Asset Tokenization in Financial Markets 2025

Contents15 Value proposition FEATURE Programmability Facilitates operational efficiency Asset fractionalization Expands accessibility Composability Promotes multi-asset mobilityCONVENTIONAL TOKENIZATION BENEFITS RISKS — Process automation – transforms point-solution automation to broader strategic orchestrationF by embedding predefined conditions into assets, automating transfers, compliance and event-based logic. — Reduced operational costs – efficiencies in administrative processes reduces costs associated with these transactions.— Encodes transaction logic and rules directly into smart contracts (self-enforcing code) and the network’s operations. — Performs business logic based on predefined conditions, resulting in transfer of value and information across trading scenarios.— Disparate systems require external messaging/APIs for coordination, limiting ability to integrate rules and conditions into assets or arrangements. — Processes payments independently and relies on external messaging and APIs.E — Administrative burdens often limit asset fractionalization because of additional effort required for functions such as asset servicing. — Legacy systems do not always allow for ownership at the decimal level. — Legacy infrastructure requires manual workarounds for composability to ensure sufficient linkage. — Siloed platforms limit asset reusability. — Rehypothecation and collateral reuse are slow and operationally complex.— Enables multi-asset operations for assets to be integrated, reused and transferred across platforms (e.g. DvD, DvP). — Allows the combination of system components or discrete pieces of programmable code to meet any use case across transaction types, such as liquid staking and wrapped assets.— Collateral mobility – accelerates collateral reuse, extending asset usability across multiple trades. — Multi-asset coordination – unlocks multi-asset and multiparty settlement opportunities on a common platform. — Asset fungibility – enables greater fungibility across assets and markets, facilitating new economic linkages and businesses.I— “Limitless composability” – repackaging assets can lead to an infinite number of yield aggregation and financial vehicle strategies, leading to possible stability risks. — Interoperability risks – bridging, mint/burn, etc. not fully developed yet.— Enables any asset to be divided into smaller units and made available under various custodial models. — Supports the ownership of micro-units of value.— Reduction of administrative burden – eases the administrative burden of making assets available in divisible, smaller parts, lowering minimum investment thresholds. — Lower barriers to entry – lowers barrier to entry for retail investors, particularly in illiquid and secondary markets. — Fragmented ownership – the challenge with coordinating decisions or ensuring fair governance practices. — Issuer restrictions – certain issuers may not offer smaller denominations of assets based on regulation.— “Paradox of programmability” – trade-off of harnessing smart contract efficiency and constraining the flexibility needed to react to or prevent on-chain issues.G — Off-chain functions – requirements may require new off-chain processes, thus eroding the operational benefits.HTable sources: A. Citigroup. (2024). Ready Layer 1: A general-purpose state machine for the financial sector. Citigroup Global Insights B. European Central Bank. (2021). Use of DLT in post- trade processes C. Zellweger-Gutknecht, C. (2019): “Developing the right regulatory regime for cryptocurrencies and other value data”, in S. Green and D. Fox (eds), Cryptocurrencies in public and private law, Oxford: Oxford University Press, pp. 57–91 D. Coinbase Institute. (2025). Why the future of finance calls for a permissionless architecture E. MIT Media Lab & J.P. Morgan. (2024). Application of programmability to commercial banking and payments F. Bank for International Settlements. (2024). Tokenisation in the context of money and other assets: Concepts and implications for central banks. Committee on Payments and Market Infrastructures G. World Economic Forum. (2024). 'Code as law': The tokenization of financial assets and the paradox of programmability H. FEDS Notes. (2024). Tokenized assets on public blockchains: How transparent is the blockchain? I. State Street. (2024). Asset tokenization now and in the future