Tokenization of the Financial Market: Why Blockchain Goes Beyond Cryptocurrencies

Tokenization of the financial market is no longer just a topic for crypto enthusiasts: major industry players are increasingly transferring rights to real assets onto the blockchain, turning stocks, bonds, and other instruments into digital codes that can be owned, transferred, and accounted for more quickly.

Many still associate blockchain almost exclusively with cryptocurrencies. However, for financial companies, the main value of this technology has long been broader: it helps digitize ownership rights to real assets and simplifies transactions involving them.

According to estimates, by 2030, the market for tokenized assets could grow approximately 30 times and reach $16 trillion. Such a figure no longer seems fantastical. Tokenization has the potential to significantly change finance, accelerate settlements, increase the accessibility of investment products, and make the financial market more flexible.

In practice, this means faster transfers of rights between investors, a lower entry threshold for expensive assets, and less manual work for financial infrastructure. Investors gain access to instruments that may have previously been too expensive or inconvenient, businesses reduce costs for accounting and settlements, and platforms can automate part of their operations through digital rules.

Why Cryptocurrency Did Not Become the Main Driver of Blockchain

Cryptocurrencies were originally created as an alternative to banks. The idea was simple: to simplify settlements, make them safer, more convenient, and more anonymous. Over time, interest in them surged, and cryptocurrency became not only a means of payment but also a speculative asset for investors.

The rise of Bitcoin to tens of thousands of dollars in just a few years and the rapid surges of individual coins continue to attract those hoping to catch the next big leap. For investments, this looks enticing, but the downside is clear: such assets can fall just as quickly.

High volatility suits traders and investors willing to take serious risks. However, for large institutional players, daily swings of tens of percent are too painful. They may hold a small portion of their portfolio in Bitcoin, but very few are willing to base their entire strategy on it.

Attempts to make cryptocurrency the foundation of a corporate investment model have already led to significant unrealized losses. Even companies that adhered to a principle of constant Bitcoin purchases for years were forced to sell part of their coins at some point to realize losses.

The payment application of cryptocurrencies has also not become widespread. Anonymity, the complex origins of coins, and the need to carefully verify transactions deter large market participants. Such verification takes time and money. Additionally, technical barriers make it difficult for ordinary users to perceive crypto transactions as a daily tool.

The fragmentation of the global financial system and sanctions have given cryptocurrency payments a strong boost. By last summer, about $350 billion in crypto had entered Russia. However, this growth may prove temporary: if traditional payment chains are restored, some exporters and importers may revert to classic bank payments.

How Tokenization is Changing the Financial Market

In finance, tokenization is the transfer of rights to an asset into a digital token that exists and is transferred on the blockchain. The asset itself can remain conventional: only the method of accounting, transferring, and confirming rights to it changes.

Tokenization of the stock market is the application of this logic to stocks, bonds, and other securities. For example, a stock can be represented by a digital token, and the record of ownership will be updated on the blockchain with each transaction. If the platform and regulatory rules allow, an investor can purchase not only a whole large block but also a small share of such an instrument.

Tokenization has attracted the interest of major financial organizations more than the idea of cryptocurrency as a replacement for money itself. Its advantage lies in the fact that it does not create a new asset from scratch but transfers an existing instrument into the digital realm. Assets that can be tokenized include:

• Securities
• Bonds
• Stocks
• Other financial instruments

Beyond the stock market, real estate, commodities, artworks, and other tangible assets can also be tokenized. Such assets are often referred to as RWA, or Real World Assets: these are properties and rights from the real economy that receive a digital representation on the blockchain.

In other words, the asset in accounting and legal records remains the same, but the ownership rights and their record are fixed on the blockchain. The token on the blockchain becomes the digital representation of this right. This approach does not disrupt traditional finance but complements it with new infrastructure.

How Asset Tokenization Works

The tokenization process typically consists of several steps:

• The issuer or owner selects an asset that can be converted into digital form.
• It is legally established what rights the token grants: ownership, income receipt, participation in a transaction, or other claims.
• The platform issues tokens on the blockchain, and a smart contract sets the rules for their transfer and accounting.
• Investors buy or sell tokens, and the record of the transfer of rights is updated in the digital registry.
• The platform, brokers, custodians, or other participants in the infrastructure monitor settlements, storage, and compliance with the rules.

Key technologies here include blockchain, smart contracts, and tokenization platforms. Blockchain stores records of rights and transactions, smart contracts automate the conditions of operations, and platforms connect issuers, investors, and financial infrastructure.

In the logic of information security, tokenization has long been used as a way to replace sensitive data with a secure digital designation. In the financial market, the principle is similar: instead of a complex chain of paper or custodial accounting, there is a digital record that can be transmitted and verified more quickly.

In the summer, the value of tokenized assets reached $31 billion. In comparison, at the beginning of last year, the figure was around $5 billion. This leap was primarily driven by large asset managers and investment banks that need to work more efficiently with trillions of dollars in assets.

An increasing number of securities are being transferred to the blockchain, and test transactions are becoming more regular. In mid-July, over 40 major companies from the United States conducted transactions worth millions of dollars with tokenized assets in the real market. In October, this opportunity is planned to be opened for all investors.

Main Advantages of Tokenization

Tokenization changes the very mechanics of ownership. When an investor buys a stock through a broker, behind the seemingly instantaneous operation lies an entire infrastructure: custodians, clearing, rights accounting, and settlements among participants. In the application, everything appears quick, but at the system level, the transaction goes through several stages.

For investors, this means a lower entry threshold, access to new asset classes, and more transparent rights accounting. For businesses, it means lower operational costs, more automation, and the ability to build new capital-raising models. For infrastructure, it means faster settlements and less dependence on long chains of intermediaries.

If a security is packaged in a digital token, these processes can be significantly accelerated. The transfer of rights and payment can occur almost simultaneously, without waiting for the standard settlement cycle.

Key Advantages of Tokenization

• 24/7 trading --- exchanges operate on a schedule, closing on weekends and holidays, while tokenized assets do not need to wait for Monday or the opening of a depository. Example: a transaction can be conducted at any moment.
• Speed of settlements --- on traditional exchanges, transactions often finalize 1-2 business days after the investor's command. Example: in blockchain, settlement and transfer of ownership can be synchronized immediately.
• Divisibility --- an asset can be divided into smaller shares. Example: U.S. government bonds are sold in packages of 10 for about $1,000 by some brokers; if an investor has $1,500, they can only buy one package, but after tokenization, this barrier disappears.

Why Risks Remain

Tokenization does not eliminate market and operational risks. The faster transactions occur, the harder they are to cancel or revise. For such a system to function stably, high liquidity is needed; otherwise, even a technologically convenient tool will not become a full-fledged part of the market.

There are also technological risks: platform hacks, errors in smart contracts, failures in key storage, and issues during data transmission between systems. The more money flows through digital infrastructure, the higher the cost of any technical error.

Legal and regulatory risks also remain significant. It is essential to clearly understand who is responsible for issuing the token, how ownership is confirmed, how investors are protected, and what happens in disputes between transaction participants.

A separate issue is compatibility and standardization. If different platforms use different rules for issuing, storing, and accounting for tokens, it becomes harder for the asset to circulate freely in the market. Without common approaches, tokenization may speed up individual transactions but not the entire financial system.

There is also a regulatory context. Any digital transformation of finance requires clear rules, especially regarding ownership rights, asset accounting, and investor protection. In Russia, such processes will inevitably be linked to the position of the Bank of Russia as the key regulator of the financial system.

Abroad, approaches vary: in the EU, the USA, and Asian countries, regulators define the status of tokens, requirements for platforms, and rules for investor protection differently. The main challenge for all markets is similar: to integrate tokenized assets into the existing financial system in a way that technology accelerates transactions without diluting the responsibility of participants.

For economics as a science, tokenization is interesting because it changes not only the form of accounting but also the behavior of market participants. If owning assets becomes cheaper, faster, and more accessible, the entire investment ecosystem changes: from the work of brokers to the structure of demand for different classes of instruments.

The market of $16 trillion still has a long way to go. It may take more than five years. But it is already clear that tokenization has brought blockchain into the larger financial industry and made it useful for those players whom cryptocurrencies have not fully convinced.