Asset Tokenization

Investment Analysis Clubs Macro Economic Trends and Risks
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I’m always intrigued by new financial terms. What in the world is “asset tokenization”?

https://gemini.google.com/app/2550a5198794000a

Asset Tokenization is the process of issuing a digital token that represents ownership rights or fractional interest in a real-world asset or a financial instrument. An asset (e.g., real estate, fine art, a corporate bond, or private equity) is registered on a blockchain as a digital token. The token’s smart contract embeds the asset’s characteristics, ownership rules, and trading conditions. The token represents a claim on or a share of the underlying asset.

Traditionally illiquid assets can be broken down into smaller, tradable tokens (fractional ownership), making them easier to buy and sell. [end quote]

I don’t see how this is different from traditional record-keeping of ownership except that contracts (such as interest payments) can be automated and potentially faster. But the tokens themselves would represent illiquid assets and presumably would trade on the open market. There’s no guarantee that they would hold their value.

https://www.wsj.com/finance/currencies/scaramucci-…

Scaramucci-Backed Crypto Treasury Company Launches With $550 Million Fundraising Plan
AVAX One plans to tokenize traditional financial assets on the Avalanche blockchain

By Vicky Ge Huang, The Wall Street Journal, 9/22/2025

Anthony Scaramucci and crypto investment firm Hivemind Capital are investing in a new company that intends to buy digital tokens issued on the Avalanche blockchain, the first of its kind. …

Launched in 2020, the Avalanche blockchain is a high-speed network used by various Wall Street banks and asset managers. The AVAX token has a market cap of about $14 billion. …

AVAX One aims to own more than $700 million in AVAX tokens and tokenize, or represent traditional assets to be traded, on the Avalanche blockchain. Over the long term, it plans to acquire fintech and insurance companies and move them to the Avalanche network…

The rush to bet on tokenization follows Trump’s signing of the Genius Act, which establishes a regulatory framework for tokenized dollars known as stablecoins. The landmark measure has unleashed a wave of efforts to put everything from individual stocks to funds and real assets on a digital ledger…

Investors’ enthusiasm for so-called crypto treasury companies has waned. Some 25% of all bitcoin treasury stocks are trading below the total value of the tokens they hold… [end quote]

First of all, I wouldn’t trust Anthony Scaramucci with $5 to buy me a cup of coffee, let alone with over half a million dollars. I can’t imagine who would send this guy real money in exchange for tokens.

Second, while I could understand the utility of a token to represent fractional shares of an illiquid asset (such as art or real estate) I don’t see any utility in issuing a token for traditional financial assets which would be more efficiently traded on open markets.

Third, to blithely say that they will “acquire fintech and insurance companies” means that they plan to borrow a huge amount of money. These acquisitions will undoubtedly be leveraged to the max. Meaning they would have all the worst characteristics of leveraged private equity buyouts. If I was a customer of one of these acquired fintech or insurance companies I would flee to a competitor.

The speculative schemes that attract money, such as meme tokens, SPACs, etc. are just an indication of too much money sloshing around in the financial system. It’s a symptom of a late-stage bubble.

I wouldn’t touch this with a 10 foot pole.
Wendy

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Ooooh! A legal discussion!

Tokenization means that ownership of an asset is legally represented by something other than the asset itself - a “token” of that asset. The classic example is (or was) bearer bonds, which were the things that Hans was trying to steal in Die Hard. The asset was money held in a bank, but ownership of that money vested in whoever happened to be holding the physical “bearer bonds” - the ‘token’ of that asset. Traveller’s cheques and deeds for real estate work similarly. You sell real property by giving someone a deed (a “token”) that represents ownership of the actual asset.

This works because there are laws that make ownership/transfer of the token equivalent to ownership/transfer of the asset. If someone transfers a deed to a house to you, under the laws of your state that means that ownership of the house has transferred to you.

In the heyday of Peak Blockchain (circa 2017-2018), there were all kinds of proposals and predictions for how blockchain could be used to convey ownership of things more easily or efficiently. Blockchain systems are very useful for moving tokens around; transferring them, receiving them, keeping track of where they are, etc. So people thought, “Hey, this is much more efficient than real estate deeds or car titles, so why not use blockchain to buy and sell those things as well?”

Nearly all of these efforts came to nothing, because while coming up with ways to transfer and track tokens is a solvable technical problem (witness the success of crytpocurrency as something that works for that purpose), there’s no real way to actually create a tie between the token and the physical asset. IOW, there’s no way to “tokenize” the asset - to actually establish that the “token” of the thing corresponds to ownership of the thing. You can create all sorts of systems for moving the tokens around, but the tokens don’t really correspond to any real world assets in a way that works for conveying ownership of the real world assets. Because there aren’t any laws that say that ownership of the crypto token means you own anything in the real world, and you can’t really create that type of system just using contracts.

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  1. Why can’t a contract be created that says that ownership of a crypto token represents ownership in the real world…similar to a paper contract like a title deed?
  2. If not, does that mean the entire asset tokenization field is bogus and unenforceable?

Wendy

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Why are you saying this? I am not aware of any fraud he is involved in. Lots of folks, had business dealings with SBF, but that doesn’t make them a fraud.

Do you remember “Junk Bond King” Michael Milken? When you are born into a middle class, and work your way through the ranks, the “establishment/ system” creates rules to slow you down, and tilt the playing field in favor of them. An aggressive person, in passionate pursuit of their dreams will have to break or side step some of these rules. The establishment makes them a villian and makes them pay a significant price to make them an example for others. However, the so-called rules they broke, are later re-written, or abolished in due course of time, when the “establishment/ system” catches up to the game.

But Michael Milken’s contribution is real. Without his ability to raise money many iconic companies would not have been created. Today you have VC’s who are willing to fund these “innovative/ startup” ideas but during his time, Milken is one shop, where you could get the funding.

I don’t understand crypto or all its use, but its adoption is coming in big way in financial markets.

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A legal concept called “privity of contract.”

Unlike a law, a contract is only binding on the people that enter into the contract. You and I can enter into a contract, which creates rights and obligations between us. But you and I can’t (in our private contract) do something which binds another party who hasn’t agree to it. [For the most part - there are some exceptions not really relevant here].

So let’s say you own an asset. A 100% genuine Maltese McGuffin. You create a token to represent this asset. For simplicity, let’s assume it’s a physical piece of paper that says “the bearer of this paper has ownership of the Maltese McGuffin.” You sell that piece of paper to me, with a contract that says that we all agree that possession of the piece of paper means ownership of the Maltese McGuffin. I have that piece of paper (which says I own the Maltese McGuffin) and I have a contract with you (which says that whoever owns the paper owns the Maltese McGuffin)….

….and the I sell the piece of paper to Carol, and you sell the Maltese McGuffin to Bob.

Carol goes to Bob and say, “Wait a second - that’s my Maltese McGuffin! I’ve got a piece of paper that says that, and a contract that says that!” And Bob looks at Carol and says, “I didn’t sign that paper. I didn’t sign that contract. And how did you get into my house, exactly?” And Bob has an excellent point. Carol is not in privity of contract with Bob, so none of the agreements are enforceable against Bob. They’re only enforceable against you. So Carol can’t assert them against Bob. They only create claims against you. Those claims against you are enforceable and valuable, but they don’t get Carol the Maltese McGuffin back from Bob.

Real estate and auto title works differently because there are laws that apply to everyone that make them work differently. Most (all?) states have record title acts, which basically say as a matter of law that the owner of a piece of real property is whoever holds the title to that property. Corporate securities, bearer bonds and traveller’s cheques, and other tokenized assets are all backed up by laws.

Such an ugly word, this “bogus.” But yes. Or more accurately, as a legal matter, transfer of a token of an asset doesn’t transfer ownership of anything other than the token itself. It does not convey ownership of any asset “linked” to that token. We had a lot of discussions about this in the context of NFT’s, back when people were trying to use NFT’s to transfer stuff in the real world. It doesn’t work, legally. There’s no way to create tokenization by contract.

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Paraphrasing Samuel Goldwyn, It sounds like a tokenized asset is only worth the paper it is written on.

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@albaby1 thank you so much for taking the time to explain this.

You wrote, “Corporate securities, bearer bonds and traveller’s cheques, and other tokenized assets are all backed up by laws.”

Does this mean that a crypto token representing a share of a company confers ownership? If the answer is “No,” then what’s this all about?

What if it’s an exchange-traded company and someone buys a share on the exchange at the same time that someone else buys the “same” share as a crypto token?

What if it’s a share in a private equity company that is not traded on an exchange? Is that considered a corporate entity? Can ownership shares be conferred by a crypto token?

Yes, “bogus” is an ugly word…but think of how many investors have lost in schemes over the decades…indeed, over the centuries.

Wendy

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Ah, there’s the rub. Shares of ownership in a company are already tokenized under the law. We call those “securities.” But they come with a nasty drawback - the Securities and Exchange Act of 1934. Y’see, there’s a whole lot of complicated federal rules that apply to selling shares in a company, which is why folks tend not to set up a company to own a car or a piece of art.

One model of “crypto” was that folks believed that it was a way to sell “shares” in a business enterprise without having to comply with securities laws. (Indeed, you can model a lot of blockchain stuff as just being “X, but not following the laws that apply to X in the real world.”) They used the clever tactic of calling these shares coins or tokens, rather than shares, and doing it all on blockchain. So you see, they were doing an “initial coin offering” instead of an IPO. Because it’s a “token” rather than a “security” or a “share.”

But a bunch of folks went to jail, because the SEC - probably correctly - determined that if these coins represented a share of ownership in a company (or some other common venture) then they were very much securities and were being sold illegally without having properly been registered. So while you could tokenize ownership of a company through crypto, in exactly the same way ownership of a company is tokenized through selling shares, you’d have to comply with securities laws to do it.^^^

I suspect that “asset tokenization” might be having a moment because the current SEC is going to be less aggressively policing crypto ventures, and might be more willing to accept the argument that asset tokens are in the “commodities” bucket rather than the “securities” bucket. But the same problem still applies. If I’m selling you a “token” of ownership in a painting or a house, unlike a company, there’s no way to link the token to the asset in a legally binding way.

^^^ One key difference between tokenizing ownership of a company and ownership of a physical asset (like a car or painting) is that the company is a legal entity that is itself capable of entering into a contract. So it is easy to make the privity problem go away, since the token - the share or security - is a bundle of contractual rights that is issued directly by the company rather than a person who owns an asset. The thing being owned has entered into the contract/token. So you can create an ownership right that runs with the token for a corporate entity, in a way that cannot be duplicated for other assets.

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thnx, my education continues!

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Resurrecting an older thread for a moment. Matt Levine is a columnist for Bloomberg, and he writes on finance and law and trading and stuff - and if you like that sort of thing, I highly recommend his column, since it’s quite funny and interesting. Anyway, one of the sections of his recent column dealt with tokenization of assets (it’s towards the bottom). He repeated some of the things I noted upthread, which made me feel clever). But then he identified the most obvious reason for why “asset tokenization” is having a moment, which made me feel foolish indeed for having missed it:

Zach Witkoff would like to make the Trump family’s real estate portfolio available as tokens on blockchain, giving access to a wider pool of investors.

“The Trump family has one of the most exciting real estate asset portfolios in the world,” Witkoff said in an interview at Token2049 in Singapore, speaking alongside Donald Trump Jr. “What if I told you that you could, you know, go on an exchange and buy one token of Trump Tower Dubai?”

Witkoff is the son of US special envoy to the Middle East Steve Witkoff and co-founder of World Liberty Financial, started together with the Trump family last year.

Oh sure! Why would you want to start tokenizing real estate specifically with the Trump family portfolio?

Stablecoins Make Banking Narrower - Bloomberg

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Yippee Ki-Yay mutha clucker!

I wonder if asset tokenization is also targeting people who are limited to halal investments. Word on the street is that crypto style investments are becoming more and more popular with our Muslim friends.

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