The Evolution of Tokenization: A New Era for Advisors

In this newsletter, Marcin Kazmierczak from Redstone explores the evolution of tokenization, from concept to portfolio allocation. Then, Kieran Mitha answers investor questions about tokenized investments in 'Ask an Expert'. Tokenization is moving from concept to allocation, with companies like BlackRock, Franklin Templeton, and Fidelity Investments launching real products on the blockchain. The real challenge lies in decisions on compliance, identity, transfer rules, sanctions, and lifecycle management. The compliance question is an architecture question, with issuers having to choose where to place compliance rules. For advisors, this choice directly affects how an asset behaves. Institutional capital is already moving on-chain, with deposits of tokenized real-world assets in DeFi lending protocols surpassing $840 million. The transition from theory to practice is evident in how tokenized assets are used in lending markets. For advisors, tokenized assets are not just wrappers around existing products, but can become productive collateral, generating additional yield and participating in broader strategies. Credit risk is becoming explicit, with emerging DeFi risk ratings frameworks introducing continuous, on-chain risk assessment. However, some structural gaps remain, with corporate actions still relying heavily on off-chain processes, and illiquid assets not yet fully compatible with DeFi standards.