benefits of tokenization

What Is Tokenization?

Tokenization refers to converting asset rights into transferable on-chain certificates.

In essence, tokenization is the process of representing ownership or usage rights of real-world or digital assets as tokens on a blockchain. A blockchain can be understood as a shared ledger maintained by multiple parties, where every transaction is permanently recorded. Tokens serve as digital certificates of rights, enabling fast transfers, fractional ownership, and programmable management.

Many of the operational rules are enforced by smart contracts. Smart contracts are automated programs deployed on the blockchain, responsible for actions such as issuance, freezing, settlement, or redemption of tokens. With validation across the entire network, records become more transparent, and tokenized assets can be transferred across regions, reducing intermediaries.

Why Does Tokenization Matter?

Tokenization enhances liquidity, lowers barriers to entry, speeds up settlement, and increases transparency.

For individual investors, tokenization makes high-barrier assets divisible. For example, a U.S. Treasury fund with a minimum investment of $10,000 can be split into smaller tokens, allowing participation with just tens of dollars, with the flexibility to transfer or redeem at any time. This improves capital efficiency and facilitates cash management.

For enterprises, tokenization allows faster financing of accounts receivable and inventory notes. On-chain token transfers reduce settlement times from days to minutes. Cross-border payments can be conducted using stablecoins, minimizing foreign exchange and intermediary costs.

For regulators and auditors, on-chain records are traceable and permissions can be finely controlled. This makes rule-based review easier and reduces information asymmetry and operational risk.

How Does Tokenization Work?

Tokenization typically involves several stages: registration, custody, issuance, rule-setting, circulation, and redemption.

1. Asset Registration and Verification: Identify the underlying real-world assets—such as U.S. Treasuries, fund shares, or notes—and complete all legal and compliance documentation.
2. Custody Arrangement: Place the underlying assets with regulated custodians or within trust structures to ensure proper safekeeping and settlement.
3. Token Issuance: The project team mints tokens on-chain, with quantities matched 1:1 to the custodied assets. Whitelisting and holding conditions are often applied.
4. Rule Definition: Use smart contracts to set rules for transferability, interest distribution, freezing, and redemption—for instance, requiring KYC verification before receiving tokens.
5. Circulation and Settlement: Tokens are traded on-chain or staked, with interest or dividends periodically distributed to wallet addresses.
6. Redemption and Burn: Holders return tokens to the issuer or designated contract in exchange for real-world assets or cash; the corresponding tokens are then destroyed.

Common Forms of Tokenization in Crypto

The most prevalent use cases are stablecoins, tokenized funds and bonds, and programmable equity certificates.

Stablecoins are tokens pegged to fiat currencies—such as USDT and USDC—which represent the value of the U.S. dollar on-chain for instant payments and settlements. Stablecoins are the earliest widespread form of tokenization.

Tokenized funds and U.S. Treasuries map traditional financial products onto blockchains. Holders receive transferable share tokens; interest or dividends are distributed via smart contracts and can be redeemed for the underlying assets or cash.

On exchanges, users often use stablecoins as base capital. For example, on Gate, users can buy tokens linked to tokenized projects in the spot market using USDT, then withdraw them on-chain for staking or redemption. This model combines "exchange liquidity" with "on-chain settlement," offering convenience and cross-ecosystem usability.

In DeFi scenarios, tokens can be used as collateral, for yield redistribution, or in automated strategies. For instance, you can collateralize tokenized bond shares to borrow funds and then use stablecoins for payments or investments. All operations are executed by smart contracts, reducing manual intervention.

How to Participate in Tokenization

You can start with stablecoins and compliant RWA (Real World Asset) products while managing your risks step by step.

1. Prepare Funds and Accounts: Register and complete KYC on Gate; use fiat currency to purchase USDT or USDC—these stablecoins are convenient for cross-platform and on-chain transactions.
2. Select Assets and Platforms: Prioritize RWA projects with clear custodianship, audit disclosures, and redemption mechanisms. Ensure the project supports regulatory compliance in your region.
3. Test On-Chain Interactions: Withdraw a small amount of stablecoins to a supported blockchain address; interact with issuer contracts or official interfaces to subscribe, claim yields, or redeem.
4. Check Fees and Timeframes: Understand network gas fees, subscription/redemption windows, possible lock-up periods, and payout frequencies.
5. Diversify Risks and Keep Records: Avoid concentrating all funds in one project; retain transaction logs and on-chain records; regularly reconcile your assets and yields.

Recent Trends & Data in Tokenization

Over the past year, stablecoins and RWA products have continued to grow as institutional participation increases.

For stablecoins, total market capitalization remained high throughout 2025 (full year), with USD-pegged stablecoins dominating the market. Public trackers show that both exchange-based and on-chain payments using stablecoins grew stronger in H2 2025—their use expanded beyond trading to cross-border settlements and payroll disbursements.

For RWA products, tokenized U.S. Treasuries and fund products scaled up throughout 2025. Industry tracking platforms report significant growth in on-chain Treasuries and cash management products in Q3–Q4 2025 compared to all of 2024; this expansion was driven by interest rate environments and new institutional issuances. Check platform pages for updated figures—the main trend is "broader asset variety and smoother redemptions."

From a compliance perspective, between 2024–2025 Europe continued rolling out regulatory frameworks for stablecoins and RWA, prompting issuers to focus more on disclosures and whitelist management. This has led to more compliant capital entering the space and drove further market growth over the past six months.

How Is Tokenization Different from Digitalization?

Digitalization moves information onto computers; tokenization turns rights into transferable, programmable certificates.

A digital document or spreadsheet is just data—it may not be freely transferable between systems or have automated settlement capabilities. Tokenization transforms "rights" into verifiable tokens that can move across platforms and have programmable rules (such as automatic interest payouts or redemption at maturity) enforced via smart contracts.

Moreover, tokenization is not equivalent to traditional securitization. Securitization is a financial packaging and issuance process; tokenization is a technology and medium. While they can be combined, their scopes differ.

Key Terms

• Tokenization: The process of converting real-world assets or entitlements into digital tokens on a blockchain to enable digital management and liquidity.
• Smart Contract: An automated program deployed on a blockchain that executes transactions or settlements based on predefined rules—eliminating the need for intermediaries.
• Blockchain: A distributed ledger technology secured by cryptography; it provides the foundational infrastructure for secure tokenization.
• Liquidity: The ease with which assets can be quickly converted into cash or other assets—tokenization significantly increases liquidity for traditional assets.
• Decentralization: The removal of central authorities from transaction processing or asset management—achieved through distributed networks to reduce costs and risks.

FAQ

What are tokens used for?

Tokens are digital assets on a blockchain representing certain values or rights. They can be used for trading, payments, governance voting, or as proof of ownership in a project. For example, you can trade tokens on Gate or hold project tokens to participate in ecosystem decisions.

What advantages does tokenization offer over traditional stocks?

Tokenization provides greater liquidity, more convenient trading, and 24/7 exchange access. Traditional stocks are limited by trading hours; tokens can be transferred globally at any time with lower costs—making them especially suitable for small-scale investors.

Can regular individuals profit from tokenized assets?

Yes—you can profit through trading tokenized assets, mining rewards, staking yields, etc. However, token prices can be volatile; it is crucial to learn the basics and manage risks carefully—never invest all your funds in a single token and consider starting with small amounts.

What are the main risks of tokenization?

Primary risks include price volatility, project failure risk, smart contract vulnerabilities, and market manipulation risk. Using reputable exchanges like Gate helps mitigate risks—avoid obscure tokens/projects and keep your security knowledge up-to-date.

What does Real World Asset (RWA) tokenization mean?

RWA tokenization refers to representing real-world assets—such as real estate, art pieces, or bonds—as tokens on a blockchain. This enables broader participation at lower minimums; for instance, expensive real estate can be divided into smaller tokens that multiple investors can purchase.

References & Further Reading

• https://www.garp.org/risk-intelligence/technology/tokenization-benefits-risks-250124
• https://www.jpmorgan.com/kinexys/documents/how_tokenization_can_fuel_a_400_billion_opportunity_in_distributing_alternative_investments_to_individuals.pdf
• https://www.weforum.org/stories/2024/12/tokenization-blockchain-assets-finance/
• https://www.mckinsey.com/featured-insights/mckinsey-explainers/what-is-tokenization
• https://www.pwc.com/us/en/tech-effect/emerging-tech/tokenization-in-financial-services.html
• https://www.ssga.com/us/en/intermediary/insights/tokenization-of-assets-how-its-reshaping-finance-and-markets