Tokenization: A complete guide to tokenized assets
Tokenization lets nearly any asset, from treasuries and stocks to real estate and artwork, be issued and tracked as a token on a blockchain.
Blockchain based settlement can move ownership records in seconds and automate processes through smart contracts, offsetting the manual reconciliation work that slows traditional finance.
Tokenization lowers your minimum investment size, which can open markets like commercial real estate and private credit to investors who were previously priced out.
A tokenized asset is only ever as strong as the legal claim behind it. The token is the record and the transport layer, but the contract, custody arrangement, and applicable law decide what the holder actually owns.
With tokenized equities such as xStocks, you hold a token that tracks a share’s price, not the share itself. Dividends are passed on through a token rebase rather than a cash payout, and holders do not receive shareholder voting rights.
What is tokenization?
Tokenization is the process of issuing and tracking an asset or financial claim on a blockchain. The asset can either be tangible, like a building or gold bar, or intangible, like a bond or share of a stock such as SpaceX, Nvidia, Tesla, Apple, Amazon, or even the S&P 500.
Once represented by a token, ownership can be transferred, traded, or used as collateral without moving the underlying asset the token represents.
A useful way to think about it is that the token is the receipt and the delivery mechanism, while the legal paperwork behind it establishes what you are actually entitled to. In many regions, Kraken lets you buy and sell tokenized equities through xStocks, one of the most important and widely adopted applications of tokenization to date.
Tokenization builds on the concept of securitization from traditional finance, where similar assets are bundled into a single tradable security. What a blockchain adds is a shared, tamper-resistant record that multiple parties can rely on, which removes much of the duplicated bookkeeping that sits between the buyers, sellers, and custodians across securities markets today.
If you are still building an understanding of how distributed ledgers store and secure records, our full explainer covers the mechanics from the ground up.
How tokenization works
Tokenization works by linking a digital token on a blockchain to a specific asset or legal claim in the real world, then using code to govern how that token can be issued, transferred, and redeemed.
The process can vary by asset class or platform, but the tokenization process generally follows this universal path.
- Decide what the token represents. Settle whether it stands for a direct share, a fund unit, a bond, a claim on an asset held in custody, or a derivative. This step determines the rights that token holders will have.
- Create or lock the asset. For a native issuance, the issuer creates the obligation directly onchain. For a representation of an existing asset, an issuer or special-purpose financial entity buys and holds the reference asset with a custodian.
- Onboard eligible holders. Regulated products connect a verified identity to an approved wallet address and enforce transfer restrictions where the law requires them.
- Issue and transfer. Smart contracts update balances and can condition delivery on payment, so the asset changes hands only when money arrives.
- Service the asset. The issuer automates or directly handles dividends, coupons, votes, splits, tax withholding, and error correction.
- Redeem or convert. The holder returns or burns the token for cash or the underlying asset. This final step is often the real anchor of a token’s value.
Smart contracts and token standards
Smart contracts and token standards are the building blocks that make tokenization possible. A smart contract is digital code that automatically executes the terms of an agreement when preset conditions are met.
This is ultimately what lets a token complete sophisticated processes, like paying a coupon or enforcing a transfer rule, without needing a human in the loop.
If you want a deeper walkthrough of how self-executing code works before going further, our dedicated guide breaks it down with examples.
Token standards set the shared rules a token must follow to be compatible with a blockchain’s broader ecosystem. Ethereum’s ERC-3643 and ERC-1400 standards are among the most widely used for real-world assets, because they let issuers embed transfer restrictions and compliance controls directly into the token.
Using a standard like ERC-3643, a developer can require that only whitelisted, identity-verified addresses hold a security token, which keeps a regulated asset inside its permitted investor base even as it moves onchain.
Ethereum and Solana are two of the most common networks for issuing tokenized assets today, but they are far from the only ones.
Avalanche hosts a growing set of institutional tokenization projects, Stellar underpins Franklin Templeton’s tokenized money market fund, and Polygon is widely used by asset managers issuing tokenized funds.
But when it comes to tokenization, infrastructure matters just as much as the network. Chainlink, for example, provides the price data and proof-of-reserve feeds that many tokenization platforms rely on to keep a token honest against the asset it represents.
Chainlink’s oracles bring real-world data, such as an asset’s market price, onchain so a smart contract can act on it. Its Proof of Reserves feeds continuously check that a token is fully backed, and its cross-chain protocol lets tokenized assets move between blockchains.
Other projects play similar supporting roles: Quant connects banks and enterprise systems to multiple blockchains through its Overledger technology, while RedStone delivers modular oracle price feeds built specifically for real-world assets and yield-bearing tokens.
Benefits of tokenization
The practical benefits of tokenization center around improving the lifecycle of a financial claim, rather than making the claim itself more valuable. The clearest advantages include the following.
- Fractional ownership. Issuers can divide a single asset into thousands of tokens, lowering the cost per unit. A $25 million building or piece of art split into 2.5 million tokens becomes accessible at $10 a token, opening the door to investors who could never buy the whole asset.
- Improved liquidity potential. Assets that were historically slow to sell, such as commercial real estate or private credit, can be traded in smaller pieces on blockchain-native platforms. Fractional units reduce the minimum ticket size, though they do not by themselves guarantee a buyer will be waiting.
- Faster settlement. Transactions that take one or two business days to clear in traditional markets can settle in seconds or minutes onchain, because the record of ownership and the payment can update at the same time.
- Programmable compliance checks and asset servicing. Whitelists, transfer rules, dividend logic, and collateral actions can be automated within the applicable legal framework, reducing manual processing and reconciliation.
- 24/7 global access. Blockchains do not close for the weekend and tokenized assets can transact around the clock.
- Better auditability. A shared record makes ownership and servicing data easier to inspect for permitted participants, which can reduce disputes and reconciliation breaks.
These are potential benefits, not guaranteed outcomes. While many claimed benefits of tokenization remain unproven at scale and may also be achievable by upgrading conventional infrastructure, these are real ways in which people are seeing value from tokenization.
The most common misunderstanding about tokenization is that it “eliminates” intermediaries. It does not. Instead, it redefines the role they play in the financial ecosystem, while also bringing greater access to the price exposure of assets themselves.
Real people are still involved in issuing the claim, verifying the reference asset, linking wallets to eligible holders, pricing corporate actions, and providing the settlement money. Tokenization can make that work cheaper, faster and more efficient, but the roles do not disappear.
Many of these benefits overlap with the wider world of decentralized finance, where tokenized assets are increasingly used as collateral. If DeFi is new to you, our overview explains how open, permissionless financial applications fit together.
Examples of tokenization
Particularly in recent months, tokenization has moved far beyond theory, with established products across several asset classes. Today, some of the most common asset classes being tokenized include:
U.S. Treasuries and funds. BlackRock’s tokenized money market fund, BUIDL, launched in March 2024 and reached nearly $3 billion in assets under management in 2026, making it one of the largest examples of a regulated traditional product issued onchain.
Stocks and ETFs. Tokenized equities put shares and funds onchain as tradable tokens. Kraken lists xStocks, tracker certificates backed 1:1 by the underlying equity, spanning names like Nvidia, Tesla, and the S&P 500, while platforms such as Ondo Finance issue tokenized exposure to U.S. equities and ETFs. In most of these products the token tracks the share’s price rather than conferring direct ownership of the stock.
- Real estate. Property can be divided into tokens representing fractional interests, letting multiple investors own a slice of a building and share in its economics without buying it outright.
- Commodities. Gold is the clearest live example. Tokens like PAX Gold (PAXG) and Tether Gold (XAUT) each represent physical gold held in custody, letting holders gain exposure to the metal in digital form, and financial institutions including HSBC have run their own gold tokenization experiments.
- Corporate bonds. Issuers have tokenized corporate debt to make it more transparent and cheaper to trade, settling transfers without the layers of intermediaries that traditional bond markets rely on.
- Art and collectibles. Non-fungible tokens have been used to represent ownership of digital and physical art. Beeple’s “Everydays: The First 5000 Days” sold as an NFT for $69 million at Christie’s in 2021.
If the difference between a token and the item it represents is still fuzzy, our guide to non-fungible tokens explains how NFTs represent unique ownership onchain.
Just as important to understanding what tokenized equities are is understanding what they are not. Across most tokenized equities products available today, including xStocks, the holder does not own the underlying share directly. However, the tokenized equities are fully collateralized 1:1 by the underlying equity held in segregated custody.
In plain English, this means that you hold a token tracking Apple, with a real Apple share sitting with a custodian to back it. But in the end, you hold a token that tracks the share’s value, rather than the share itself. This means that holders do not receive some of the direct shareholder benefits that come with owning the stock itself.
That distinction matters for three reasons.
Voting rights. A traditional shareholder can cast binding proxy votes on strategic decisions opened to shareholders. A tokenized equity holder generally cannot, because the token is a tracker certificate, not registered stock.
Dividend treatment. Rather than paying out a separate cash dividend, some tokenized equity structures automatically reinvest any granted dividends back into the token’s value. xStocks uses a rebase mechanism where dividends are reflected in adjusted token balances.
Investor protection. Traditional U.S. brokerage accounts carry SIPC protection up to $500,000. No equivalent scheme covers tokenized equity certificates, so protection depends on the issuer’s policies, collateral and custody arrangements.
Tokenization case study
Situation: Maria, an active trader with two years of experience, wants exposure to an emerging U.S. technology stock. She values the ability to trade outside standard market hours and is looking to start small, trading only $20 at first.
Approach: She buys a tokenized equity tracking the stock through a platform, such as Kraken. Because she is most interested in price exposure to the asset, rather than participating in investor votes, she chooses to invest in the company using xStocks.
Outcome: Maria gains round-the-clock price exposure and can gain exposure with a small amount of capital. During a weekend news event, the token price moves while traditional markets are closed, and she is able to adjust her position immediately.
Key lesson: Because Maria understood the structure up front, she could put xStocks to work for exactly what she wanted: fast, fractional, round-the-clock price exposure to a stock she was interested in, starting with as little as $20. Understanding what a tokenized equity is, and how its dividends and voting work, is what lets a trader use it with confidence.
Risks and challenges of tokenization
Tokenization carries real benefits and real risks, and the risks are easy to overlook when the possibilities are so innovative. Some of these risks include:
Legal and ownership risk, which refers to the gap between what a token appears to represent and what the holder can actually enforce under the law. A token can be irreversible at the protocol level yet reversible, or not final, under the contract or applicable insolvency law. This is why the legal structure behind a tokenized asset matters more than the token itself.
Liquidity risk, which covers the possibility that a tokenized asset has few or no buyers when you want to sell. Fractional units lower the minimum purchase size, but they do not create market makers or trading demand. A thin onchain order book can trade well above or below the value of the underlying asset.
Regulatory risk, which includes the chance that evolving rules change a tokenized asset’s value, tradability, or availability in your jurisdiction. Legal frameworks vary by country and asset class. The U.S. Securities and Exchange Commission stated in January 2026 that a token’s format does not change the application of federal securities laws, meaning a tokenized security is still a security.
Smart contract and technical risk, which is the chance that the code governing a token contains a bug or vulnerability that can be exploited, along with related dangers like key loss, faulty oracles, and bridge failures. If an attacker finds a flaw in a contract holding tokenized assets, funds can be drained, and recovery is not guaranteed.
Custody and counterparty risk, which is the over-reliance on whoever holds the backing asset. For tokenized products where an issuer or custodian holds the underlying asset on your behalf, your claim depends on that party remaining solvent and honoring redemptions. If collateral is not properly segregated, an issuer’s insolvency can put holders in line with other creditors.
Interoperability risk, which refers to the friction created when assets live on incompatible blockchains and registries. Multiple chains, whitelists, and settlement assets can fragment liquidity rather than unite it. The International Monetary Fund concluded in April 2026 that durable scale requires legal certainty, safe settlement assets, and international coordination.
For any custodial product, it is worth understanding the difference between holding your own keys and letting a platform hold assets for you. Our guide compares custodial and non-custodial arrangements in detail.
Buy tokenized equities on Kraken
You now understand what tokenization is, how a token connects to a real asset, and why the legal structure behind a token decides what you actually own. That knowledge matters most when you move from reading to trading.
Kraken gives eligible clients access to tokenized equities through xStocks, letting you gain price exposure to companies like SpaceX, Nvidia, Tesla, Apple, Amazon, plus the S&P 500, in fractional sizes and outside standard market hours. Every xStock is backed 1:1 by the underlying equity held in segregated custody, and the product documentation sets out exactly what each token represents.
Kraken stores the vast majority of client crypto assets in cold storage, and no Kraken-managed custodial wallet has been breached since the exchange was founded in 2011. You can research an asset, fund your account, and (in most regions) trade tokenized equities alongside cryptocurrencies in one place, without moving funds to a separate platform.