Tokenization addresses long-standing pain points in finance, such as the costs and delays inherent in the delivery versus payment (DVP) settlement process. Blockchain-based tokenization can offer greater flexibility and speed, providing a foundation for long-term transformation. Each investment in tokenization infrastructure and capabilities today paves the way for tomorrow's innovations, unlocking opportunities for improved capital efficiency, cost savings, transparency, and enhanced risk management.

Three Ways Tokenization Can Create Value

Institutions looking to create value through tokenization often find success by balancing immediate returns on investment with long-term capability building in three primary ways:

Streamlining Internal Transfers and Transactions: Major financial institutions often face significant costs and time delays when transferring funds and securities across geographies. For example, moving cash from an overseas subsidiary to the U.S. to purchase securities can take days. With tokenization, however, institutions can transfer asset ownership nearly instantaneously on a blockchain, eliminating time and cost constraints and enabling efficient internal transfers. Asset managers can further benefit by using tokenization to automate standard operating costs, such as trade allocations, streamlining processes and enabling more efficient operations.
Unlocking Revenue by Increasing Asset Liquidity: Tokenization can make traditionally illiquid assets, such as private equity or private credit, more liquid. In the private credit market—currently valued at approximately $1.5 trillion—matching buyers with sellers is often a complex and time-consuming process. Tokenization allows lenders to fractionalize loans into various sizes, expanding the pool of potential borrowers and creating a liquid, tradable market for these assets. Tokenized assets can thus function similarly to bonds, increasing both accessibility and flexibility for investors and borrowers alike.
Enabling New Types of Collateral and Accelerating Complex Transactions: By bridging on-chain and off-chain assets, tokenization facilitates new types of transactions and collateral. For example, high-net-worth clients can quickly and securely use blockchain-based assets to make investments or payments in the traditional financial system, opening access to new markets. By facilitating cross-ecosystem value transfer, tokenization not only speeds up transaction completion but also broadens the asset base that can serve as collateral.

Embracing Tokenization: Perspectives from Financial Institutions and Regulators

The adoption of tokenization is already transforming financial services across a wide array of industries. Banks, asset managers, lenders, payment providers, and even corporate finance departments are beginning to tokenize assets like bank deposits, securities, commodities, and documentation. Some banks are even investing in building their own blockchain infrastructure to facilitate tokenization across collateral settlement, trade finance, and cash settlements. Successful initiatives often result from collaborations between innovative technology providers and established financial institutions that bring capital, scalability, and robust risk management frameworks to the table.

Growing regulatory interest in tokenization is further driving adoption. Around the world, regulators are beginning to understand and appreciate the security and efficiency benefits tokenization can offer. While some regulatory frameworks are still in development, there is an increased emphasis on differentiating between types of digital assets and understanding how blockchain technology functions independently from the assets it represents. This regulatory progress provides a more structured environment for integrating digital asset technology into mainstream financial practices.

Future Opportunities: Agility, Automation, and Revenue Growth

For financial institutions seeking a return on investment (ROI) in tokenization, starting with internal operations can offer immediate results, as these processes are under the organization’s direct control. Tokenization has the potential to enhance internal operations across various departments, such as finance and treasury, by reducing settlement times, bypassing costly volume-based networks, and providing regulators with transparent oversight through blockchain nodes. Well-designed tokenization initiatives can create a single source of truth that is resistant to fraud and cyber threats.

Tokenization can also enable programmable smart contracts, which automate complex processes and systematically manage risks. For example, corporate treasurers who currently spend hours tracking cash flows could automate these operations with smart contracts. Once a tokenized asset is transferred via blockchain, smart contracts could automatically distribute funds into designated accounts, minimizing labor costs and reducing the need for traditional fee-based networks.

With lower costs, greater speed, and enhanced risk management, tokenization opens the door to new products, services, and business models, particularly in cross-border transactions. As tokenization becomes a more integrated component of financial technology stacks, professionals in treasury and asset management can focus on higher-value activities, enhancing both institutional efficiency and individual career growth.

Guidelines for Successful Tokenization Implementation

While tokenization presents significant advantages, implementing it successfully requires careful planning and strategy. Institutions should consider the following guidelines to optimize their tokenization efforts:

Prioritize Feasible and Valuable Use Cases: Identify areas where tokenization can deliver immediate value while building long-term capabilities. Focus on core capabilities that can be applied across multiple use cases rather than isolated projects.
Evaluate and Prepare for Challenges: Successful tokenization requires addressing challenges in technology, skills, culture, security, and risk management. Consider interoperability requirements to ensure tokenized assets can be transferred across networks and technology stacks.
Engage Stakeholders Effectively: Tokenization initiatives must create value and build trust for internal and external stakeholders, including clients, investors, and counterparties. Map out potential benefits for each group to strengthen buy-in and long-term commitment.
Embed Trust at the Design Stage: To foster trust, embed security, regulatory, and risk management controls directly into the tokenization design process. Implement rigorous oversight capabilities to ensure compliance with legal, tax, and regulatory requirements.
Leverage Industry Expertise: Tokenization may be a recent innovation, but there are experts with years of experience in digital assets. Partnering with established digital asset organizations or industry veterans can provide critical insights and accelerate successful implementation.

Once an initial tokenization project is up and running, subsequent initiatives can be rolled out more quickly and efficiently. Over time, tokenization can become a foundational element of financial operations, enabling near-instant, transparent, and highly personalized financial services across a broad spectrum of assets.

By embracing tokenization, financial institutions have the opportunity to transform their operations, expand into new revenue streams, and reshape how they serve clients in an increasingly digital world.