Tokenization: What Actually Works

Two years ago, the entire tokenized Treasury market was under $100 million. Today:

• Total tokenized Treasury market: ~$7.3-9 billion (2025)
• Growth since January 2024: 50x
• BlackRock BUIDL alone: $2.8 billion
• Total RWA on-chain: ~$30 billion

This isn't a niche experiment anymore. Larry Fink called tokenization "the next generation for markets." BlackRock—the world's largest asset manager with $10+ trillion in AUM—launched BUIDL in March 2024 and it became the largest tokenized fund in six weeks.

Why Tokenized Treasuries Worked

Crypto-native users holding stablecoins were earning nothing while Treasury rates were 4-5%. They wanted yield, but they couldn't easily access traditional money market products. Tokenization brought the yield to where the users already were—on-chain.

That sounds simple. The execution wasn't. Products had to fit within securities law, built on blockchain infrastructure, serving a user base that traditional finance barely understood.

Most tokenization projects fail. The ones that succeed share specific characteristics:

The Underlying Asset Matters

Treasuries are perfect for tokenization: fungible, liquid, well-understood, with clear pricing. There's no judgment call about value—a Treasury bill is a Treasury bill. Contrast this with tokenized real estate, where every property is unique, requires management, and has valuation complexity.

The BIS estimated that tokenized government bonds can reduce costs by 1.2% of nominal value over the bond's lifetime.

The User Need Must Be Acute

Crypto users holding stablecoins had billions in uninvested cash. They couldn't easily access traditional money market products—custody, account opening, and minimum investments were barriers. Tokenized treasuries solved a real problem for a real user base.

The Regulatory Path Must Be Clear

The successful tokenization projects spend enormous effort on regulatory structuring. Not because they're trying to avoid regulation—because they're trying to fit within it. Products are structured to comply with securities law. Transfer restrictions are coded into the smart contracts. KYC/AML is enforced at the protocol level.

Commissioner Hester Peirce put it clearly in July 2025: "Tokenized securities are still securities." That statement is both limiting and liberating—existing law provides a path.

The Failure Pattern

The tokenization projects that fail usually have the same problem: they're technology in search of a use case. "We can tokenize this!" isn't a business model. "Users need access to this, and tokenization solves the access problem" is.

You can't just "put an asset on the blockchain." The legal plumbing matters as much as the technical plumbing.

The SPV Structure

The misconception: "We'll tokenize the building" or "We'll put the Treasury on-chain."

You can't put a building on a blockchain. You tokenize ownership of an entity that holds the building. The structure:

1. Create a Special Purpose Vehicle (SPV)—an LLC, trust, or corporation
2. The SPV takes title to the underlying asset
3. Investors buy shares/interests in the entity
4. Those shares are represented as tokens on the blockchain
5. The SPV's operating agreement governs actual rights

This legal structure is what makes tokenization work within existing law.

The Document Stack

Every tokenized security requires:

• Private Placement Memorandum (PPM)
• Subscription agreement
• Operating agreement of the SPV
• Token purchase agreement
• Smart contract code

The critical requirement: ensuring alignment between the code and the legal contract. If they diverge, you have a problem.

Transfer Agent Requirements

Securities require registered transfer agents who:

• Maintain the official shareholder register
• Process transfers of ownership
• Handle corporate actions (dividends, votes)
• Ensure accurate record-keeping

The blockchain is a ledger, but it's not automatically the legal ledger. Someone must bridge on-chain and off-chain records.

Every tokenized security needs either full SEC registration (expensive, time-consuming) or an exemption.

Regulation D (Rule 506)—The Most Common Path

• Rule 506(b): No general solicitation, up to 35 non-accredited investors allowed
• Rule 506(c): General solicitation permitted, but ALL investors must be accredited

Advantages: No SEC qualification process, just file Form D after first sale Limitations: Restricted to accredited investors, transfer restrictions apply

Regulation A+ (The "Mini IPO")

For offerings that want retail participation:

• Tier 1: Up to $20 million, state registration required
• Tier 2: Up to $75 million, no state registration

Advantages: Retail investors CAN participate Disadvantages: Longer approval process, SEC qualification required

Regulation S (International)

For offerings outside the United States:

• Non-U.S. investors only
• No SEC registration required
• Distribution restrictions to prevent flowback to U.S.

Programmable Compliance

Modern token standards (ERC-3643, ERC-7518) allow compliance requirements to be programmed directly into the smart contract. Transfer restrictions, holding periods, accreditation checks—all enforced by code. This is more reliable than manual compliance.

The part of tokenization that excites institutional investors most isn't efficiency—it's composability.

What Composability Means

Tokenized assets can plug into DeFi protocols:

• Use tokenized treasuries as collateral in lending protocols
• Borrow stablecoins against Treasury exposure
• Earn additional yield through DeFi strategies
• 24/7 availability vs. traditional market hours

The Actual Math

Here's a strategy that's impossible in traditional finance:

1. Hold $1M in tokenized Treasuries (earning ~5% yield)
2. Use as collateral in Aave or Maker
3. Borrow stablecoins at a lower rate (say 3%)
4. Deploy borrowed funds for additional yield
5. Net result: Higher returns than just holding Treasuries

This is "productive collateral"—your assets earn yield while they're posted as collateral. In traditional finance, collateral just sits there.

The Compliance Question

Can institutional investors actually use DeFi protocols? The answer is "increasingly yes, with guardrails." Compliant on-ramps, permissioned pools within protocols, institutional-grade custody—the infrastructure is being built.

But institutions can get excited about DeFi yields, then realize their compliance departments won't approve interaction with anonymous liquidity pools. The access must be structured carefully.

Working: Tokenized Treasuries

The numbers speak: ~$7.3-9 billion in tokenized government securities, 50x growth since January 2024. Key players:

• BlackRock BUIDL: $2.8 billion, 32% market share
• Franklin Templeton FOBXX/BENJI: Pioneer, now multi-chain
• Newcomers: Fidelity, State Street, UBS, WisdomTree, Janus Henderson

The use case is proven, the regulatory path is established, and institutional interest is real.

Working: Tokenized Private Credit

Protocols like Maple and Centrifuge are connecting on-chain capital to real-world borrowers. More complex than treasuries—there's credit risk, not just rate exposure—but meaningful scale is developing.

Struggling: Tokenized Real Estate

The promise was compelling: fractional ownership of commercial properties, liquid secondary markets. The reality is harder. Every property is unique. Management is complex. Legal structures vary by jurisdiction.

Struggling: Tokenized Equity

Stock tokenization makes technical sense but faces structural obstacles. Public markets already work well. The benefits of tokenization (24/7 trading, fractional ownership) are incremental, not transformative.

The Pattern

Tokenization succeeds when it solves a genuine access problem for a specific user base. It struggles when it's trying to improve something that already works reasonably well.

Question 1: What Problem Does This Actually Solve?

"It's on blockchain" isn't an answer. Who are the users? What can they do with tokenization that they couldn't do before? If the answer is vague, the project probably won't succeed.

Question 2: Is the Legal Structure Sound?

Have they worked with serious securities lawyers? Is the SPV structure documented clearly? Is there a registered transfer agent? Can they explain their registration exemption in legal terms, not marketing language?

Question 3: What's the Infrastructure?

Are they using established infrastructure (Securitize, others) or building their own? Who's the transfer agent? Who's the custodian for the underlying assets? How does the on-chain ledger sync with the legal register?

Question 4: Who Are the Counterparties?

Tokenized real-world assets require off-chain counterparties: custodians, trustees, property managers. These are failure points. Who are they? What happens if they fail?

Question 5: Where's the Liquidity Coming From?

Tokenization enables liquidity but doesn't guarantee it. Who will trade these tokens? Is there an ATS? What's the realistic secondary market?

Question 6: Who's Running This?

Track record matters enormously. Institutional players entering tokenization—BlackRock, Fidelity, Franklin Templeton, State Street—signal maturation. Anonymous teams or first-time founders are higher risk.

The best tokenization opportunities combine a genuine problem, sound legal structure, proper infrastructure, credible counterparties, realistic liquidity expectations, and experienced teams.

The Projections

| Source | Projection | Timeline | |--------|------------|----------| | McKinsey | $2-4 trillion | 2030 | | Citigroup | $4-5 trillion | 2030 | | BCG-Ripley | $18.9 trillion | 2033 | | Standard Chartered | $30 trillion | 2030 |

BCG-Ripple projects 53% CAGR. That would mean the current ~$15-24 billion market (excluding stablecoins) grows to $19 trillion in eight years.

What I'm Actually Seeing

• Institutional investors in tokenized assets: ~1.6% currently
• Projected by 2027: ~6%
• Trajectory is up, but adoption is still early

The pattern from previous technology adoptions: slow start, skepticism, then rapid acceleration once infrastructure and regulatory clarity exist. We're in the "infrastructure building" phase.

The Regulatory Tailwind

GENIUS Act (stablecoins) is now law. CLARITY Act (market structure) is in the Senate. SEC leadership has shifted from enforcement-first to rulemaking. The regulatory environment for tokenization has never been clearer.

Larry Fink's evolution tells the story: called Bitcoin "an index of money laundering" in 2017, launched a tokenized fund in 2024, now calls tokenization "the next generation for markets."

Tokenization is no longer experimental. It's infrastructure being built. The question isn't "will this happen?" but "how fast, and who captures the opportunity?"