Tokenization

In simple terms

Tokenization means representing ownership of something as a token on a blockchain, so it can be transferred the way crypto is. The token is like a digital claim ticket for the underlying thing, which still exists somewhere off the chain.

Definition

Tokenization is the process of issuing a blockchain token that represents ownership of, or a claim on, an asset — so that the asset can be transferred, divided, and settled on-chain.

In depth

Issuance typically uses an established token standard — fungible standards such as ERC-20 for interchangeable units, non-fungible standards such as ERC-721 for unique items — with a smart contract defining supply, transfer rules, and who may mint or burn. Regulated assets usually require transfer restrictions built into that contract, such as allowlists tied to identity verification, so tokens can only move between approved addresses; this is why many tokenized assets are permissioned rather than freely tradable. For anything that exists off-chain, a custodian, trustee, or legal entity holds the underlying asset and the token functions as a claim against it, with reserve attestations or oracle feeds reporting backing to the chain. The critical limitation is that the blockchain enforces token transfers but not the legal claim itself: whether a token holder can actually redeem the asset depends on off-chain contracts, custodian solvency, and the law of the relevant jurisdiction.

Related terms

• Token
• Smart Contract
• Blockchain
• Stablecoin
• Smart Contract Risk
• Regulatory Risk