Tokenizing Real-World Assets

Abstract

Tokenization of real-world assets (RWAs)—the representation of off-chain assets on a digital ledger—has gained momentum across money market funds, government bonds, gold, and private credit. It bridges traditional finance and on-chain markets while continuing to rely on traditional infrastructure for custody, legal enforcement, and price discovery. Tokenization promises efficiency gains in issuance, trading, and settlement and may facilitate secondary-market liquidity by making claims on otherwise illiquid assets more transferable. We distinguish three categories: tokenized liquid assets (e.g., gold and equities), money-like claims (e.g., stablecoins and tokenized deposits), and tokenized illiquid assets (e.g., loans and private credit). Tokenization of liquid assets integrates traditional markets with decentralized finance and reallocates liquidity across venues. Tokenization of illiquid assets, by contrast, facilitates secondary-market trading opportunities, but whether it creates meaningful liquidity depends on market design, investor participation, valuation quality, and asset opacity. This liquidity transformation inherits incentive problems familiar from banking and securitization while introducing new economic and operational risks related to custody, redemption design, and oracles. We argue that the trading speed of a tokenized claim should match the speed at which the underlying asset can be traded, valued, or redeemed—the speed-matching principle that organizes our policy framework. We propose a policy framework that ties regulatory requirements to the economic role tokens play and the speed and liquidity of their underlying markets rather than to the underlying technology, prioritizing clear legal foundations, credible redemption mechanisms, robust custody and audit standards, and sound oracle governance.