funds to investments or vendor payments.

What Are the Benefits of Tokenization?

The benefits of asset tokenization mostly come down to removing steps that traditional finance has relied on for decades: manual reconciliation, multi-day settlement windows, and intermediaries whose main job is verifying that a transfer actually happened.

1. Faster settlement. Trades that once took two or three days to settle can clear in minutes when both parties are transacting on the same shared ledger. PwC points to delivery-versus-payment (DVP), the process of exchanging an asset and its payment simultaneously, as a clear example of something historically slowed down by cost and delay that tokenization can compress.

2. Lower operational expenses. Reconciliation between separate systems, manual trade allocation, and correspondent banking fees all add cost that tokenization can reduce, since a single shared record replaces the need for each party to maintain and cross-check its own version of the ledger.

3. Access to illiquid assets. Fractional ownership means assets that used to require a large amount of investment. A commercial building, a private credit loan, can be split into smaller pieces and sold to a broader pool of buyers.

4. Programmability. Smart contracts can automate actions that previously required a person to intervene releasing collateral once a loan is repaid, distributing settlement proceeds to multiple accounts, or triggering a payment once predefined terms are met.

5. Transparency. Because all parties are working from the same ledger, regulators and risk managers can, in principle, verify transactions and holdings directly rather than requesting reports after the fact.

None of these benefits are guaranteed just by tokenizing an asset. They depend on how well the underlying infrastructure is designed, poorly built smart contracts or fragmented token standards can just as easily introduce new points of failure, which the challenges section below covers.

Tokenization in Blockchain: Why Blockchain Is Only Part of the Story

Blockchain is the infrastructure tokenization runs on, but it isn't the whole picture. A blockchain records who holds a token and tracks transfers between parties. What actually determines whether a tokenized asset works in financial services is everything built around that ledger: legal recognition of the token, custody arrangements that meet regulatory standards, and agreed rules for how tokens move between different blockchain networks.

This is where a lot of confusion sets in. Someone can create a token on a blockchain in minutes. Making that token represents an enforceable legal claim on a bond or a building, one that would hold up if a dispute or default happened, jurisdiction-specific compliance, and often a licensed intermediary standing behind the token. UBS Tokenize, for example, works across multiple blockchains but built its offering around regulated custody and compliance processes, not around the blockchain technology alone.

Interoperability is the other piece of blockchain alone that doesn't solve. BlackRock's BUIDL fund trades across seven different blockchains, including Ethereum, Polygon, and Solana. For tokenized assets to move freely between institutions, those networks need shared standards for how tokens are structured and verified; otherwise, a token issued on one chain can't be easily recognized or transferred on another. The IMF has flagged this same problem at a system level: without common standards, tokenized markets risk fragmenting into incompatible platforms rather than forming one connected system.

So, blockchain in finance functions less like a single foundation and more like plumbing. It's necessary, but the legal structure, custody model, and interoperability standards around it is what determine whether tokenization actually works at scale.

How to Tokenize an Asset: A Financial Services Framework

Turning a real asset into a usable token follows a consistent sequence, whether the asset is a bond, a fund share, or a piece of real estate.

Most institutions don't build this entire stack from scratch. That's where tokenization as a service (TaaS) comes in, third-party providers that offer the custody, token issuance, and compliance infrastructure as a packaged service, so a bank or asset manager can tokenize a product without building blockchain and legal infrastructure in-house.

Challenges and Risks and Where Tokenization Goes Next

The technology behind tokenization mostly works. The harder problems are legal, operational, and systemic.

• Regulatory fragmentation: In the US alone, tokenized assets can fall under multiple regulators, including the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the Financial Crimes Enforcement Network (FinCEN), depending on how they're structured, and each move at a different pace. For institutions operating across borders, this multiplies: a token structured to comply with one country's securities law may not meet another's requirements, which slows down cross-border use cases that are otherwise well suited to tokenization.

• Custody and security: Tokenized assets shift some traditional risks into new ones: private key management, smart contract bugs, and cybersecurity threats specific to digital infrastructure. A custody of failure or a flawed smart contract can affect an asset just as seriously as fraud in a traditional system, and the tools for managing that risk are still maturing.

• Interoperability: As covered earlier, tokens issued on different blockchains don't automatically talk to each other. Without shared standards, tokenized markets risk splitting into separate, incompatible ecosystems instead of forming one connected market, which undercuts a lot of the liquidity benefit tokenization is supposed to deliver.

• Loss of settlement buffers: This is the risk the IMF has been most vocal about. Traditional settlement delays, the day or two between a trade and its final settlement, aren't just inefficiency. They give banks time to manage liquidity and absorb shocks before a problem spreads.

Looking ahead, the trajectory seems to depend less on new technology and more on regulatory catch-up. Legislative efforts are underway to define how tokenized ownership is legally recognized, how smart contracts are governed, and how liquidity backstops might work if a tokenized market faces stress.

Conclusion: Tokenization Is About More Than Creating Digital Assets

Tokenization isn't a bolt-on feature or a way to make an asset sound more modern. It changes how ownership is recorded, how settlement happens, and according to the IMF, where risk sits in the financial system. Major institutions have already moved past the pilot stage: J.P. Morgan is settling transactions on it, BlackRock has billions of dollars in a tokenized fund, and multiple large banks are building toward tokenized deposit networks.

What's still being worked out isn't whether tokenization functions technically. It's whether regulators, custodians, and institutions can build the legal and operational scaffolding, clear ownership rights, interoperable standards, adequate liquidity backstops, fast enough to keep pace with how quickly the technology is already being deployed.