The world of tokenization is rapidly evolving, with assets moving from concept to portfolio allocation. In recent months, major companies such as BlackRock, Franklin Templeton, and Fidelity Investments have launched real products on the blockchain, including Treasury funds and private credit strategies. This shift has sparked investor interest, with tokenized assets becoming increasingly available on-chain, without traditional intermediaries, and settlement becoming orders of magnitude faster.

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

This can be built into the token, managed outside the token, or enforced at the network level, each with its own set of advantages and disadvantages. For advisors, this choice directly affects how an asset behaves, determining its ability to move across chains, integrate with decentralized finance protocols, and serve as collateral in lending strategies.

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 most 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. As tokenized assets move into lending and structured strategies, credit risk is evolving alongside specific DeFi strategies, such as looping. Emerging DeFi risk ratings frameworks like Credora introduce continuous, on-chain risk assessment, bringing a level of transparency that traditional markets rarely offer.

For advisors, this reframes the role of tokenized assets, from simply being wrappers around existing products to becoming 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 these pieces are solved, tokenization will continue to scale unevenly, with the most complex assets lagging behind the simplest ones.