HOW TO TOKENIZE: PROCESS, POSSIBILITIES AND CHALLENGES

how to
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P R O C E S S , P O S S I B I L I T I E S A N D
C H A L L E N G E S l i v e p l e x . i o
X Y Z
TOKENIZE

Tokenization is the process of converting
rights to an asset into a digital token on a
blockchain. The concept is not new; it has
been a topic of interest and speculation for
several years within the financial industry.
However, despite its potential, tokenization
has just recently seen widespread
adoption.
While tokenization was poised for success
six years ago, limited progress was made.
Now, with renewed interest and more
robust business fundamentals, the path for
tokenization might be different.
TOKENIZATION
As of 2022, the global
Tokenization market was
estimated at USD 2770.55
million, and it’s anticipated
to reach USD 7107.93 million
in 2028, with a CAGR of
17.0% during the forecast
years.
THE TOKENIZATION PROCESS
Tokenization involves several critical steps, each
with its complexities and requirements:
ASSET SOURCING:
Asset sourcing is the foundational step in the
tokenization process. It involves the identification
and selection of assets that could benefit from
being tokenized. This step is crucial because it
determines the structure of the tokenization
process, which varies significantly depending on
the type of asset being considered.
Understanding the nature of the asset is
essential. Different assets have different
regulatory treatments, operational processes,
and market dynamics.
For example, the tokenization of a bond issued by a
municipality, such as the bond issued by the city of
Lugano on the SDX platform, would differ from the
tokenization of a commodity or a piece of art.
The asset sourcing phase is not just about the
technical aspects of tokenization but also involves a
strategic assessment of the regulatory environment
and the market readiness for such a tokenized
asset. A thorough understanding of these factors is
not only beneficial for the asset-sourcing process
but also informs conversations with regulators and
customers who are still getting up to speed on the
technology.

Asset sour ci ng i s al so about
i dent i f yi ng t he r i ght par t ner s f or t he
j our ney ahead. Gi ven t he f r agment ed
nat ur e of t he cur r ent l andscape,
devel opi ng an ecosyst em st r at egy f or
of f - t he- shel f i nt egr at i ons i nt o ot her
syst ems and par t ner s i s i mpor t ant . A
f ew asset owner s ar e wi l l i ng t o
engage wi t h mul t i pl e par t i es t o
t okeni ze an asset ; hence, t he pr ocess
shoul d be as si mpl e as possi bl e. Asset
sour ci ng i s a cr i t i cal st ep t hat set s t he
st age f or t he ent i r e t okeni zat i on
pr ocess. I t r equi r es a deep
under st andi ng of t he asset i t sel f , t he
r egul at or y envi r onment , t he
t echnol ogy, and t he mar ket dynami cs.
By car ef ul l y sel ect i ng t he asset and
st r uct ur i ng t he t okeni zat i on pr ocess,
busi nesses can pave t he way f or a
successf ul t okeni zat i on j our ney.
TOKEN I SSUANCE AND CUSTODY:
Token i ssuance and cust ody ar e
pi vot al component s of t he
t okeni zat i on pr ocess. They i nvol ve
cr eat i ng a di gi t al r epr esent at i on of an
asset on a bl ockchai n and ensur i ng
t hat t hi s r epr esent at i on i s secur el y
hel d and managed. Token i ssuance
st ar t s wi t h t he i mmobi l i zat i on of any
r el at ed physi cal asset . Thi s means
movi ng t he asset t o a cont r ol l ed
l ocat i on, t ypi cal l y wi t h a qual i f i ed
cust odi an or a l i censed t r ust
company. Thi s st ep i s cr uci al f or
asset s t hat have a physi cal f or m, such
as r eal est at e or ar t . For di gi t al or
i nt angi bl e asset s, t hi s st ep may
i nvol ve secur i ng t he di gi t al r i ght s
r epr esent ed by t he t oken.
Once t he asset i s secur ed, a di gi t al
r epr esent at i on i s cr eat ed on a
bl ockchai n. Thi s di gi t al r epr esent at i on
i s known as a t oken.
The t oken cont ai ns embedded
f unct i onal i t y, essent i al l y code f or
execut i ng pr edet er mi ned r ul es. These
r ul es can i ncl ude compl i ance f unct i ons,
such as user t r ansf er r est r i ct i ons, f r eeze
capabi l i t i es, and cl awback.
The asset owner must sel ect a par t i cul ar
t oken st andar d, such as ERC- 20 or ERC-
3643, whi ch ar e common st andar ds f or
cr eat i ng t okens on t he Et her eum
bl ockchai n. They must al so choose a
net wor k, whi ch can be a pr i vat e or publ i c
bl ockchai n, and deci de on t he
compl i ance f unct i ons t o be embedded
wi t hi n t he t oken. Af t er t he di gi t al asset s
have been cr eat ed, t hey ar e st or ed by a
cust odi an or speci al - pur pose br oker -
deal er pendi ng di st r i but i on. The r ol e of
t he cust odi an i s t o saf eguar d di gi t al
asset s, si mi l ar t o how a t r adi t i onal bank
saf eguar ds money. The cust odi an must
ensur e t he asset s ar e secur e f r om t hef t ,
l oss, or unaut hor i zed access.
I t i s cr uci al t o est abl i sh t i ght er r ul es f or
cr ypt o asset ser vi ce pr ovi der s, whi ch
i ncl ude cust ody ser vi ces. Thi s i nvol ves
st r i ct er r ul es on st abl ecoi ns, di scl osur e
obl i gat i ons, ant i - money- l aunder i ng
checks, and dat a secur i t y pr ocedur es.
Token i ssuance and cust ody ar e about
conver t i ng t he r i ght s t o an asset i nt o a
secur e and f unct i onal di gi t al t oken. Thi s
pr ocess r equi r es car ef ul pl anni ng and
execut i on t o ensur e t hat t he t oken
accur at el y r epr esent s t he asset and i s
hel d secur el y i n a way t hat compl i es wi t h
r egul at or y r equi r ement s.
TOKEN DI STRI BUTI ON AND TRADI NG:
Token di st r i but i on and t r adi ng ar e
cr i t i cal phases i n t he l i f ecycl e of a
t okeni zed asset . These st eps det er mi ne
how t he di gi t al asset s r each i nvest or s
and how t hey ar e subsequent l y t r aded i n
t he mar ket .

Token di st r i but i on i s how di gi t al asset s
ar e al l ocat ed and t r ansf er r ed t o
i nvest or s. Thi s st ep t ypi cal l y i nvol ves a
di st r i but or , such as t he pr i vat e weal t h
di vi si on of a l ar ge bank, and ei t her a
t r ansf er agent or a speci al - pur pose
br oker - deal er t o move t he di gi t al asset s.
Thi s di r ect l y i mpact s t he l i qui di t y and
mar ket pr esence of t he t okeni zed asset .
The di st r i but i on pr ocess i s not j ust
about t r ansf er r i ng asset s; i t ' s al so about
ensur i ng i nvest or s have t he necessar y
i nf r ast r uct ur e, such as a di gi t al wal l et ,
t o hol d and manage t hese asset s. The
physi cal asset equi val ent r emai ns
i mmobi l i zed i n t he omni bus i ssuer
account at t he t r adi t i onal cust odi an,
ensur i ng t hat t he di gi t al r epr esent at i on
does not l ead t o dupl i cat i on of
owner shi p.
Once di st r i but ed, t okeni zed asset s may
be l i st ed on secondar y t r adi ng venues t o
cr eat e a l i qui d mar ket . These venues
can i ncl ude al t er nat i ve t r adi ng syst ems
( ATS) or di gi t al - asset exchanges. The
l i qui di t y of t okeni zed asset s i s a cr uci al
f act or f or t hei r success, as i t al l ows
i nvest or s t o buy and sel l t hese asset s
mor e f r eel y, pot ent i al l y i ncr easi ng t hei r
val ue and at t r act i veness.
However , some i ssuer s may pr ef er t hat
t hei r t okeni zed asset s do not t r ade on
secondar y t r adi ng venues. Thi s coul d be
due t o concer ns about unwant ed pr i ce
si gnal s t hat coul d af f ect t he val uat i on of
t hei r por t f ol i os.
Token di st r i but i on and t r adi ng ar e about
ef f i ci ent l y and secur el y t r ansf er r i ng
owner shi p of di gi t al asset s t o i nvest or s
and f aci l i t at i ng t hei r t r ade i n t he mar ket .
These st eps ar e essent i al f or
est abl i shi ng t he t okeni zed asset ' s
pr esence i n t he mar ket and f or pr ovi di ng
t he l i qui di t y t hat i s of t en t out ed as one
of t he mai n advant ages of t okeni zat i on.
ASSET SERVI CI NG AND DATA
RECONCI LI ATI ON:
Asset ser vi ci ng and dat a r econci l i at i on
ar e essent i al f unct i ons i n managi ng
t okeni zed asset s. These pr ocesses
ensur e t hat t he di gi t al asset s ar e
pr oper l y mai nt ai ned, and t hat t hei r
r ecor ds ar e accur at e and up- t o- dat e.
Asset ser vi ci ng i nvol ves t he ongoi ng
mai nt enance of t he t okeni zed asset post -
di st r i but i on. Thi s i ncl udes r egul at or y
r epor t i ng, t ax r epor t i ng, account i ng,
not i f i cat i on of cor por at e act i ons, and,
wher e appl i cabl e, t he per i odi c
cal cul at i on of net asset val ue ( NAV) . The
speci f i c ser vi ci ng r equi r ement s can var y
gr eat l y dependi ng on t he t ype of asset .
For i nst ance, ser vi ci ng t okens
r epr esent i ng car bon cr edi t s woul d
i nvol ve di f f er ent audi t i ng and r epor t i ng
r equi r ement s t han t okens r epr esent i ng
shar es i n a f und.
The nat ur e of t hese ser vi ces may depend
on t he asset cl ass. For exampl e,
ser vi ci ng car bon cr edi t t okens wi l l
r equi r e di f f er ent audi t i ng t han f und
t okens. Thi s i ndi cat es t hat t okeni zi ng
ot her asset cl asses i s not a one- si ze-
f i t s- al l pr ocess and r equi r es a t ai l or ed
appr oach t o asset ser vi ci ng.
Dat a r econci l i at i on i s t he pr ocess of
ensur i ng t hat t he of f - chai n and on- chai n
act i vi t i es r el at ed t o t he t okeni zed asset
ar e consi st ent and accur at e. Thi s i s a
compl ex t ask because many t okeni zed
asset s cont i nue t o exi st i n bot h physi cal
and di gi t al f or ms, each wi t h i t s dat a
syst ems t hat need t o be synchr oni zed.
The cur r ent t okeni zat i on pr ocess i s
compl i cat ed and can i nvol ve up t o ni ne
di f f er ent par t i es, i ncl udi ng t he asset
owner , i ssuer , t r adi t i onal cust odi an,
t okeni zat i on pr ovi der , t r ansf er agent ,
di gi t al cust odi an, or speci al - pur pose
br oker - deal er , ATS, di st r i but or , and end
i nvest or . Thi s compl exi t y under scor es
t he i mpor t ance of ef f ect i ve dat a
r econci l i at i on t o ensur e t hat al l par t i es
have consi st ent and accur at e
i nf or mat i on.

Asset ser vi ci ng and dat a r econci l i at i on ar e cr i t i cal t o t he i nt egr i t y and
f unct i onal i t y of t okeni zed asset s. These pr ocesses ensur e t hat t he asset s ar e
pr oper l y mai nt ai ned and t hat t he dat a acr oss var i ous pl at f or ms and par t i es i s
consi st ent . Thi s, i n t ur n, suppor t s t he cr edi bi l i t y and r el i abi l i t y of t he
t okeni zat i on ecosyst em.
.

Tokenization, the process of converting rights to
an asset into a digital token on a blockchain,
offers a range of potential benefits that can
transform how assets are managed, traded, and
serviced.
DEMOCRATIZATION OF ACCESS
Tokenization is often praised for its ability to
democratize access to investments. By
fractionalizing assets, ownership can be divided
into smaller parts, making it possible for smaller
investors to participate in markets from which
they were traditionally excluded due to high
entry barriers.
However, regulatory limitations may restrict
access to tokenized assets, often only to
accredited investors. True democratization of
access will require tokenized asset distribution to
reach a much larger scale.
OPERATIONAL COST SAVINGS
Tokenization can streamline operationally
intensive manual processes, especially in asset
classes like corporate bonds and other fixed-
income products. By embedding operations such
as interest calculation and coupon payments into
a token's smart contract, these functions are
automated, reducing costs and error rates.
IMPROVED CAPITAL EFFICIENCY
Tokenization can enhance capital efficiency,
especially in capital market use cases. For
example, triparty repurchase agreements or
money market fund redemptions can occur
much faster than traditional settlement times,
which is particularly beneficial in high-interest-
rate environments.
BENEFITS OF TOKENIZATION
ENHANCED COMPLIANCE, AUDITABILITY, AND
TRANSPARENCY
The inherent features of blockchain technology
can significantly improve compliance, auditability,
and transparency. Tokenization allows for the
embedding of compliance-related actions
directly into the token, enabling automated
compliance checks and immutable record-
keeping.
Tokenization, as a burgeoning facet of the digital
economy, offers a transformative approach to
asset management, investment, and ownership.
The potential benefits of tokenization are
extensive and can impact various stakeholders in
the ecosystem, including asset owners, service
providers, and investors. Each group stands to
gain from the unique advantages that
tokenization brings to the table.

FOR ASSET OWNERS:
1. Improved Capital Efficiency:
Tokenization can unlock capital that
is otherwise tied up due to the
illiquidity of certain assets. By
enabling fractional ownership, assets
that were previously too large or
illiquid for easy sale can now be
divided and sold in smaller, more
liquid portions. This can free up
capital and lower the cost of capital
in transit.
2. Democratization of Access: Asset
owners gain access to a broader
investor base. Tokenization can open
up new secondary markets and
enhance liquidity, allowing owners to
sell parts of their assets to a wider
range of investors, including those
who may have yet to have had access
to such investment opportunities
before due to high minimum
investment thresholds.
3. Revenue Opportunity: By tapping
into new pools of capital and enabling
fractional sales, asset owners can
potentially increase the revenue
generated from their assets. This is
particularly relevant for high-value
assets that can be divided and sold to
multiple investors.
FOR SERVICE PROVIDERS:
1. Operational Cost Savings: Service
providers can benefit from the
automation of tasks that are
traditionally manual and error-prone.
Tokenization allows for the
embedding of complex product-
structuring and asset-servicing tasks
into the token's smart contract, which
can lead to significant reductions in
operational costs.
2. Revenue Oppor t uni t y: The new t oken
economy cr eat es oppor t uni t i es f or ser vi ce
pr ovi der s t o of f er novel ser vi ces r el at ed t o
t he i ssuance, t r adi ng, and management of
t okeni zed asset s. Thi s i ncl udes ser vi ces
ar ound smar t cont r act devel opment ,
compl i ance, and asset exchange pl at f or ms.
3. Cheaper and Mor e Ni mbl e I nf r ast r uct ur e:
The i nf r ast r uct ur e r equi r ed f or t okeni zat i on
i s of t en open- sour ce and devel oped by a
gl obal communi t y of Web3 devel oper s. Thi s
can l ead t o l ower cost s f or ser vi ce pr ovi der s
as t hey l ever age communi t y- dr i ven
i nnovat i ons r at her t han devel opi ng
pr opr i et ar y syst ems.
FOR I NVESTORS:
1 . Access t o New Pool s of Capi t al : I nvest or s
can benef i t f r om t he l ower mi ni mum
i nvest ment r equi r ed t o par t i ci pat e i n
mar ket s t hat wer e pr evi ousl y i naccessi bl e.
Tokeni zat i on al l ows f or f r act i onal owner shi p,
whi ch means i nvest or s can buy i nt o asset s
wi t h smal l er amount s of capi t al .
2. Cost Ef f i ci ency: I nvest or s can save on
t r ansact i on cost s as t okeni zat i on can r educe
t he number of i nt er medi ar i es i nvol ved i n
buyi ng, sel l i ng, and managi ng asset s. The
aut omat i on of pr ocesses t hr ough smar t
cont r act s can al so l ower t he cost s
associ at ed wi t h asset ser vi ci ng.
3. Enhanced Compl i ance, Audi t abi l i t y, and
Tr anspar ency: Tokeni zat i on can embed r ul es
and cr edent i al s i nt o t he t oken' s smar t
cont r act , such as i nvest or qual i f i cat i on and
car bon cr edi t ver i f i cat i on. Thi s can l ead t o a
hi gher l evel of compl i ance and
t r anspar ency, as wel l as pr ovi de i nvest or s
wi t h r eal - t i me, audi t abl e account i ng r ecor ds.
I n essence, t okeni zat i on i s poi sed t o
r edef i ne t he l andscape of asset management
and i nvest ment by l ever agi ng bl ockchai n
t echnol ogy t o cr eat e a mor e ef f i ci ent ,
t r anspar ent , and accessi bl e mar ket .

While tokenization presents a myriad of benefits,
it also faces significant challenges and limitations
that can hinder its widespread adoption. These
challenges are multifaceted, affecting various
aspects of the tokenization process, from
technology and infrastructure to regulation and
market maturity.
TECHNOLOGY AND INFRASTRUCTURE
UNPREPAREDNESS
The current state of technology and
infrastructure is one of the primary roadblocks to
adopting tokenization. There needs to be more
institutional-grade digital asset custody and
wallet solutions that offer the necessary
flexibility in managing account policies, such as
trading limits. Moreover, blockchain technology,
especially the public permissionless versions,
needs more system uptime at high transaction
throughputs. This is a critical deficiency, as it is
unacceptable to support tokenization in mature
capital markets where reliability is paramount.
FRAGMENTED BLOCKCHAIN INFRASTRUCTURE
The fragmentation of the blockchain
infrastructure, including developer tooling, token
standards, and smart contract guidelines, creates
interoperability challenges across financial
institutions. This fragmentation can introduce
new risks, such as those associated with bridging
protocols between blockchains, and can lead to
the fragmentation of liquidity. It also challenges
harmonizing data across systems to deliver the
necessary reporting and compliance.
REGULATORY UNCERTAINTY
Regulatory uncertainty is another significant
challenge. The evolving regulatory landscape
can be difficult to navigate, with different
jurisdictions adopting varying approaches to
digital assets. This uncertainty can deter
institutions from fully committing to tokenization
initiatives, as they may fear future regulatory
changes that could impact their operations or the
legality of their tokenized assets.
CHALLENGES AND LIMITATIONS
MARKET MATURITY AND INDUSTRY
ALIGNMENT
The market for tokenized assets is still in its
infancy, and there needs to be more alignment
within the industry. For tokenization to achieve
widespread adoption, there needs to be a
concerted effort from all market participants to
align on standards, practices, and goals. With this
alignment, the market will remain cohesive, and
the full potential of tokenization will be realized.
IMPLEMENTATION COSTS
The cost of implementing tokenization solutions
can be prohibitive, especially for smaller players.
The need to develop or integrate new systems,
ensure compliance with regulations, and manage
the ongoing operations of tokenized assets can
require significant investment, which may not be
justifiable given the current scale of the
tokenized asset market.
For tokenization to move forward, it will require
advancements in technology, clarity in regulation,
maturity in the market, and alignment within the
industry.

The regulatory landscape for tokenization is
complex and evolving, presenting opportunities
and challenges for stakeholders in the
tokenization ecosystem. As technology matures
and its applications become more widespread,
regulators worldwide are grappling with how to
oversee these new digital assets.
The first step in navigating the regulatory
landscape is understanding how the asset being
tokenized is classified—whether as a security, a
commodity, or otherwise. This classification will
dictate which regulatory frameworks apply and
which regulatory bodies have jurisdiction over
the tokenized asset.
Regulatory uncertainty is a significant challenge
in the tokenization space. Different jurisdictions
have different rules and standards, which can
create a patchwork of regulations that token
issuers must navigate. This fragmentation can
lead to uncertainty, as token issuers must ensure
compliance across multiple regulatory regimes.
To mitigate the challenges of regulatory
fragmentation, institutions looking to lead in the
tokenization space are encouraged to participate
in setting standards.
By providing streamlined input to regulators
about emerging standards, these institutions can
help shape the regulatory environment and avoid
further fragmentation.
Some jurisdictions have started to establish more
explicit rules for crypto asset service providers,
which include entities engaged in the issuance,
offer, and trading of crypto assets. These
frameworks aim to tighten regulations on
stablecoins, impose disclosure obligations,
conduct anti-money-laundering checks, and
ensure data security procedures.
REGULATORY LANDSCAPE
Major financial regulatory bodies, such as the U.S.
Securities and Exchange Commission (SEC), are
also shaping the landscape. The SEC has guided
how digital assets should be reflected on balance
sheets, which has implications for how these
assets are managed and reported.
The regulatory landscape for tokenization is in a
state of flux, with significant variation across
different jurisdictions. While this presents
challenges, it also offers opportunities for
industry leaders to engage with regulators and
influence the development of standards and
frameworks that could enable the tokenization
ecosystem to thrive.
Despite the challenges, there is a strong interest
from financial institutions in navigating this
landscape, driven by the potential benefits that
tokenization can offer. As the industry matures,
clearer and more harmonized regulatory
frameworks are likely to emerge, providing a
more stable foundation for the growth of
tokenization.

Businesses considering entering the tokenization
space or expanding their current offerings can
take strategic steps to position themselves
effectively. The document outlines several key
actions businesses can undertake to ensure a
leading position in the tokenization ecosystem.
Businesses should reassess the concrete
benefits and value proposition of tokenization, as
well as the avenues and costs of implementation.
It's crucial to understand the impact of external
economic factors, such as higher interest rates
and volatile public markets, on specific assets or
use cases. This will help in evaluating
tokenization’s potential benefits accurately.
Regardless of a business's position in the value
chain, specific capabilities are necessary to
prepare for a tokenized world. This includes
building a basic understanding of the technology
and its associated risks, particularly regarding
blockchain infrastructure, governance duties,
token design, and system design.
Given the fragmented nature of the current
landscape, developing an ecosystem strategy for
off-the-shelf integrations into other systems and
partners is essential. Simplifying the custody,
distribution, trade, and servicing of tokenized
assets is vital to attracting asset owners.
Institutions aiming for a leading position in
tokenization should engage with regulators to
provide streamlined input on emerging
standards. This can help avoid further
fragmentation of liquidity, data, and
composability.
Banks, asset managers, custodians, and others
can take some no-regret moves today to prepare
for a tokenized world. The strategic optionality of
being prepared may be worth the investment.
STRATEGIC STEPS FOR BUSINESSES
The strategic steps outlined in the document
emphasize the importance of a proactive and
informed approach to tokenization. By
reassessing business cases, building out
necessary tech and risk capabilities, forming
strategic partnerships, participating in standard
setting, and making no-regret moves, businesses
can navigate the complexities of the tokenization
landscape and position themselves as leaders in
this evolving ecosystem.

BDifferent sectors are leveraging this technology to
innovate and streamline their operations. Here is an
elaboration on some of the case studies and
examples.
1. THE CITY OF LUGANO'S BOND ISSUANCE ON THE
SDX PLATFORM:
The bond issued by the city of Lugano in Switzerland
on the SDX platform is a prime example of
tokenization. This process involved several steps,
starting with asset sourcing and moving through
token issuance and custody, with the final goal of
creating a digital representation of the bond on a
blockchain. This case study demonstrates the
potential for public sector entities to use blockchain
technology to enhance the efficiency and
accessibility of traditional financial instruments.
2. DISTRIBUTED LEDGER REPO (DLR) PLATFORM:
The DLR platform conducts triparty repurchase
agreements monthly, showcasing the application of
tokenization in the financial sector to facilitate
transactions. This example illustrates how
tokenization can create efficiencies in the settlement
of repurchase agreements, which traditionally take
longer to settle.
3. TOKENIZED CASH AND DEPOSIT CAPABILITIES:
Approximately $120 billion of tokenized cash is now
in circulation in the form of fully reserved
stablecoins, such as USD Coin. Some banks have
launched or are planning to launch tokenized
deposit capabilities to improve the cash settlement
leg of commercial trades. This development points
to the increasing use of tokenization to facilitate
commercial transactions and improve liquidity.
4. TOKENIZED REPOS AND SECURITIES LENDING:
With higher interest rates, tokenized repos and
securities lending have become more attractive. The
document describes how tokenized money market
funds can be used for fluid collateral management,
highlighting the shift in the business case for
tokenization due to changes in the economic
environment.
CASE STUDIES AND EXAMPLES
T5. STABLECOIN ISSUERS AND DIGITAL-ASSET
BUSINESS CLIENTS:
Established banks in the United States have
recently received many large and often very
profitable digital-asset business clients, including
stablecoin issuers. To retain these clients, banks
will require 24/7 movement of value and
tokenized cash, indicating a growing need for
tokenization capabilities in the banking sector.
These case studies and examples underscore the
diverse applications of tokenization across
different asset classes and sectors. They also
highlight the growing institutional interest and the
more robust business fundamentals that suggest
a potential for a different outcome in adopting
tokenization compared to previous years.
Technology and market understanding have
advanced to a point where tokenization is not just
a concept but a practical tool for innovation in
asset management and transaction facilitation.
While Tokenization has been around since 2017, it
has not gained significant traction until recently.
The current landscape is marked by a sense of
déjà vu for digital-asset veterans, but with a
cautious note that the outcome may be different
this time around.
There is a clear indication that institutional
interest in tokenization is growing. Leaders in the
financial industry have made statements
supporting the potential of tokenization to
transform markets. This interest is coupled with
more robust business fundamentals across
certain asset classes, suggesting that
tokenization could see more substantial adoption
and success.
For tokenization to be successful, players in the
market need to adopt a well-structured
approach. This involves understanding the
benefits and challenges of tokenization and
strategically positioning themselves to leverage
the technology effectively.

3. FORM ECOSYSTEM RELATI ONSHI PS FOR
ASSET DI STRI BUTI ON:
The f r agment ed nat ur e of t he cur r ent
l andscape necessi t at es an ecosyst em
st r at egy f or i nt egr at i on i nt o ot her syst ems
and par t ner s. Si mpl i f yi ng t he t okeni zat i on
pr ocess i s essent i al f or at t r act i ng asset
owner s and r eachi ng scal e.
4. PARTI CI PATE I N STANDARD SETTI NG:
I nst i t ut i ons l ooki ng t o l ead i n
t okeni zat i on shoul d pr ovi de r egul at or s
wi t h st r eaml i ned i nput about emer gi ng
st andar ds t o avoi d f ur t her f r agment at i on
of l i qui di t y, dat a, and composabi l i t y.
5. ENGAGE WI TH REGULATORS AND
CUSTOMERS:
An under st andi ng of t he under l yi ng
pr i nci pl es of t okeni zat i on can i nf or m
conver sat i ons wi t h r egul at or s and
cust omer s who ar e st i l l get t i ng up t o
speed on t he t echnol ogy.
6. CREATE STRATEGI C PARTNERSHI PS:
Par t ner shi ps t hat expand di st r i but i on and
access t o i nvest or s can cr eat e meani ngf ul
st r at egi c di st ance f or an i ncumbent by
hel pi ng such a company r each scal e.
7. PREPARE FOR A TOKENI ZED WORLD:
The document suggest s t hat busi nesses
shoul d pr epar e f or a t okeni zed wor l d by
t aki ng no- r egr et moves t oday, even
t hough i t coul d t ake some t i me f or t he f ul l
benef i t s t o be r eal i zed.
A pr oact i ve and i nf or med appr oach i s
essent i al t hat encompasses t he
combi nat i on of i nst i t ut i onal i nt er est ,
i mpr oved busi ness cases, and t he
pot ent i al f or r egul at or y cl ar i t y, l eadi ng t o
a mor e f avor abl e envi r onment f or
t okeni zat i on t o t hr i ve. Busi nesses must
engage wi t h t echnol ogy t hought f ul l y and
st r at egi cal l y, posi t i oni ng t hemsel ves as
l eader s i n t he evol vi ng t okeni zed asset
ecosyst em.
Regul at or y uncer t ai nt y has been a
si gni f i cant bar r i er t o t he adopt i on of
t okeni zat i on. The concl usi on hi nt s at t he
need f or mor e t r anspar ent r egul at or y
f r amewor ks t o pr ovi de t he necessar y
st abi l i t y and conf i dence f or i nst i t ut i ons t o
i nvest i n t okeni zat i on i ni t i at i ves.
Whi l e t okeni zat i on i s not wi t hout i t s
chal l enges, t her e i s a sense of r eadi ness
among f i nanci al i nst i t ut i ons t o expl or e and
i nvest i n t hi s t echnol ogy. The combi nat i on of
i nst i t ut i onal i nt er est , i mpr oved busi ness
cases, and t he pot ent i al f or r egul at or y
cl ar i t y may l ead t o a mor e f avor abl e
envi r onment f or t okeni zat i on t o t hr i ve.
Busi nesses must engage wi t h t okeni zat i on
t echnol ogy t hought f ul l y and st r at egi cal l y,
wi t h an under st andi ng of t he pot ent i al
benef i t s and a r eadi ness t o navi gat e t he
compl exi t i es of t he r egul at or y and
t echnol ogi cal l andscape.
The cal l t o act i on i n t he document r egar di ng
t okeni zat i on i s di r ect ed at busi nesses and
i nst i t ut i ons t hat ar e consi der i ng or ar e
al r eady i n t he pr ocess of adopt i ng
t okeni zat i on. The document encour ages
t hese ent i t i es t o engage wi t h t he t echnol ogy
t hought f ul l y and st r at egi cal l y, wi t h an
under st andi ng of t he pot ent i al benef i t s and
a r eadi ness t o navi gat e t he compl exi t i es of
t he r egul at or y and t echnol ogi cal l andscape.
1 . REEXAMI NE UNDERLYI NG BUSI NESS
CASES:
Busi nesses must r eassess t he concr et e
benef i t s and val ue pr oposi t i on of
t okeni zat i on, as wel l as t he avenues and
cost s of i mpl ement at i on. Thi s i ncl udes
under st andi ng t he i mpact of economi c
f act or s on speci f i c asset s or use cases t o
eval uat e t okeni zat i on’ s pot ent i al benef i t s
accur at el y.
2. BUI LD OUT TECH AND RI SK CAPABI LI TI ES:
Compani es shoul d devel op a basi c
under st andi ng of t he t echnol ogy and i t s
associ at ed r i sks, par t i cul ar l y r egar di ng
bl ockchai n i nf r ast r uct ur e, gover nance
dut i es, t oken desi gn, and syst em desi gn.

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HOW TO TOKENIZE: PROCESS, POSSIBILITIES AND CHALLENGES

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