What if you could tokenize and immediately trade your real estate, corporate bonds or fine art on a blockchain? Tokenization of real world assets (RWAs) could become one of the most important financial innovations of the next 10 years.
Another aspect of the new blockchain/blockchain-enabled financial architecture is that the architecture is not only the technology-driven model shift for financial systems that has long been dominated by intermediaries and legacy institutions, it is also the next layer of tokenization. Many of the world’s leading banks, stock exchanges, and financial institutions, including J.P. Morgan, Goldman Sachs, and UBS, meanwhile, have active pilots and tokenized assets in place.
The sums at stake are huge, with analysts estimating that by 2030 as much as $16 trillion worth of assets could be tokenized, improving liquidity, efficiency, and transparency in international markets. But it’s not just a technology trend. It’s a business imperative for financial institutions that want to remain relevant.
In this article, we break down what RWA tokenization is, how it works when applied to the banking and financial services sectors, and why it matters for decision makers at banks, asset management firms, or other fintech companies looking to innovate or diversify in a digital economy.
Understanding Real-World Asset (RWA) Tokenization
What Is Real-World Asset Tokenization?
In finance, tokenization broadly means the process of converting rights to an underlying asset (physical or financial) into a digital token on a blockchain. Tokenization of assets can be used for real estate, gold, treasury bills or ownership shares in a company. This means that it can be easy to trade, transfer or fraction ownership of an asset.
This is in contrast to native crypto tokens like Bitcoin or Ethereum which do not have a corresponding real world commodity while tokenized real world assets are cryptographic tokens with a legal and custodial relationship to a real world asset.
Major ecosystem goods/services include:
- Smart contracts automate ownership transfers, payouts, and compliance.
- Oracles: Services which bridge on-chain tokens to real world things such as asset prices, interest rates and identity data.
- Custody solutions should safely and comprehensively store and audit the backing assets of a token (physical or monetary).
- Interoperability protocols: Enable transactions between different blockchain networks and financial systems.
These elements make tokenization a bridge between customary finance (TradFi) and decentralized finance (DeFi) and a combination of the best features of the two models: the trust and certainty of regulated assets, and the efficiency of digital infrastructure.
Market Size, Trends, and Growth Projections
Tokenization has already started on a large scale. Real world assets already trading on exchanges include everything from real estate to collectibles. According to PwC and Katten Financial Perceptions, the market for tokenized assets exceeded $25 billion in 2024 and will continue to grow exponentially.
By 2030, tokenized assets could amount to as much as $16 trillion, according to a report by Antier Solutions. This would enable tokenization to represent 10% of the global economy, similar to how online banking in the 1990s and online stock trading in the 2000s emerged as a new way of thinking about finance.
What’s fueling this surge?
Digitalization of finance: Financial services use blockchain, downstream flow happens, intermediaries disappear and bookkeeping becomes automated.
Demand for liquidity: Liquidity increases because tokenization permits the fractional owning of otherwise illiquid assets. These assets are real estate or private equity. This owning makes trading or financing easier and more attractive upon them.
Regulatory modernization: Governments and central banks build legal frameworks for security tokens and regulations exist for digital asset custody.
Why Now? The Perfect Storm of Technology and Regulation
These developments create an ideal situation. The year 2025 is therefore the best time for a large-scale shift to RWA tokenization.
- Smarter blockchains are here. Recent Layer-1 and Layer-2 blockchains offer thousands of transactions per second with greater scalability and greatly lower transaction costs.
- Reliable oracles: Blockchain oracles, for example Chainlink, provide verifiable, validated real world data to the smart contracts on the blockchain, allowing asset values, payments and interest rates to be audited.
- Mature regulation: The European Union’s MiCA framework and the U.S. SEC’s security token guidance help institutional adoption with uncertainty and risk reduction.
- Enterprise-grade custody: Financial institutions now use hybrid (permissioned or consortium-based) blockchains that are compliant with regulations while providing the advantages of blockchain’s speed and transparency.
With technology and regulation moving in parallel, banks and businesses are now being encouraged to move past pilot programs and into production, signaling the start of a trillion-dollar transformation of global financial services.
How Leading Banks & Financial Institutions Are Tokenizing Assets
In the financial economy, Real World Asset (RWA) tokenization is here to stay, adopted by some of the largest global banking institutions. It will turn customary assets into programmable, faster, cheaper, and more secure digital assets. From Wall Street to Singapore, the world’s financial leaders are proving that blockchain is not about the future of finance: it’s already here.
Case Studies and Real-World Experiments
J.P. Morgan’s Tokenized Collateral Network (TCN)
One of the more practical applications of blockchain in banking is J.P. Morgan’s Tokenized Collateral Network (TCN), which allows the use of tokenized assets as intraday collateral on loans. Using J.P. Morgan’s private blockchain Onyx, TCN allows collateral to be moved between counterparties. In Q1 2023, TCN completed its first transaction with BlackRock and Barclays to enable real-time blockchain-based collateral movement, compared to the customary process, which can take several days or longer to settle.
Goldman Sachs’ GS DAP™ Platform and Digital Bonds
The GS DAP™ (Digital Asset Platform) was developed by investment bank Goldman Sachs. The GS DAP platform has now moved beyond proof-of-concept demonstrations, with the European Investment Bank issuing a €100 million digital bond as a tokenized security. The DAP platform seeks to reduce the settlement cycle and improve traceability through the use of permissioned blockchain technology, benefitting institutional investors with real-time visibility of the flow of funds and tokenized debt instruments that can be traded on the secondary market.
BNY Mellon, BlackRock, and Tokenized Money Market Funds
There are efforts to explore tokenizing money market funds by financial service companies BNY Mellon and BlackRock. These firms are testing whether shares of funds can be traded and authenticated on-chain in global systems. In partnership with Goldman Sachs and fintechs, BNY Mellon and BlackRock expect tokenization to ease operational friction while remaining compliant with regulation. Investopedia and Medium note that both pilots are examples of how tokenization could replace manual fund share reconciliation through blockchain-based tracking.
Project Guardian and Tokenized Deposits
Singapore’s Project Guardian, spearheaded by the MAS, is among the world’s largest tokenized finance pilots to date. It involves tier-1 global banks DBS, J.P. Morgan and SBI Digital exploring interoperability between tokenized deposits, government bonds and stablecoins across different ecosystems. Reports by McKinsey & Company and Reuters say the results generated by Project Guardian are nudging regulators and banks to create global token standards bridging private and public blockchains.
UBS’s Digital Cash for Cross-Border Transactions
Swiss bank UBS tested Digital Cash, a blockchain-based payment system for cross-border settlement. The bank was able to use smart contracts to automate payments across jurisdictions and greatly reduce foreign exchange and settlement costs. The pilot, according to Reuters, signals that SWIFT and correspondent banking may soon have to contend with blockchain-based digital cash.
In each of these projects, the same story: banks adopting institution-grade blockchain-based financial systems to improve on legacy systems, but not to replace legacy systems immediately, but rather to do so in highly-valuable, measurable ways.
Ready to Tokenize Your Assets and Transform Your Financial Strategy?
Traditional vs Tokenized Models: A Clear Divide
Let us now compare tokenized finance with the customary finance system:
Of course, not everything is frictionless. With innovation comes risk, and there are some things banks are learning from these pilots.
Lessons Learned and Ongoing Challenges
Despite promising applications for tokenization, banks have encountered challenges when adopting this approach:
Regulatory and Compliance Risks. Whether a tokenized asset is a security or a commodity depends on the regulatory framework. There is no international consistency, and the legal position may rapidly evolve.
Scalability and Performance: Permissioned blockchains are more scalable, but even those cannot achieve high throughput levels for thousands of applications involving high-value transactions. Solutions for scalability of institutional-grade performance are still evolving.
Custody and Security: Holding the underlying physical asset or enforcing the token’s legal rights. Secure and auditable custody solutions can help to engender faith in investors.
Liquidity and Adoption: Tokenized assets still require individuals to trade with each other. Without large secondary markets, liquidity remains stagnant, regardless of blockchain capabilities.
Governance and interoperability. Coordination of regulation across regulators, banks, and blockchain platforms is challenging. Standardization is being worked on through projects such as Project Guardian but is slow.
Despite the challenges ahead, however, the momentum is there, and as banks test out various tokenization paths, it could lead to more common regulated adoption across the globe.
Technical & Operational Architecture
Tokenization of real-world assets (RWAs) is more than just tokenizing a bond, fund, or real estate asset. It is an architecture built from the fundamental principles of trust in the real world and the best of blockchain. To ensure that every token is backed, compliant, and can work with different systems, banks and financial institutions use a modular framework. Let us take a look at the tokenization process.
Core Components and Modules
- Token Issuance and Minting Engine
It starts with the token issuance engine, where token representations of real-world assets are created. For every real-world asset verified on the blockchain, a corresponding token is issued. They can be fractional (such as fractional real estate, government debt, commodities, etc.). The behavior of minting is controlled by a smart contract with mint limits, ownership, and compliance.
- Smart Contracts for Asset Lifecycle
Smart contracts are the digital glue used to bind processes in tokenization, such as the transfer of ownership of an asset, dividends, interest payments, and other business processes. Smart contracts take the place of the third-party commitment and try to fulfill the promise automatically and efficiently. For example, if a bond’s coupon payment is due, the smart contract executes that payment when it is recorded.
- Oracle Integration for Real-World Data
Blockchains cannot directly access off-chain data. New protocols such as Chainlink provide price feeds for tokens, interest rates, proof of reserves and other data to serve as oracles that connect on-chain and off-chain markets in real time. They also help provide accountability to investors by verifying that every token is backed by the underlying assets that they represent.
- Custody, Asset Backing, and Vaulting
The custody of the underlying assets is considered to be one of the most sensitive parts of the overall tokenization process. This custody is handled by a combination of digital custodians and customary custodians or vaulting partners, ensuring the assets are safe, the legal title is always clear, and both the digital token and physical asset can be fully audited at any time.
- Compliance and Permission Layers
Banking regulation is non-negotiable. Tokenized platforms have baked in KYC (Know Your Customer) and AML (Anti-Money Laundering) compliance designed into the blockchain. The use of compliance layers ensure that only whitelisted and role based users can buy, sell or move tokens. A transaction is compliant upfront, rather than later trying to enforce compliance.
- Interoperability and Cross-Chain Settlement
In a multi-chain future, isolation has scalability implications. Interoperability bridges like LayerZero or Axelar enable tokenized assets to move between blockchains and the legacy ecosystem. This means that access to permissioned blockchains is not a matter that reduces their connection with public blockchains or decentralized finance (DeFi) applications which are becoming increasingly important in global liquidity.
Data Flows and Process Steps
Tokenization follows a defined lifecycle, making it easier to trace and enforce compliance.
Onboarding the Asset
The first stage is due diligence, which involves the legal verification, valuation and structuring of the asset, as well as its classification.
Token Creation and Issuance
Approved tokens are then minted using smart contracts that outline the token’s ownership and compliance requirements, and are distributed to investors or institutions.
Secondary Trading, Transfer, or Redemption
Token holders may sell in whitelisted marketplaces or exchange them for a representative physical or financial asset, with the entire process being fully traceable on the blockchain.
Settlement and Reconciliation
One advantage of blockchain is the ability to settle a trade in minutes instead of days using atomic transactions and smart contracts that pair-off trading differences.
Monitoring, Auditing, and Reporting
As all transactions are made on the blockchain, bookkeeping, transaction reporting and auditing are simplified, with compliance and performance dashboards provided for regulators, custodians and asset managers.
Banks can replace weeks of manual verification with quick, verifiable, and secure processes, benefiting from the speed of digital-native platforms while retaining their existing systems.
Technology Choices and Frameworks
Choosing the right mix of technology stacks is critical to achieving a scalable and compliant tokenization solution.
- Permissioned vs. Public Blockchains:
Most financial institutions prefer permissioned blockchains or Hybrid Blockchains, where enterprise privacy is mandatory (e.g., Hyperledger Fabric or Quorum) and cross-chain interoperability is an optional extension of permissioned blockchains.
- Token Standards:
ERC-3643 (formerly T-REX) or ERC-1400 are also other standards for regulated assets with compliance modules that include restrictions on transferability, and investor accreditation.
- Oracle Networks and Middleware:
Middleware solutions like Chainlink or Pyth provide verified market data such as price feeds, credit ratings or events from blockchains or external systems.
- Legacy System Integration via APIs:
Tokenization does not replace or displace existing systems. Tokenized infrastructures can still connect securely to core banking, risk management, enterprise information, and other legacy infrastructures through secure application programming interfaces (APIs) to complete transactions.
- Custodial Integrations:
Custodial infrastructure, a combination of a digital wallet and customary custodians, eases the management of both the digital tokens and their underlying assets, ensuring security and regulatory compliance.
Commercial Value and Business Use Cases
The real-world asset tokenization movement isn’t just a technological revolution, but rather, for banks, asset managers and other organizations, it could mean a new playbook of economic growth, operational efficiency, increased liquidity, and improved transparency, while enabling the rapid creation of assets. We need to understand where the business value is, and how institutions in all sectors are realizing it.
Key Value Levers for Financial Institutions
- Efficiency Gains through Automation
Legacy financial infrastructure is often slow and paper-based. Tokenization transforms this, and enables automation of it. According to PwC and the World Economic Forum, blockchain can reduce settlement time from days to minutes, with smart contracts automating trade verification, dividend payment, collateral allocation and compliance reporting. Less manual reconciliation, speedier processing, less operational risk, and reduced human error: it has the potential to be a real step change.
- Significant Cost Savings
Every intermediary in finance adds time and cost, which tokenization eliminates for many assets. Digitizing issuance, custody and settlement reduces the cost of legal documentation, administration and reconciliations. A tokenized system provides immediate audit trails and regulatory reporting becomes near frictionless. In short, these days what used to take weeks of backend work can now be done in a few lines of blockchain code.
- Liquidity from Previously Illiquid Assets
The most prominent of RWA tokenization’s advantages is liquidity, as private real estate, infrastructure projects and fine art cannot be exchanged or sold due to their high price and lack of trading places. These can now be fractionally owned and traded internationally via tokenization; providing liquidity, not only to buyers and investors, but also to institutions seeking to raise capital and monetize otherwise illiquid portfolios.
- New Revenue Streams and Market Opportunities
Banks and fintechs can offer Tokenization-as-a-Service (TaaS) as a new business model; issuing, managing, and trading digital assets on behalf of their clients. They may charge for services such as hosting, custody, and fractional investment. It also creates an opportunity for fractionalized ownership to be more easily accessible to more small investors.
- Competitive Differentiation and Long-Term Readiness
As digital finance converges with customary finance, those who invest in on-chain technology now are the early movers in the nascent digital-asset economy. Tokenization is the moat for banks and asset managers: their way to establish and protect their future business model, which will operate on blockchain-based markets as opposed to the current customary systems that are outliers in the market.
Use Cases by Asset Class
The ability to tokenize almost any asset class, from a physical piece of real estate to a detailed financial product, is what makes tokenization so revolutionary.
- Real Estate Tokenization
Tokenization of real estate is one of the most developed RWA tokenization solutions. Tokeny and Elliptic show how tokenization of real estate allows for fractional ownership and enables global investors to access premium assets without any restrictions. Smart contracts automate the payment of rental income and ownership tracking. Liquidity pools enable the exchange of shares in property 24/7, unlike any real-world property market.
- Fixed Income and Bonds
Banks tokenize government and corporate bonds for the following reasons: higher liquidity, lower issuance costs, instantaneous settlement, and better access to investors, all without using multiple intermediaries. Deployments of Goldman Sachs’ GS DAP™ platform and J.P. Morgan’s Onyx highlight how tokenized debt instruments can improve the efficiency and accessibility of capital markets.
- Tokenized Money Market Funds and Deposits
Institutions such as BNY Mellon and BlackRock are testing tokenized money market funds, which use blockchain technology to ease real-time transfers and provide auditability, while banks are investigating tokenized deposits, issuing stable digital deposits that could be used for cross-border payments and applying them to decentralized finance (DeFi) applications.
- Private Equity, Private Credit, and Venture Investments
Private markets have historically been illiquid and closed to include only accredited or institutional investors. Tokenization allows fractional ownership of a private company, venture fund, or credit pool. The investor gains the option to exit in a secondary market, unlike a lock-in period.
- Commodities and Precious Metals
Besides gold, silver and energy are also being tokenized to increase traceability and ease trading. Advantages of tokenized gold include on-chain proof of reserves guaranteeing ownership, as well as instant liquidity on digital exchanges.
- Trade Finance and Supply Chain Assets
Invoices, shipping documents, letters of credit and other documents can be tokenized, allowing businesses to see trade flows in near real-time, as well as to collateralize and trade invoices and documents instantly and electronically between participants in the supply chain, thereby making it more efficient and transparent.
Commonalities across asset classes include better liquidity, faster settlement, and greater engagement of a wider set of investor classes, driving a more linked, data-driven, and responsive global financial architecture for the flow of capital worldwide.
Tokenization Opportunities for Enterprises Beyond Banking
Tokenization isn’t just for banks: corporates, asset managers and developers are also seeing the opportunity.
- Corporates can also use tokenized assets for collateralized financing or employee compensation. Tokenizing inventories or receivables, for example, can create access to liquidity in less time.
- Fractionalized ownership allows developers to sell foreign buyers portions of whole units that they could not otherwise afford.
- Asset managers can build their own white-label tokenization infrastructure or partner with fintechs in order to market digital investment products under their own brand name.
Implementation Strategy and Best Practices
A real-world asset (RWA) tokenization needs a plan, sound governance, and suitable allies when you are a bank, an asset manager, or a business hoping to use tokenization tech. Clear strategy and governance will help ensure compliance. It will help with the ability to scale and long-term return on investment (ROI).
Tokenization Adoption Roadmap
- Pilot or Proof of Concept (PoC)
To succeed, a tokenization strategy must begin when someone proves a concept. This proves blockchain capabilities, digitizes assets, and engages investors in financial institutions. They do this to validate business value and identify early technical or regulatory difficulties.
- Regulatory Engagement and Compliance Planning
Tokenization is in the field of securities, of commodities and of payments. Engage early with compliance, financial regulators, and legal advisors to get it right. Institutions should map jurisdictional rules, licenses, and reporting requirements in regard to each tokenized asset they offer.
- Platform and Partner Selection
For your tokenization needs, choose the right infrastructure. Enterprise-grade infrastructure is optimal since it is modular, secure, and compatible with other blockchains. Your partner should offer technology solutions in addition to advisory support for token economics, compliance systems and investor dashboards to meet institutional standards.
- Scaling and Interoperability
Following a successful pilot, the next step is scaling, involving broadening the range of asset classes, cross-chain compatibility, and integration with external financial systems. Interoperability enables tokenized assets to be exchanged across various blockchain networks and with customary financial infrastructure.
- Market Infrastructure: Exchanges and Trading Venues
Liquidity is the primary metric of success for tokenization. Institutions need access to compliant trading venues to list, trade, and collateralize tokenized assets. Connections to regulated exchanges, or an internal marketplace, provide the liquidity a project needs to be credible.
Risk Management and Governance
Tokenization can disrupt and change legacy financial systems. Strong governance practices for tokenization implementations can make the operations secure, compliant and trustworthy.
Legal and Regulatory Compliance
Securities, tax and jurisdictional rules should be as clear as possible within each jurisdiction from day one. Each token should represent a legal claim on a given underlying asset.
Operational and Cybersecurity Safeguards
While blockchain itself may be secure, the infrastructure layer requires its own protective custody, access control and encryption mechanisms to safeguard both data and digital assets from potential cyber-attack.
Identity, KYC, and AML Controls
Compliance with relevant regulations can be built into the tokenization platform, and it should not be a tokenization afterthought. KYC and AML can be handled without putting unreasonable burdens on investors and issuers.
Auditability and Reporting
Due to the transparency of on-chain data, institutions can provide regulators, investors and other third parties with constant reporting, a potential competitive advantage.
Dispute Handling and Token Revocation
Digital assets should also have recourse. Governance protocols should include token dispute resolution mechanisms, as well as options for token freeze and revocation, to address legal and operational issues.
Choosing Technology and Vendors
Not all tokenization vendors offer the same features; selecting a vendor involves weighing the tradeoffs for flexibility, scalability, or compliance.
Key Evaluation Criteria
The need for interoperability, modularity, and pre-existing compliance frameworks: the capacity to interact with oracles, custodians, and customary banking infrastructure is necessary to ease institutional adoption.
White-Label vs. Custom Builds
These so-called white-label systems are less investment-heavy, implementable faster, and ideal for businesses who intend to wade into the water. Custom systems offer long term flexibility and control over governance and integrations but present a higher upfront cost. The choice between speed or scalability is your first consideration.
Ecosystem Partnerships
Tokenization needs strong partnerships, custodians, oracle providers, regulated exchanges and others to create more use cases for the asset, and trusted security for its end-to-end lifecycle to drive adoption.
Service Models and Vendor Support
Most enterprises use TaaS (Tokenization-as-a-Service) providers who provide blockchain integration, compliance bundles, and post-integration consulting allowing enterprises to focus on scaling rather than the development of an enterprise-grade solution.
Conclusion
Tokenization of real world assets will change what capital markets, capital markets can be. Real assets become programmable and liquid, traveling at the speed of the internet. Banks and institutional participants need to decide whether they want to be players in this new world. Blockchain App Factory is leading the charge in tokenizing real-world assets for banking with our end-to-end solutions, allowing banks to securely issue, manage, and trade tokenized assets while adhering to compliance requirements. The role of Blockchain App Factory in this context enables banks and businesses to leverage greater efficiency, liquidity and scalability from real world asset tokenization, with the global tokenization market expected to reach $16 trillion.
