Tokenization
Last updated 17 October 2026Last verified 17 October 2026
What is tokenization?
TradFi equivalentDematerialization done a second time, the move from certificates to book entry that depositories completed decades ago, by immobilization in the US. The difference is what the entry is. A depository's book entry is title by statute, whereas a token is title only where a statute says so, and elsewhere it is a receipt for a claim held somewhere else.
The token is never the asset. It is a record of a claim, and the claim is only worth what the legal structure behind it makes enforceable. Two products described identically can therefore be entirely different instruments, which is the distinction that most often gets lost in the category.
In a custody-backed structure a regulated custodian holds the underlying security and the token is a receipt against something that demonstrably exists and can be independently verified. In a synthetic structure the token represents someone's promise to deliver economic exposure later. The first carries custody risk. The second carries counterparty risk, and fails precisely when ownership is meant to transfer, which is the worst possible moment.
The questions that separate them are legal rather than technical. Who is the registrar of record, and does the issuer recognize the token holder or an intermediary as the owner? What happens if the chain and the register disagree?
Is transfer restricted by the underlying instrument's own terms, which is common for private company shares and has voided tokenized offerings before? The technology works. The wrapper is where these products succeed or fail.