Tokenisation has shifted from a peripheral idea to a central theme in the evolution of financial market infrastructure. What began as limited experimentation at the edges of digital asset markets has broadened into institutional exploration of how distributed ledger based systems could support the representation, transfer and settlement of financial instruments. The instruments themselves remain familiar1; what is changing is the architecture that supports their recording and movement. Institutions are examining how longstanding processes might operate differently when assets, claims and aspects of their associated rights and obligations are represented and managed through programmable infrastructure.
The significance of tokenisation sits below the surface. Programmable infrastructure, shared records and new settlement architectures introduce operational behaviours that differ from traditional systems. They also raise questions that require clarity for this approach to evolve, including the legal characterisation of rights, the structure of custody, the design of governance, the conditions for interoperability and the mechanisms through which transfers achieve finality.
This article examines tokenisation through a regulatory and market infrastructure lens: what it is, why it has accelerated and what lies beneath the concept. It looks at the underlying components that define how tokenised instruments operate, including ledger environments, smart contract logic, token standards, compliance architecture and custody models.
The objective is to provide a clear, practitioner oriented foundation for understanding tokenisation as an operating model. This sets the stage for the subsequent article, which considers the regulatory approaches and jurisdictional strategies that have been developed and have evolved as it relates to tokenisation.
1. What Tokenisation Is: Beyond the Buzzword
Tokenisation is, at its simplest, the digital representation of a claim, right, or interest on a distributed ledger, designed to support transfer, settlement, and lifecycle management with greater certainty and operational efficiency.
Whether the token is the asset or represents the asset depends on the model2. In all cases, tokenisation relies on a set of design elements that define how the digital form relates to the underlying claim3. It requires a ledger environment to record activity, an underlying asset or claim, a way to determine the value or condition of that asset, an arrangement for holding or safeguarding it, and a mechanism that allows the token or claim to be redeemed or exchanged4. Together, these elements define how the digital expression of an asset is created, maintained, and connected to the systems that support its valuation, custody, and transfer.
In its direct form, tokenisation places the relevant claim or right on-chain, with the token representing the claim itself rather than an interest in an underlying asset held elsewhere. Indirect models, by contrast, are new instruments linked to the underlying asset, while the original asset continues to exist off chain. The distinction turns on where the claim resides, i.e. onchain in the direct case, or within an external register, custodian, trust, fund, or SPV in the indirect one. In practice, many tokenisation projects today follow an indirect model, with tokens serving as digital representations of assets that remain recorded in traditional systems5. Across both models, the underlying claim remains the anchor, whether the token embeds the legal right itself (direct) or a contractual or economic interest that references it (indirect). What changes is the structure through which that claim is recorded, transferred, and managed. That is, whether the legal right itself moves on‑chain or the tokenised representation does. These design choices, shape how the token behaves, how it is governed, and how it is regulated6.
What distinguishes tokenisation from traditional digital records is the combination of programmability7, shared ledger environments8, and the possibility of atomic settlement9. Programmability allows certain lifecycle events to be executed on‑chain where the relevant rights or representations reside, while other steps continue to take place in traditional systems. Shared ledgers can reduce reconciliation needs and improve the consistency of records across participants, though many implementations still rely on external governance and off‑chain controls. Atomic settlement can enable delivery and payment to occur as a single coordinated event, reducing certain settlement and principal-risk exposures.
Tokenisation is not only a technical shift. It is an operational one. It introduces more nuanced combinations of custody, private‑key management, access controls, and governance across on‑chain and off‑chain environments. It creates dependencies on code, validators, oracles, and interoperability layers, each with its own risk profile and supervisory implications. It also raises fundamental questions about liability, enforceability, and the role of intermediaries when legal claims or their tokenised representations are recorded, transferred, and managed through programmable infrastructure.
Tokenisation, in other words, is not merely a token. It is an operating model.
Tokenisation should also be distinguished from the broader concept of crypto assets. A tokenised instrument may represent a conventional financial asset or legal claim and can operate within regulated financial market infrastructure without being designed as a crypto asset in the general sense.
2. Why Tokenisation Has Gained Momentum
Tokenisation has accelerated not because the concept is new, but because the conditions around it have changed. Regulatory clarity has improved10, market infrastructure constraints have become more visible as modern financial activity has outpaced the capabilities of legacy systems11; and institutions now have a clearer understanding of how tokenised systems behave in practice. Together, these shifts have moved parts of the market from experimentation toward implementation12.
Several forces are driving this momentum.
First, institutions are increasingly focused on settlement efficiency, collateral mobility, and intraday liquidity. Traditional infrastructure has structural limitations in these areas including fragmented ledgers, sequential processes, and reconciliation burdens13. Tokenisation offers a way to coordinate movements of assets and the corresponding payment obligations with greater precision, particularly where timing and liquidity pressures are acute.
Second, market demand for access, liquidity, and transparency has grown14. Investors and digital first platforms are seeking broader access to alternative and previously inaccessible assets, improved liquidity, and real‑time visibility over positions and flows. Tokenisation responds to these needs by modernising how ownership, settlement, and reporting are recorded and coordinated15, while in many structures preserving the underlying economic exposure.
Third, regulatory clarity is improving across two dimensions. At the international level, global standardsetters are shaping the conceptual guardrails for tokenised activity via papers and discussions. Over the past several years, the IMF16, BIS17, IOSCO18, the FSB19, have published detailed analyses on tokenised assets, tokenised money, settlement architectures, governance models, and supervisory implications. Policy perspectives have also been developed by bodies such as the OECD20, and the WEF21. This work is helping to define the principles, risk categories and supervisory considerations relevant to the development of tokenised markets.
At the domestic level, supervisory bodies are clarifying frameworks applicable to tokenised instruments, identifying gaps, and exploring proportionate approaches to oversight. This aids in reducing legal and compliance uncertainty for institutions willing to pilot tokenised products.
Importantly, this level of regulatory attention is itself a signal of market relevance. Regulatory focus tends to follow sustained industry activity rather than precede it, and the breadth of current work reflects a growing recognition that tokenisation is increasingly viewed as a structural development in financial markets rather than a peripheral innovation. As concepts are clarified, categories defined, risks identified and supervisory expectations articulated, uncertainty for market participants decreases, legitimizing investment, accelerating institutional exploration, and encouraging firms to move from pilots to production. In this sense, the ongoing regulatory conversation is not just a response to market momentum; it is one of the forces amplifying it.
Fourth, the technology stack has matured. The platforms and protocols that enable tokenised activity have advanced. Distributed ledger platforms now offer permissioned environments and emerging onchain identity/KYC capabilities. Smart contract frameworks, digital identity layers and interoperability approaches have matured, although significant differences remain in scalability, interoperability, privacy and governance. Market participants are aligning design choices around asset specific operational and record keeping needs. Institutions are testing tokenised instruments in controlled environments that incorporate the operational, record keeping and servicing functions required by the relevant asset class, delivered through arrangements designed for tokenised activity.
Finally, digital first financial ecosystems are creating use cases in which programmable, ledger-based instruments may offer particular operational advantages. Cross-border platforms, alternative investment marketplaces and continuous operational expectations have made programmable, ledger‑based instruments more compatible with how modern financial services are designed to operate.
Taken together, these factors explain why tokenisation has accelerated. As proponents contend, tokenisation modernises the infrastructure that supports financial products and the mechanisms through which they are transferred and settled.
3. What Lies Beneath the Tokenisation Concept
Tokenisation is sometimes described in terms of the token itself, but the real complexity lies beneath the surface.
The shared system of record: Tokenisation relies on a programmable ledger that acts as a shared system of record. This can reduce reconciliation issues and improve consistency and transparency by placing relevant transaction data, events and provenance on-chain, while operating alongside existing books and records maintained by institutions.
The smart contract layer: Smart contracts encode some or all of the operational rules governing the asset, including issuance, transfer, redemption and lifecycle events. They automate processes traditionally handled by intermediaries and enable eventbased triggers, conditions and actions.
The token standards layer: Token standards define how the asset is represented and how it behaves across platforms. Ethereum based standards such as ERC20 and ERC3643 are widely used in tokenisation, while ERC1400 represents a proposed suite of security token standards. They are not the only approaches22. Other ecosystems have their own standards, such as Canton’s CIP56 and Stellar’s issuer level authorisation and transfer control features. Standards matter because they influence integration effort, operational predictability, compliance and control, and network optionality.
Compliance architecture: Compliance can be supported through identity checks, whitelisting and transfer restriction logic embedded directly into the token. This can restrict holding or transfer to participants who satisfy the relevant identity, eligibility and compliance requirements within the applicable system. Programmable compliance allows rules to be enforced automatically at the point of transfer, rather than relying solely on manual or post trade controls.
Custody and property model for tokenised assets: Custody models vary across use cases, from traditional custodians safeguarding underlying assets, to shared custody arrangements, to models in which control over the token is exercised through programmable permissions.
Collectively, these components define how tokenised assets operate across platforms and use cases. They also illustrate that tokenisation is not a single feature but an arrangement of technical and operational layers that work together to support recording, transfer and lifecycle management.
Conclusion
Tokenisation is not a standalone innovation. It is a rearchitecture of how financial instruments are represented, transferred and managed. Its promise lies in programmability, shared records and more integrated settlement, but its implications extend to governance, custody, compliance and supervisory visibility.
What emerges is a gradual, layered transition rather than a single leap. Institutions are testing tokenised instruments in controlled environments, while infrastructure providers are examining how distributed ledger systems can coexist with, or complement, traditional architectures. Importantly, regulators are clarifying how existing rules apply, while in some jurisdictions developing or adapting frameworks specifically for tokenised activity.
This article discussed the conceptual and architectural foundation for understanding that transition. The second article in this series will examine the regulatory landscape by looking at a range of regulatory strategies that have been applied in select jurisdictions23. The final article will explore the questions that remain open as tokenised financial markets continue to develop.
References
1 Tokenisation may preserve the legal nature, economic exposure and contractual rights associated with an existing instrument, but this depends on the structure of the tokenisation arrangement. In many models, tokenisation changes the method through which those rights are recorded, transferred and managed rather than changing the underlying economic exposure itself.
3 BCBS (2024), Digitalisation of Finance: Tokenisation is “the process of representing claims digitally on a programmable platform,” underscoring the relationship between the digital form and the underlying claim.
6 Including whether it is treated as a security, a fund interest, a deposit, a virtual asset, or a commodity‑based token, etc.
7 Carapella, et al (2023). “Tokenization: Overview and Financial Stability Implications,” Finance and Economics Discussion Series 2023-060. Washington: Board of Governors of the Federal Reserve System, https://doi.org/10.17016/FEDS.2023.060; Aldasoro et al. (2023)(ibid); FSB (2024)(ibid).
9 Aldasoro et al. (2023), (ibid).
10 See my articles on regulatory clarity generally and the discussion within on regulatory developments. Policymakers in key jurisdictions are providing clearer digital‑asset frameworks, indicating that tokenised market structures can function as supervised extensions of existing financial infrastructure.
11 Higher transaction volumes, tighter liquidity windows, and digital‑first cross‑border activity have exposed the limits of fragmented ledgers and reconciliation‑heavy workflows.
12 Depending on methodology and scope, recent market data indicates that tokenised real-world assets have reached tens of billions of dollars in on-chain value. Under RWA.xyz’s ‘Distributed’ and ‘Represented’ taxonomy, approximately $33.85 billion was classified as Distributed value and $340.10 billion as Represented value across 35 networks as of 20 May 2026: https://coinlaw.io/asset-tokenization-statistics/
13 See Aldasoro et al. (2023) on settlement synchronisation, timing mismatches, and liquidity pressures; Wharton (Cong, Mayer & Rabetti, 2026) on reconciliation frictions and cash‑flow transparency.
15 See WEF (2025), ‘Asset Tokenization in Financial Markets’: The Next Generation of Value Exchange’ on tokenisation enhancing accessibility, efficiency, and transparency in financial market.
18 International Organization of Securities Commissions: Tokenization of Financial Assets (2025).
19 Financial Stability Board: The Financial Stability Implications of Tokenisation (2024).
22 Other token standards exist for specialised functions, such as ERC-4626 for tokenised vaults, including yield-bearing and other share-based structures. Such standards can also be combined with permissioning, identity, KYC/AML and transfer-restriction mechanisms where required. Their relevance to regulated tokenised financial instruments depends on the asset, legal structure and implementation.
23 including adapting established financial-services frameworks, adapting legal and market infrastructure to accommodate tokenisation, and using structured experimentation and transitional regulatory environments to test emerging models in practice.