In this newsletter, Marcin Kazmierczak from Redstone explores the evolution of tokenization, shifting from concept to portfolio allocation. Then, in 'Ask an Expert,' Kieran Mitha addresses investor questions about tokenized investments. The trend of tokenized assets is accelerating, with companies like BlackRock, Franklin Templeton, and Fidelity Investments launching real products on the blockchain.

However, the real challenge lies in compliance, identity, transfer rules, sanctions, and lifecycle management. The compliance question is an architecture question, and issuers must decide where to place compliance rules.

For advisors, this choice directly affects how an asset behaves, determining its flexibility and ability to integrate with other chains and systems. Institutional capital is 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, with investors posting tokenized assets as collateral, borrowing against them, and re-deploying the borrowed capital. Credit risk is becoming explicit, with emerging DeFi risk ratings frameworks introducing continuous, on-chain risk assessment. For advisors, this reframes the role of tokenized assets, which are not just wrappers around existing products but can become productive collateral, generating additional yield and participating in broader strategies. However, some structural gaps remain, with corporate actions relying heavily on off-chain processes and illiquid assets not yet fully compatible with DeFi standards.

Until these gaps are addressed, tokenization will continue to scale unevenly. In 'Ask an Expert,' Kieran Mitha discusses the need for tokenization to integrate into existing financial systems, regulatory clarity, and the importance of interoperability between blockchains, custodians, and traditional market infrastructure.

He also addresses the misconceptions surrounding tokenized assets, including the idea that tokenization automatically creates liquidity, and the challenges posed by a fragmented market. Finally, he explores how tokenization can open doors to new types of investments for retail investors, particularly younger generations, and how it can catalyze their participation in the market.