How Tokenization Works

What Is Tokenization?

Tokenization is the process of representing ownership of a real-world asset as a digital token on a blockchain.

The token is not the asset itself. It is a digital record of ownership — like a title deed, but on-chain, programmable, and transferable in seconds.

A Simple Example

Imagine a US Treasury bill worth $1,000 yielding 5% annually.

Traditionally:

• You buy it through a broker
• The broker holds it in custody
• Settlement takes days
• You cannot easily transfer it to someone else

Tokenized:

• Franklin Templeton issues 1,000 tokens each representing $1 of the T-bill
• Each token earns its proportional yield
• You hold the token in your own wallet
• You can transfer it to anyone in the world in seconds
• You can sell it on a DEX any time

The underlying asset — the actual Treasury bill — is held by a regulated custodian. The token on-chain represents your legal claim to that asset.

The Four Layers of Tokenization

1. The Asset — The real-world thing being tokenized. Could be a T-bill, gold, real estate, a stock, or a private loan.

2. The Issuer — The regulated entity that holds the underlying asset and issues the tokens. Examples: Franklin Templeton (BENJI), Ondo (USDY), PAX Gold (PAXG).

3. The Blockchain — Where the token lives. Most RWA tokens are on Ethereum, Polygon, or Arbitrum.

4. The Token Standard — Usually ERC-20, which makes the token compatible with any DeFi protocol, wallet, or exchange.

Why This Matters

Once an asset is tokenized:

• It can be traded 24/7 with instant settlement
• It can be used as collateral in DeFi protocols
• It can be sent anywhere in the world at negligible cost
• It can be fractionally owned (buy $10 of gold instead of one full ounce)
• It can be programmatically integrated into financial products

This is the infrastructure shift that is attracting institutional capital at scale.