Understanding the Key Issues of Tokenization in One Article

Author: Theo

Compiled by: Jiahuan, ChainCatcher

The core of tokenization lies in eliminating all friction.

Here is a statement that sounds mundane at first but is profound upon reflection: when you sell a stock today, you actually have to wait two business days to get the money. Not two seconds, not two minutes, but two full days.

This is called T+2 settlement. It is so commonplace, so thoroughly embedded in the architecture of modern finance, that most investors never stop to ask why.

This is the real significance of asset tokenization: not coins, not speculation, not NFT avatars, but a bet—a bet that the entire settlement and custody infrastructure of global finance can be rebuilt on programmable ledgers.

When that day comes, those two days of waiting, intermediary fees, qualified investor thresholds, and trading hour restrictions will seem as ancient and obsolete as fax machines.

So, what exactly is asset tokenization?

Layman's Definition: Think of a token as a digital deed. When you buy a tokenized share of a commercial property, your digital wallet receives a token representing your ownership share.

This token automatically records who owns it, when it changes hands, and under what conditions it can be transferred, all without a registrar updating a spreadsheet.

Unlike a paper deed or brokerage account record maintained by a third-party custodian, a blockchain-based token is by design self-custodied: the ownership record is maintained by the network itself, not by any single institution that could freeze, lose, or misrepresent it.

The underlying mechanisms vary; some tokenization projects use public blockchains like Ethereum, others use permissioned enterprise chains operated by consortia of banks.

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Problem 1: Settlement Speed

The T+2 settlement window exists because it takes time to reconcile trades across multiple intermediaries (exchanges, clearing brokers, central securities depositories). Each institution maintains its own records; synchronizing these records requires a sequential handoff process.

On a blockchain, settlement is atomic. When a trade executes, the token moves from one wallet to another in the same transaction. There is no handoff, no reconciliation, and no window of counterparty risk.

Settlement happens in seconds, or in current implementations, under a minute for more complex trades. The US stock market moved from T+3 to T+2 in 2017 and to T+1 in 2024; the tokenized market skips all that and goes straight to near-instant settlement.

For institutional traders, the difference between T+1 and T+0 is not just speed, it's capital efficiency. Every day between trade execution and settlement is a day that capital is locked in a limbo state, unable to be redeployed.

"The two-day settlement window is accumulated institutional friction that has calcified into standard practice, and tokenization is the first credible solution to dismantle it."

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Selling it requires finding a willing bidder, negotiating a price, hiring lawyers on both sides, conducting due diligence, and then waiting months for the closing. There is no exchange, no bid-ask spread, and if you desperately need $200,000 in cash on a Thursday, you can't just sell a small piece of the building.

This is not unique to real estate. Private equity, infrastructure assets, fine art, venture capital fund shares, litigation financing rights: vast pools of wealth are stuck in assets that trade extremely infrequently, are incredibly opaque, and are limited to large institutions with patience and resources.

Tokenization does not automatically make illiquid assets liquid. But it creates the infrastructure for secondary markets to exist.

If ownership of a building can be divided into tokens traded on a digital exchange, then a limited partner needing liquidity doesn't have to wait for a fund's redemption window or find a buyer for their entire stake. They can sell tokens. Not the whole asset, just slices of it. This changes the investment logic for every asset class historically burdened by an illiquidity premium.

The more experienced builders in this space have learned a deeper lesson: issuing the token is only half the job.

A tokenized asset without a secondary market, without a recognized collateral framework, and without integration into trading venues is functionally inert. It's a better proof of ownership, but not yet a better financial instrument.

A few platforms are now starting to treat liquidity as a day-one design requirement, not something to be left to develop organically post-launch. Theo, founded by former market makers from IMC Trading and Optiver, launched thBILL (an on-chain exposure investing in an institutional-grade US Treasury strategy managed by Wellington Management, in partnership with Standard Chartered's Libeara).

This product integrated market making, lending protocol support, and cross-chain deployment (covering Ethereum, Base, Arbitrum, and HyperEVM) from the very inception. This token can be traded, used as collateral, or put to work directly in DeFi protocols without conversion.

This is a live demonstration of what it truly takes to solve the liquidity problem: not just issuance infrastructure, but a complete market structure that makes holding the tokenized asset worthwhile.

Problem 3: Fractional Ownership and Access Barriers

Most private credit funds have a minimum investment of $500,000. Many commercial real estate syndications have a minimum of $100,000.

Traditional Ownership vs. Tokenized Ownership

Smart contracts eliminate most of the administrative overhead. Dividend distributions can be programmed to execute automatically when conditions are met, without manual processing or custody fees. Ownership records update in real-time. Investor communication can happen on-chain.

The regulatory environment here is indeed very complex: securities laws in most jurisdictions still require accredited investor status for certain investments, and tokenization does not change these rules.

What it changes is: the economic feasibility of serving a broader investor base once regulations permit, or in the growing asset classes where regulations already do.

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Every intermediary present in a financial transaction exists to solve a trust problem. Escrow agents ensure no one runs off with the money during a property closing. Clearing houses guarantee you still receive your securities if your counterparty defaults. Custodians hold assets for clients who cannot be trusted to self-custody safely.

Smart contract replaces trust with code. A tokenized bond can be programmed to automatically pay coupons to token holders on specific dates, release collateral upon loan repayment, and execute early redemptions if certain conditions are triggered.

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Terms are Programmed into the Contract Payment schedules, transfer restrictions, redemption conditions, and governance rights are embedded in the code, self-executing without human intermediaries.

Tokens Trade on Secondary Market Token holders can sell their positions on exchanges built for tokenized assets, with settlement in seconds and no clearing intermediary.

Cash Flows are Automatically Distributed Rental income, coupon payments, and other distributions go directly into token holders' wallets upon triggering, without paying agents, float, or processing delays.

Why This Has Nothing to Do with Cryptocurrency

It is understandable to conflate tokenization with cryptocurrency speculation, but it is almost entirely unhelpful. Yes, tokenization uses blockchain technology. Yes, the same ledger infrastructure underpins Bitcoin. But the similarity ends there.

Bitcoin and its speculative derivatives derive their value from scarcity and narrative. Tokenized real estate, bonds, and private equity are representations of assets whose value derives from income, cash flow, and physical operations. Tokenization is a new layer of ownership and settlement for existing asset classes.

The institutions building tokenization infrastructure include J.P. Morgan, BlackRock, Franklin Templeton, Goldman Sachs, and HSBC—institutions whose entire business models rely on managing real assets for real clients.

"The institutions building tokenization infrastructure are companies like BlackRock, Franklin Templeton, and J.P. Morgan, whose survival depends on managing core assets with extreme reliability."</极速结算、7×24 小时全天候流动性、碎片化所有权以及金融中介的缓慢消亡：这些看似枯燥的基础设施变革，才是真正重塑市场的力量。

It would be dishonest to portray tokenization as an absolute inevitability. There are structural hurdles that will slow its adoption, and these hurdles have nothing to do with the technology itself.

The legal framework in most jurisdictions still defines asset ownership in terms of paper records, registered agents, and custodial accounts. A token on a blockchain has no automatic legal standing; it requires explicit regulatory recognition, which varies wildly between countries and asset classes.

Some governments are acting. The EU's DLT Pilot Regime and the UK's proposed Property (Digital Assets etc.) Bill are early examples. But legal certainty for tokenized assets remains patchwork.

Interoperability between different blockchain platforms is another unresolved issue. A tokenized bond issued on J.P. Morgan's Onyx chain cannot automatically settle with a tokenized fund share issued on Ethereum without a cross-chain bridge, which reintroduces another form of counterparty risk.

Ironically, the proliferation of numerous competing settlement networks is recreating the very problem of "siloed institutional databases" that tokenization was meant to solve.

Finally, there is the issue of vested interests. The intermediaries being displaced are not passive bystanders. Custodians, clearing houses, and transfer agents provide significant fee income to the very institutions also trying to build tokenization platforms. These incumbent groups have every incentive to adopt the technology slowly and in ways that protect their existing revenue streams.

What is Changing, What is Not

Fractional ownership does not automatically create deep liquidity: a thousand small散户 of a tokenized building still cannot force an asset sale, and the market for the tokens will remain thin unless market makers are actively involved.

The T+2 window compresses relentlessly towards zero. The minimum viable investment for illiquid asset classes is falling. The per-transaction cost of processing a payment or recording an ownership transfer becomes closer to the cost of a database write, not the cost of a human-operated administrative task.

None of these changes are dramatic in isolation. But when stacked on top of all the assets currently locked in slow, expensive, heavily intermediated structures, it constitutes the largest reorganization of financial infrastructure since electronic trading replaced open outcry.

This is a story about infrastructure. Your investment thesis, your regulatory questions, your timeline predictions depend entirely on whether you truly understand this. And right now, most people watching tokenization still don't see it.