The Evolution of Tokenization: A New Era for Advisors

The world of tokenization is undergoing a significant transformation, shifting from a theoretical concept to a tangible allocation in investment portfolios. This change is driven by the increasing adoption of tokenized assets by major companies such as BlackRock, Franklin Templeton, and Fidelity Investments, which have launched real products on the blockchain, including Treasury funds and private credit strategies. As a result, investors are taking notice, and the numbers are rising, with the basic idea being simple: bonds, private credit, and money market funds are now available on-chain, without traditional intermediaries, and settlement becomes orders of magnitude faster. However, the real challenge lies in the decisions on compliance, identity, transfer rules, sanctions, and lifecycle management, which are the areas where most projects slow down, and where the market is evolving now. The compliance question is essentially an architecture question, with issuers having to choose where to place the compliance rules, whether inside the token, outside the token using tools such as whitelisting, or at the network level. Each method has its pros and cons, and for advisors, this choice directly affects how an asset behaves, determining whether it can move across chains, integrate with blue-chip decentralized finance (DeFi) protocols, and serve as collateral in a lending strategy. Institutional capital is already moving on-chain, with deposits of tokenized real-world assets in DeFi lending protocols surpassing $840 million, and investors allocating these assets in a way that reflects broader market trends. As these assets move into lending and structured strategies, credit risk is evolving alongside specific DeFi strategies, such as looping, with emerging DeFi risk ratings frameworks introducing continuous, on-chain risk assessment. For advisors, this reframes the role of tokenized assets, which are not simply wrappers around existing products, but can become productive collateral, capable of generating additional yield and participating in broader strategies while remaining in the portfolio. However, some structural gaps remain, with corporate actions still relying heavily on off-chain processes, and illiquid assets such as private credit and real estate not yet fully compatible with DeFi standards. Until those pieces are solved, tokenization will continue to scale unevenly, with the most complex assets lagging behind the simplest ones. Nevertheless, creators of tokenization frameworks are well aware of that limitation, and soon enough, we should see solutions addressing that gap.