What is tokenization?

The topic of tokenization has become increasingly important in the financial sector as a result of digital transformation. Through the development and increasing acceptance of blockchain technology, tokenization offers potential for investors and opportunities for new business areas.

According to the Federal Financial Supervisory Authority (Bafin), tokenization is “the digitized representation of an (asset) value, including the rights and obligations contained in this value and its transferability made possible as a result.” The resulting tokens (digital assets) are generated on a blockchain via so-called smart contracts and are therefore stored securely and retroactively and unalterably.

The big advantage is that historically few tradable assets can be traded and made more liquid through tokenization. This opens up the opportunity to democratize markets that are difficult to access. By dividing assets into several small shares, more investors have the opportunity to invest in asset classes that were previously only available to institutional investors.

Tokenization is currently most commonly used for capital market products, real estate, and other tangible assets such as art, luxury goods, and other collectibles.

Although there are also concerns about the regulation and security of tokenization, it continues to have enormous potential to change the financial market in the long term like hardly any other technology, and further suitable fields of application are constantly being sought.