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Digital assets, including cryptocurrencies and stablecoins, are rapidly becoming mainstream financial assets. Cryptocurrencies, the decentralized digital form of money that uses encryption for security on a shared distributed ledger (blockchain), emerged after publication of Satoshi Nakamoto’s 2008 whitepaper “Bitcoin: A Peer-to-Peer Electronic Cash System.” This document laid the foundational blueprint for the entire modern cryptocurrency industry, which now has a global market capitalization of $2.28 trillion. Digital native Bitcoin accounts for 55.9 percent ($1.27 trillion), and stablecoins like Tether (USDT), which emerged in 2014, account for 13 percent ($302 billion).
Adoption of tokenized real-world assets, including US Treasuries, corporate stocks, and corporate bonds, is not yet nearly as widespread as the digital natives and is currently minuscule relative to the global financial system, with tokenized real-world assets accounting for $38.9 billion in aggregate. Nevertheless, the expected adoption of these assets is accelerating, with McKinsey estimating the market could reach $2 trillion by 2030, and Citi Institute estimating a 2030 base case of $5.5 trillion. In March 2026, the US Securities and Exchange Commission (SEC) approved Nasdaq’s proposal to allow certain stocks and exchange-traded products to trade and settle in tokenized blockchain-based form. The New York Stock Exchange (NYSE) is developing a digital platform for 24/7 on-chain trading and instant settlement of tokenized securities.
Tokenized real-world assets therefore deserve our focus and attention now, as we anticipate and actively seek to shape what this market can and will become.
I begin with a working definition of tokenized real-world assets and emphasize their implications for market transformation, including efficiencies, product innovation, and expanded market access. I focus on both the benefits and challenges of changing how assets are issued, traded, and settled, which is at the very core of how financial systems operate. I distinguish the economic benefits of tokenization from the legal, operational, and financial-stability risks that arise when on-chain representations are linked to off-chain assets. For the interested reader, a more comprehensive treatment can be found in my paper “Tokenization of Real-World Assets Using the Distributed Ledger Technology.”
Tokenized real-world assets
Tokenized real-world assets are smart-contract-based assets issued on a shared distributed ledger (blockchain), that is, using cryptography for recordkeeping and security. The token provides a unique and pseudonymous digital representation, on a blockchain network, of an interest in a real-world asset, such as US Treasuries, financial securities including corporate stocks and bonds, private credit, mutual funds and exchange-traded funds, real estate, art, or gold and other commodities. These digital representations can convey some or all of the legal and economic rights associated with ownership of the underlying asset, for example, a token representing a share of equity could include all associated voting rights and dividend payments.
Many consider tokenized assets to be the next phase in the evolution toward a fully digitized economy, with security financing “likely to become the most important application of tokenized finance.” While early adoption of digitized assets has been concentrated in short-term US Treasury debt, Larry Fink, CEO of BlackRock, predicted in his 2025 annual letter to investors that “the next step going forward will be tokenization of financial assets, and that means every stock, every bond . . . will be on one general ledger.” Growth is expected to be led by public market securities and highly liquid short-duration collateral assets, particularly US Treasuries and equities, with Fink anticipating that tokenized funds will become as commonplace as exchange-traded funds (ETFs), currently a $22 trillion global market. As illustrative examples, asset managers are launching on the blockchain both digital money market funds, which are open-ended funds registered under the Investment Company Act of 1940, and private market funds, which are exempt from registration under the 1940 Act.
Four elements are most often credited with the rapid growth of tokenized assets.
First, there has been a decade of foundational infrastructure buildout and technological maturity, allowing the growth of on-chain money and settlement mentioned above. These building blocks, once at critical mass, will provide the embedded financial infrastructure needed for other tokenized assets to scale.
Second, large traditional financial market infrastructure providers, including the Depository Trust Company (DTC), NYSE, and Nasdaq, are now integrating tokenization into their core platforms with SEC participation. In July 2025, SEC Chairman Paul Atkins emphasized the goal of modernizing securities rules and regulations, enabling America’s financial markets to fully embrace blockchain technology and move on chain, under “Project Crypto.” In December 2025, the SEC granted no-action relief for a DTC three-year pilot offering a tokenization service for DTC-custodied highly liquid assets including stocks, ETFs, and US Treasuries, in partnership with almost 40 financial firms and tech providers. Live trades have now been processed, with a full launch planned for the end of October. As of January 2026, the Intercontinental Exchange has developed an NYSE digital multi-chain platform for 24/7 trading and on-chain instant settlement of tokenized securities, for which it is currently seeking final, comprehensive SEC regulatory approval under Exchange Act Rule 19b-4. As of March 2026, Nasdaq received SEC approval to enable certain stocks and major ETFs, including those tracking the S&P 500 and Nasdaq 100, to be issued, traded, and settled in tokenized form. Also, in April 2026, the SEC approved an initial NYSE rule change that allows Russell 1000 constituents to trade in tokenized form during the DTC pilot. These movements towards a unified, instead of fragmented, infrastructure enhance legal certainty and investor protection, facilitating widescale deployment.
Third, there is a growing proportion of “digitally native” Generation-Z investors, born between 1996 and 2010, who view cryptocurrency as a core pillar of modern finance and demand digital assets. Along with younger millennials, most are using peer-to-peer payment applications, and almost half own digital assets (which are four times more likely to be held than retirement accounts). They value speed and connectivity, trusting decentralized platforms and mobile apps that are “always on, always available, always accessible” more than traditional legacy banking systems. While tokenized real-world assets are currently being used predominantly by sophisticated financial institutions, retail demand will likely grow as these markets scale.
Fourth, regulatory and legislative clarity over digital assets in the United States is improving, making digital assets more accessible without fear of enforcement action. In addition to the certainty offered by the SEC actions highlighted above, the SEC’s January 2026 Staff Statement on Tokenized Securities and the March 2026 SEC/Commodity Futures Trading Commission (CFTC) joint interpretive framework provided additional guidance on the treatment of tokenized securities and other digital assets, and the SEC’s proposed “Regulation Crypto Assets” in August 2026 may encourage capital formation through token offerings. The July 2025 Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act established a comprehensive federal framework for payment stablecoins. It provides consumer protection by, among other mechanisms, requiring full backing with cash or Treasuries. It also delivers payment rails for a broader tokenized asset ecosystem. This legislation has stimulated the rapid growth of tokenized money market funds.
Key benefits of tokenized assets
Tokens can be transferred, traded, and settled on the blockchain, providing the benefits of a digital asset. These include 24/7 global trading and near real-time settlement on a shared system of record. This improved liquidity and operational efficiency is further enhanced by programmability of smart contracts, allowing broader access to new types of asset classes and supporting product innovation.
Traditional markets operate for 32.5 hours a week with settlement on a basis of T+1, trade date plus one business day. In contrast, blockchains operate continuously, allowing potential 24/7 global trading with lower transaction costs and faster (near instant) settlement, mitigating counterparty exposure. Trade confirmation, clearing, and settlement using traditional methods require multiple intermediaries and repeated reconciliation across independent networks. Each institution maintains its own records. A blockchain can consolidate fragmented clearinghouses and separate institutional ledgers, or complement a central authority, by providing a shared, transparent record.
Tokens can furthermore be coded with specific rules (smart contracts) to ensure consistent execution. There should be fewer data errors since embedded compliance by design provides a higher degree of automation, such as computing interest calculations and coupon payments on corporate bonds, also reducing servicing costs. Other automations include the composability of transactions and contingent transactions triggered by time, price feeds, or the completion of another transaction. As all participants have access to the ledger, there is enhanced transparency, visibility, and auditability into transactions on chain.
Claims to assets can also be fractionalized, broadening the investor base for high-value assets by reducing the minimum investment, which is currently a barrier to entry. As servicing smaller investors becomes an economically viable proposition, the potential customer base and access to investments is expanded. All of this creates the possibility of increasing liquidity and streamlining corporate action processes such as dividend or interest payments and proxy voting.
Tokenization is also fostering new products: For example, ETF issuers can tokenize their off-chain funds. Given the possibility of near-instant settlement, an asset’s yield can be computed and distributed intraday, which is a major shift from traditional finance, where yields, dividends, and interest are typically calculated and paid out on a monthly, quarterly, or annual basis due to legacy settlement delays (like T+1). Tokenized money market funds are paving the way for accrued dividends and interest to be reflected or distributed dynamically. Fractional claims can be traded on a range of previously less-traded assets, including illiquid indivisible assets like works of art or other valued collectibles.
Key risks and challenges of tokenized assets
The testing of tokenized assets to date has been on permissioned ledgers, to control security and compliance. In some cases, this is accomplished using a permissioned overlay on top of a permissionless underlying blockchain. Outside of these controlled environments, concerns arise about user privacy, security and cybersecurity, technical feasibility, potential contagion of financial crises, and regulatory compliance.
Distributed ledgers can provide unprecedented transparency in financial markets but must preserve privacy protections for certain user information. While cryptographic tools can help balance these concerns, it remains to be seen whether controlled, permissioned ledgers at scale are required to maintain privacy while ensuring Know Your Customer (KYC) and Anti-Money Laundering (AML) compliance.
Once tokens can trade on multiple platforms, the inefficiency of retrofitting and integrating legacy infrastructure and the lack of accepted interoperability standards may provide significant obstacles to the adoption and secondary market liquidity of digital assets. Market fragmentation can also raise execution and fair-pricing concerns. 24/7 trading raises questions about liquidity provision, net asset value (NAV) striking, and end-of-day pricing for markets not open 24/7. Atomic settlement can eliminate principal settlement risk by synchronizing delivery and payment, but it may increase intraday liquidity and funding demands by reducing the netting benefits of batch settlement under T+1.
Illiquid or opaque liabilities, such as private credit, are being tokenized to promise instant, 24/7 digital liquidity. Mixing opaque illiquid underlying assets with digital liquidity can create structural vulnerabilities. The illiquid asset remains intrinsically illiquid even if its token instrument trades with daily liquidity, creating valuation risks. With smart contracts in place, this may even trigger an erroneous transfer, redemption, margin call, or liquidation. This liquidity mismatch may also leave the financial system more exposed to rapid-fire, systemic market contagion. It has been argued that this might generate more rapid onset of financial crises, including credibility runs and valuation contagion, faster execution of fraud by nefarious players, or broader impact of third-party providers being cyberattacked. Cybersecurity risks will be magnified further by the convergence of tokenization, AI, and quantum computing, especially as AI and AI agents executing transactions are embedded into tokenized systems.
A final obstacle, considered next, is federal regulatory compliance.
US federal regulation of tokenized assets
With the growing interest in digital assets comes the need for regulatory frameworks, providing clarity to implementation and enforcement for those who hold, transfer, or transact in tokenized assets. While tokenizing a real-world asset does not, in and of itself, change the nature of the asset, it may change how interests in the asset can be distributed and transferred. At the core of this debate is whether tokenized real-world assets represent a new distribution channel for existing assets, with tokenization in essence providing recordkeeping infrastructure that changes format but not substance, or whether digital assets represent new assets. This dichotomy then forms the basis of whether existing securities laws apply to real-world tokenized assets.
It is helpful to differentiate between digital twin tokenization and natively issued digital assets, and between those created by their issuer and those created by others. With digital twin tokenization, the digital token represents the real-world asset, while the asset and its legal record, such as title deeds, remain off chain. The token represents ownership rights, but it does not replace the underlying asset. Consequentially, it also does not replace the contractual and regulatory framework. Importantly, this ensures technological neutrality, that is, the digital packaging of an asset does not change its regulatory treatment. Note that the token can be sponsored by the issuer, in which case the holder of the token has ownership, or it can be sponsored by a third party, in which case the token represents synthetic exposure without asset ownership rights. These cases both contrast with natively issued digital assets created by an issuance event, for which there is no off-chain representation. Importantly, the type of tokenization model impacts the regulatory status of the tokenized asset.
The next step is to determine whether a digital asset is a security under US federal law, regulated by the SEC, or a commodity, regulated by the CFTC. There is currently no comprehensive regulatory framework, creating confusion and unnecessary compliance burdens. The SEC’s 2026 crypto interpretive release has narrowed the practical uncertainty by articulating when a tokenized instrument retains the legal status of the underlying security and when a crypto asset falls outside the securities laws. The problem is now therefore less a total absence of guidance than a reliance on a patchwork of regulatory interpretations. A comprehensive statutory framework is still absent, leaving digital asset markets operating across the traditional regulatory lines of securities and commodities and creating continuing confusion and compliance burdens.
Legally, a security is generally a tradable financial asset that represents ownership, a debt relationship, or a legal right to share in profits, under the US Securities Act of 1933. It is not, however, always easy to distinguish a security from other types of financial assets or commercial arrangements. Broadly, tokens may be securities when both the underlying asset of a tokenized asset is a security or when the token is offered as part of a security transaction. We recognize that security tokens, which are digital representations of investment products legally classified as securities, such as shares of stock in a company or claims to private equity, are also securities. Consequentially, the SEC classifies tokenized equities the same under federal law as it does regular equity securities.
On March 11, 2026, the SEC and CFTC entered into a memorandum of understanding to reduce jurisdictional overlap and forum uncertainty for digital assets that potentially straddle the securities-commodities line. The framework classifies digital assets according to their characteristics, uses, and functions. There are digital commodities, such as Bitcoin and similar assets whose value does not depend on the managerial efforts of a promoter, which fall under CFTC jurisdiction. There are digital collectibles, which are non-fungible items held for consumption or collectible value. There are digital tools, which are tokens that provide access or utility within a network rather than an investment return. There are stablecoins, which are payment instruments regulated under the GENIUS Act framework. Finally, there are digital securities, which are instruments representing ownership, debt, or profit participation and fall under SEC jurisdiction. The first three categories are generally not securities under the federal securities laws by classification. Importantly, however, classification governs the asset, not the transaction: a non-security digital asset can still be sold pursuant to an investment contract, and that transaction can require registration under the Securities Act of 1933 even though the asset itself is not a security. Because the framework is a memorandum of understanding between the agencies, it allocates enforcement and interpretative priorities rather than changing the underlying statutes.
The Digital Asset Market Clarity Act (Clarity Act), which was approved by the US House of Representatives in July 2025 but failed to pass a procedural Senate vote in September 2026, sought to establish market structure rules for blockchain networks and to comprehensively define regulatory responsibilities for the SEC and CFTC across digital asset markets. Under the Clarity Act, the SEC would have retained oversight of digitized securities, and the CFTC would have held regulatory primacy over digital commodities. This would have affirmed that placing traditional financial instruments or shares on chain does not alter their baseline definition or regulation as federal securities, which would be an important step forward in clarifying regulatory oversight. SEC Chairman Atkins has made clear his intention, “with or without that legislation,” to proceed with the agency’s crypto rulemaking agenda “for how crypto assets are issued, traded, transferred, and held.” On September 17, 2026, the SEC issued a landmark “Innovation Exemption” order for tokenized securities venues, which temporarily facilitates permissioned secondary trading of certain tokenized national market system stocks on new tokenized securities venues
The regulatory environment remains dynamic. Market participants need to monitor the rapidly evolving legislative and regulatory landscape, as the future path of tokenized assets will likely depend in part on the regulatory decisions to be made.
Conclusion
The nature of how a tokenized real-world asset is issued, held, traded, and settled is changing rapidly and has the potential to be transformative for financial markets. Because we are at the inception of these nascent assets, it is vital to identify guiding regulatory principles for policymakers. One key principle, which I highlighted above, is the concept of technological neutrality. It focuses on the underlying substantive economics of an asset, recognizing that putting an asset on a blockchain changes its technological wrapper but does not necessarily change its substantive underlying economics. But it might, conditional on the unique operational and governance risks associated with placing the asset within that specific wrapper. Assets should be subject to consistent, technology-neutral regulation, commensurate with the comprehensive set of risks they pose. Agency statutory authority, which can be modified or challenged in court, is not a substitute for legislation.
We have the unique opportunity now, at the nascent stages of digital real-world asset adoption, to take those steps necessary to harness tokenization’s advantages, while mitigating its novel risks, to build a smarter, safer, more broadly accessible, and efficient market system.
Laurie Simon Hodrick is a visiting fellow at the Hoover Institution and the A. Barton Hepburn Professor Emerita of Economics in the Faculty of Business at Columbia Business School. For further information, see “Tokenization of Real-World Assets Using the Distributed Ledger Technology” (SSRN).