The Evolution of Tokenization: A New Era for Advisors

The world of tokenization is undergoing a significant transformation, as it shifts from being a theoretical concept to a practical reality in portfolio allocation. In recent months, major companies such as BlackRock, Franklin Templeton, and Fidelity Investments have launched blockchain-based products, including Treasury funds and private credit strategies, which have garnered significant attention from investors. The numbers are on the rise, and the concept is straightforward: traditional assets like bonds, private credit, and money market funds are now available on the blockchain, eliminating the need for intermediaries and facilitating faster settlement. However, the real challenge lies not in the technology itself, but in the decisions surrounding compliance, identity, transfer rules, sanctions, and lifecycle management. These are the areas where most projects face hurdles, and the market is currently evolving to address these issues. The RedStone research team recently released the Tokenization & RWA Standards Report 2026, which provides insights into how these systems are being developed. For issuers, the key decision is not which blockchain to use, but where to implement compliance rules. Compliance can be built into the token itself, enforced by smart contracts, or managed externally using tools like whitelisting. Each approach has its advantages and disadvantages, and the choice directly affects how the asset behaves. It determines whether the asset can be transferred across different chains, integrated with decentralized finance protocols, and used as collateral in lending strategies. Institutional capital is already moving into the on-chain space, with deposits of tokenized real-world assets in DeFi lending protocols exceeding $840 million. This shift is evident in how tokenized assets are being used in lending markets, with investors posting tokenized assets as collateral, borrowing against them, and redeploying the borrowed capital. The mechanics may be new, but the logic is not, and it is a programmatic version of the same capital efficiency strategies used in traditional finance. For advisors, this changes the role of tokenized assets, as they are no longer just wrappers around existing products, but become productive collateral, capable of generating additional yield and participating in broader strategies. Credit risk is also becoming more explicit, with emerging DeFi risk ratings frameworks introducing continuous, on-chain risk assessment. This shift in focus from what the asset represents to how it behaves under stress and what risks it entails is crucial for advisors. However, some structural gaps remain, such as the reliance on off-chain processes for corporate actions and the incompatibility of illiquid assets like private credit and real estate with DeFi standards. Until these issues are addressed, tokenization will continue to scale unevenly, with the most complex assets lagging behind the simplest ones. In the 'Ask an Expert' section, Kieran Mitha answers investor questions about tokenized investments, highlighting the need for interoperability between blockchains, custodians, and traditional market infrastructure, as well as regulatory clarity, for tokenization to become a standard layer in global capital markets. He also discusses the most overlooked risks and misconceptions surrounding tokenized assets, including the misconception that tokenization automatically creates liquidity, and the challenge of fragmented liquidity. Furthermore, Mitha explores how tokenization can open the door to new types of investments for retail investors, particularly younger generations, and how it can provide a more digital and flexible investment experience, aligning with their expectations of rapid technological change and evolution in financial systems.