Finance and Economics Discussion Series

Federal Reserve Board, Washington, D.C.

ISSN 1936-2854 (Print)
ISSN 2767-3898 (Online)

Tokenization: Overview and Financial Stability Implications

Francesca Carapella, Grace Chuan, Jacob Gerszten, Chelsea Hunter, Nathan

Swem

2023-060

Please cite this paper as:

Carapella, Francesca, Grace Chuan, Jacob Gerszten, Chelsea Hunter, and Nathan Swem
(2023). “Tokenization: Overview and Financial Stability Implications,” Finance and Eco-
nomics Discussion Series 2023-060. Washington: Board of Governors of the Federal Reserve
System, https://doi.org/10.17016/FEDS.2023.060.

NOTE: Staff working papers in the Finance and Economics Discussion Series (FEDS) are preliminary
materials circulated to stimulate discussion and critical comment. The analysis and conclusions set forth
are those of the authors and do not indicate concurrence by other members of the research staff or the
Board of Governors. References in publications to the Finance and Economics Discussion Series (other than
acknowledgement) should be cleared with the author(s) to protect the tentative character of these papers.
 Tokenization: Overview and Financial
Stability Implications ∗
Grace Chuan2 , Jacob Gerszten3 , Chelsea Hunter4 , Nathan Swem5 , and
Francesca Carapella†1
1,2,3,4,5
Federal Reserve Board of Governors

August 3, 2023

Abstract

In this paper we outline tokenization, which is a new and rapidly growing finan-
cial innovation in crypto asset markets, and we discuss potential benefits and financial
stability implications. Tokenization refers to the process of constructing digital rep-
resentations (crypto tokens) for non-crypto assets (reference assets).1 As we discuss
below, tokenizations create interconnections between the digital asset ecosystem and
the traditional financial system. At sufficient scale, tokenized assets could transmit
volatility from crypto asset markets to the markets for the crypto token’s reference
assets.

Keywords: tokenization, crypto-assets, blockchain, decentralized finance, DeFi, Finan-

cial stability and risk, financial innovations, interconnections

JEL Classification Numbers: D49, D53, G00, G10, G20, G23

∗
The opinions are the authors’ and do not represent those of the Federal Reserve System or its staff.
†
Corresponding author: E-mail [email protected]
1
For additional information and other details of tokenization, please see: The tokenisation continuum
(bis.org).

1
1. Tokenization design features
The term “tokenization” refers to the process of linking reference assets to crypto tokens
via design features that link the token’s price to the value of the token’s reference asset.2
In the strictest sense, tokenization would allow for a crypto token holder to have a legally
enforceable ownership claim over the token’s reference asset.3 So far, tokenization projects
have been typically financed and developed by small venture-capital backed crypto compa-
nies. In addition, financial firms such as Santander, JP Morgan, and Franklin Templeton,
have announced crypto related projects or pilot programs relating to tokenization.4
As is the case with stablecoins, tokenizations have widely varying design features and
characteristics.5 In general, a tokenization involves five design features: 1) a blockchain,
2) a reference asset, 3) a mechanism to assess the value of the reference asset, 4) a means
to store and/or provide custody for the reference asset, and 5) a mechanism to facilitate
redemptions of the token and/or the reference asset. Taken together, these components
generate links between the crypto markets and the markets for the reference assets. These
design choices can help distinguish token types and help determine each type’s impact on
traditional financial markets.
The first tokenization design element that we outline is the underlying blockchain on
which the crypto tokens are issued, stored, and transacted. Some crypto tokens are is-
sued on private permissioned blockchains, and others are issued on public permissionless
blockchains. A permissioned blockchain is generally controlled by a centralized entity that
grants approval to selected users in an isolated ecosystem.6 Crypto tokens issued on permis-
sionless blockchains (Bitcoin, Ethereum, Solana, etc.) are broadly accessible and can be used
with fewer restrictions. Crypto tokens on permissionless blockchains can also be incorporated
into decentralized finance (DeFi) protocols such as decentralized exchanges.7 Crypto token
issuers retain far less control over crypto tokens issued on permissionless blockchains than
do issuers of crypto tokens on permissioned blockchains. Please see Table 1 for examples of
tokens issued on permissioned and permissionless blockchains.8
Another component of tokenizations is the crypto token’s reference asset. Reference assets
2
While tokenization can occur on non-blockchain distributed ledgers, in this paper we focus on blockchain-
based tokenizations.
3
For additional information and other details of tokenization, please see: Aldasoro et al. (2023)
4
For an example, see The Clearing House (2022)
5
See Azar et al. (2022), and Baughman et al. (2022) (among many others) for more information regarding
various stablecoin design features.
6
For more information, see Polge et al. (2021)
7
See Carapella et al. (2022) for more information on DeFi.
8
The issuer of tokenized assets on a permissioned blockchain can control the governance of the blockchain,
the level of transparency on the blockchain, and the uses of the tokenized asset.

2
can be categorized in various ways: off-chain vs. on-chain, tangible vs. intangible, etc.9
Off-chain reference assets can be physical (e.g. real estate and commodities) or intangible
(e.g. intellectual property rights and traditional financial securities like stocks and bonds)
and exist outside of the crypto-asset ecosystem.10 Tokenizations with physical/off-chain
reference assets generally involve an off-chain agent, such as a bank, to assess the value
of the reference asset and provide custodial services. Tokenizations that reference other
on-chain crypto-assets can incorporate smart contracts to provide custody and valuation
assessments.
The final design element of many tokenizations is a mechanism for redemption. Similar
to certain stablecoins, tokenizations allow for crypto token holders to exchange crypto tokens
with the token’s issuer for the reference assets.11 A token redemption option can exist for
both off- and on-chain reference assets and generates a link between markets for the tokenized
asset and markets for the reference asset, as we discuss in more detail below. Also, tokenized
assets can be traded in secondary markets, such as centralized crypto exchanges and DeFi
exchanges.
Some tokenizations that reference other on-chain debt or equity securities do not incor-
porate redemption mechanisms, but still confer ownership or other rights to the crypto token
holder. In these cases, the tokenization process involves representing the legal claims over
the cash flows associated with other on-chain financial assets, or any other obligations of the
entity issuing those financial assets.

2. The current size of tokenization markets, and spe-

cific examples of tokenized assets
Using press releases, news articles, and public data sources, we estimate that the market
value of tokenized assets on permissionless blockchains is $2.15 billion as of May 2023. This
includes a wide range of tokens issued by decentralized protocols such as Centrifuge and
traditional companies such as Paxos Trust.12 A comprehensive set of time-series data is
difficult to obtain due to the wide variety of tokenization designs and varying levels of

9
For a full description of types of reference assets, see OECD (2020).
10
An example is the issuance of tokenized corporate bonds through Obligate’s decentralized finance plat-
form by Muff Trading AG, a Swiss physical commodities trading boutique specializing in sourcing precious
metals and raw materials from South America. See Sandor (2023).
11
See Baughman et al. (2022) for a discussion of stablecoin redemption mechanisms.
12
Token issuers on permissioned blockchains tend to release less data than issuers on permissionless
blockchains. Therefore, our estimate of the total size of the tokenization market only contains projects on
permissionless blockchains.

3
transparency. Therefore, we capture a subset of tokenization projects by utilizing open-
source data from DeFi Llama in Figures 1 and 2 to highlight the growing trend of tokenization
in DeFi. Figure 1 shows that total value locked (TVL) in the entire DeFi ecosystem has
remained roughly constant since June 2022.13 However, in Figure 2 we show that the TVL
in categories related to real world assets have grown since July 2021, both in absolute values
and as a share of the overall DeFi ecosystem. As of May 2023, roughly $700 million of our
estimated $2.15 billion are locked in DeFi.
Many new tokenization projects have been recently announced which reference many
types of assets including agricultural commodities, gold, other precious metals, real estate,
and a variety of financial securities.
In Table 2 we list examples of tokenizations to illustrate the range of reference assets.
Specific examples of recently developed tokenized assets referencing agricultural commodities
include SOYA, CORA, and WHEA which reference soybeans, corn, and wheat respectively.
These tokens were part of a pilot project launched in March 2022 in Argentina by a joint-
venture between Santander and the crypto-firm Agrotoken.14 The claims on the underlying
commodities embedded in these tokens, and the infrastructure to validate and process trans-
actions and redemptions, are designed to be sufficiently robust to allow for Santander to
accept these tokens as collateral for loans. Santander and Agrotoken stated that they hope
to introduce similarly designed commodities tokens in the larger markets of Brazil and the
US in the future.15
Other examples of non-financial reference assets are gold and real estate. The market
capitalization of tokenized gold is roughly $1 billion as of May 2023.16 Two coins dominate
99% of this market, Pax Gold (PAXG) issued by Paxos Trust Company and Tether Gold
(XAUt) issued by TG Commodities Limited. Both issuers equate each of their coins to one
fine Troy Ounce of gold that is custodied by the issuers themselves and meets the standards
set by the London Bullion Market Association (LBMA). PAXG and XAUt are redeemable
for the underlying gold subject to idiosyncratic restrictions and fees.17 PAXG can also be

13
Total value locked (TVL) refers to the total value of all digital assets that are locked or staked in smart
contracts on decentralized finance platforms. For more information on TVL, see Carapella et al. (2022).
14
In December 2022 Agrotoken raised a $5 million seed round led by Xperiment VC. For more information,
see Engler (2023).
15
For more details, see Santander (2022).
16
https://coinmarketcap.com/view/tokenized-gold/.
17
For example, PAXG can be redeemed for USD, allocated gold, or unallocated gold, see appendix for
further details. Redeemers are charged a minimum of 20 basis points on the value of the underlying gold.
Allocated gold can only be delivered to vaults in London and unallocated can only be credited to a Loco
London bank account. XAUt can be redeemed for only allocated gold which must be delivered to a Swiss
address and the redeemer is charged 25 basis points on the gold price in the Swiss gold market and cost of
delivery.

4
redeemed for USD at current gold prices while XAUt can be redeemed for proceeds from
Tether selling the underlying gold in the Swiss gold market on holders’ behalf. Overall, these
two designs are similar, resulting in similar prices in PAXG and XAUt that also closely follow
the price of gold futures.
Relative to commodities like agriculture and gold, reference assets like real estate are
less uniform, with less liquid markets and values that are harder to assess, and involve more
complex legal and tax processes for ownership and transactions. These issues pose significant
challenges for tokenizations. One example of a tokenized real estate project issuer is Real To-
ken Inc. (RealT) which collects an inventory of residential properties and tokenizes a variety
of legal rights on them. Each property is owned by a limited liability Company (LLC) that is
legally independent of Real Token Inc.18 The property itself is not directly tokenized, rather
the membership interests in the LLC are tokenized. Therefore, each property corresponds to
its own LLC whose membership can be fractionalized into shares for co-ownership. For exam-
ple, tokenized properties by RealT are “REALTOKEN-15634-LIBERAL-ST-DETROIT-MI”
and “REALTOKEN-25097-ANDOVER-DR-DEARBORN-MI.”19 RealTokens were primar-
ily developed for international investors as a way to own domestic US real estate and collect
rental income. As of September 2022, RealT tokenized 970 units of property valued at over
$52 million.20
Finally, there are tokenizations referencing financial assets such as stocks, bonds, and
exchange-traded funds (ETFs). Tokenized stocks provide token holders with similar eco-
nomic exposures as holders of the reference stock. However, the prices of the tokenized stock
and its reference stock may differ, partly due to the former being able to trade 24/7 and
partly due to the token’s intrinsic properties, such as programmability and composability
in various DeFi applications, which may also affect the token’s liquidity.21 We illustrate
these dynamics in Figures 3, 4, and 5 that show the prices of Meta (META) and META’s
corresponding crypto token (Bittrex FB) as well as each of their volumes.22
There are tokenized versions of existing stocks issued on traditional, regulated exchanges

18
https://faq.realt.co/en/articles/3922308-who-holds-the-deed-to-the-house-who-owns-t
he-property.
19
See https://coinmarketcap.com/currencies/15634-liberal-st-detroit-mi-48205/ and
https://coinmarketcap.com/currencies/realtoken-25097-andover-dr-dearborn-mi/.
20
RealT (2022).
21
See Paz (2021). Furthermore, in some cases, holding the tokenized stock does not automatically transfer
shareholder rights. See item 10 in the Appendix for further details.
22
Bittrex announced on November 14, 2022 that it would shut down the offering of tokenized securities
due to the collapse of FTX and Alameda. These securities had been offered through Bittrex’s relationship
with FTX and Alameda. For more information, see Bittrex’s announcement, Bittrex Global (2022). Today,
the tokenized stock is traded on DeFi exchange DeFiChain DEX which is how prices after November 14,
2022 are derived.

5
and tokenized versions of stocks, such as OSTK (Overstock.com Inc.), that are entirely
issued on a blockchain.23 The Swiss based platform Akionariat is an example of a firm that
currently offers tokenization services of stocks for Swiss companies. U.S. companies such as
Amazon (AMZN), Tesla (TSLA), and Apple (AAPL) each have tokenized stocks that are
currently or have been previously traded on crypto exchanges such as Bittrex and FTX.24
In early 2023, Ondo Finance launched OUSG, OSTB, and OHYG, tokenized ETFs refer-
encing Blackrock U.S. Treasuries ETF, PIMCO Enhanced Short Maturity Active ETF, and
Blackrock iBoxx High Yield Corporate Bond ETF respectively. These tokens represent de-
posits in the reference ETFs and qualify as securities, but Ondo Finance also holds a “small
portion” of USDC and USD in reserve for liquidity purposes.25 Ondo Finance is the manager
of these funds with Clear Street serving as prime broker and custodian of the securities and
Coinbase serving as custodian of the stablecoins.

3. Potential Benefits of Tokenization

Tokenizations have potential to provide a variety of benefits, including granting investors
access to markets that are otherwise inaccessible or costly to enter. For example, real estate
tokenizations might allow for investment in a fraction of the underlying asset, with investors
able to purchase shares in specific commercial buildings or residential investments, as opposed
to real estate investment trusts (REITs) where investors own shares of a portfolio of real
estate investments.
More generally, the programmability of crypto tokens and the ability to leverage smart
contracts, allows for additional features that can be embedded into the tokenized asset which
might also benefit markets for the underlying reference assets. For example, liquidity saving
mechanisms could be implemented in the settlement of the tokenized asset even if they are
not implementable for its real-world counterpart.26 These attributes might lower barriers
to entry for a wider set of investors, resulting in more competitive and liquid markets, and
better price discovery.
Tokenizations might also facilitate lending through the use of tokens as collateral, as in
the case of tokenized grain discussed above, where lending secured by the reference asset
might be more costly or impossible. Moreover, transactions in the tokenized asset can settle
more quickly than transactions in their respective real-world reference assets, as well as

23
OSTK was converted into common stocks in 2022. See Keely (2022).
24
https://coinmarketcap.com/view/tokenized-stock/.
25
For information on the underlying assets of tokens issued by Ondo Finance, see https://ondo.finan
ce/ousg.
26
For more details on liquidity saving mechanisms see Martin and McAndrews (2008).

6
transactions in financial reference assets. Traditional securities settlement systems, such as
Fedwire Securities Services and the Depository Trust and Clearing Corporation (DTCC),
settle trades on a gross or net basis throughout the settlement cycle, which is typically a
business day following the trade.27
The existing empirical evidence on ETFs, which are the closest financial instrument to
tokenization in terms of representing other assets, might suggest a mechanism by which
tokenizations may also improve the liquidity of the markets for the reference assets. The
academic literature on ETFs documents a strong positive correlation between the liquidity
of the ETF and the underlying securities and finds that additional trading activity for ETFs
results in higher information efficiency for the underlying securities in the ETF.28 For tokens,
a similar dynamic would imply that greater liquidity for tokens in crypto markets might be
associated with more accurate prices in the markets for the token’s reference assets.

4. Financial Stability Implications of Tokenizations

The overall value for tokenized markets in the low single-digit billions remains small
relative to both crypto-asset markets and the traditional financial system, and does not
represent a material financial stability concern. However, if tokenizations continue to grow
in number and scale, they may introduce fragilities to crypto asset markets, and introduce
financial stability vulnerabilities to the traditional financial system.
The primary longer-term financial stability implications of tokenization relate to the
interconnections that tokenization create between the digital asset ecosystem and the tradi-
tional financial system via tokenization redemptions mechanisms. For example, at sufficient
scale a fire-sale of tokenized assets might reverberate through traditional financial markets,
as price dislocations in crypto markets provide incentives for market participants to buy the
token, redeem it for its reference asset, and sell the latter. Therefore, tokenizations may
provide a means for a shock to be transmitted from crypto markets to the market for the
reference assets of crypto tokens.
A stress transmission vulnerability might be a more prominent concern for tokenizations
whose reference assets aren’t liquid. Examples might include real estate, or other less liquid
reference assets. A similar concern is discussed in the academic literature on ETFs, where
there’s a strong correlation between liquidity, price discovery and volatility of ETFs and

27
Today, securities such as equities and bonds are maintained in electronic book-entry accounts at cen-
tralized securities depositories (CSDs), typically via an indirect holding system where intermediaries (e.g.
custodians, brokers) hold securities on behalf of their clients with the CSDs.
28
See Madhavan and Sobczyk (2016), Ben-David, I., Franzoni, F. and Moussawi, R. (2016), and Liebi
(2020).

7
those of the underlying assets.29 Like ETFs, it is conceivable that greater liquidity in crypto
asset markets might improve liquidity in the markets for the underlying reference assets,
but also transmit volatility from crypto markets to the markets for the underlying reference
assets.
Another financial stability concern is runs on the issuer of tokenized assets. Tokenized
assets with a redemption option might suffer from similar issues as those arising for collater-
alized stablecoins, such as Tether. Any uncertainty surrounding the tokens’ collateralization
levels, especially if accompanied by a lack of disclosures and accurate information about the
issuers, might raise investors’ incentives to redeem the reference assets, thus triggering a fire
sale of tokenized reference assets.
Transmission of volatility can also be exacerbated by nuances applicable to venues where
crypto assets trade but not to venues where reference assets trade (or vice versa). Crypto
exchanges allow continuous, 24/7 trading of crypto assets, while most reference asset mar-
kets are only open during business hours. The timing mismatch in trading hours might have
unpredictable implications for investors or institutions in a stress event. For example, an
issuer of a tokenized asset with a redemption option may face a fire-sale on the weekend.
Because the reference asset is held off-chain, redeemers are unable to quickly procure refer-
ence assets as traditional markets would be closed. The inability to meet redemptions may
perpetuate the fire-sale, decreasing the value of the asset to the point that it may threaten
the solvency of any institution holding a sizeable share of the tokenized asset on its balance
sheet. Furthermore, if such an institution would benefit from injections of liquidity from
traditional money markets, they would be unable to obtain funding on a weekend. Hence,
a sizeable fire sale, could quickly reduce the market value of affected institutions’ and the
issuer’s assets, undermining their abilities to borrow and, thus, their solvency. Another ex-
ample might relate to automated margin calls mechanisms in DeFi exchanges, that trigger a
need to liquidate or redeem crypto tokens, which could have unpredictable implications for
the markets for reference assets (especially in a stress event).
As tokenization techniques and the markets for tokenized assets develop, it is possible
that tokenized assets could become reference assets themselves for certain trades in crypto
and traditional financial markets. To the extent that crypto asset prices are more volatile
than their real-world counterparts, such tokenizations may transmit volatility to traditional
financial markets.
As tokenizations grow in size and scale, traditional financial institutions may become
more exposed to crypto asset markets either by direct ownership of tokenized assets or by

29
For example, see Ben-David et al. (2018).

8
using tokens as collateral for other financial instruments.30 Examples of this might include
tokenized grain used to collateralize loans to farmers by the bank Santander, as we describe
above, and ongoing initiatives to tokenize various money market instruments, such as the
tokenization of U.S. government money market funds by Ondo Finance.
In addition, despite being similar in spirit to J.P. Morgan’s first use of tokenized ownership
interests in Money Market Fund (MMF) shares as collateral for repo and securities lending
transactions, the impact of Ondo Finance’s initiative on traditional financial markets could
be involved in a wider range of uses and create more interconnections. Ondo Finance’s tokens
are deployed on the public blockchain Ethereum rather than on an institution’s permissioned
blockchain, implying that Ondo Finance has no control over how users and DeFi protocols
choose to deploy such tokens.31 As of May 2023, Ondo Finance’s tokenized ETFs make up
32% of the market value of assets issued by decentralized protocols related to real world
assets, the largest project in this category, according to DeFi Llama, and OUSG can be used
as collateral for the publicly accessible and 19th largest lending protocol Flux Finance.32
Finally, similar to the role of securitization during the GFC, tokenization can potentially
disguise riskier or illiquid reference assets as safe and easily tradeable, possibly encouraging
higher leverage and risk-taking. A sudden reversal of these positions could then trigger
systemic events.

5. Conclusion
This note aims to provide a background on tokenization, and to discuss its potential
benefits as well as financial stability risks. Currently the scale of tokenization is quite small,
both when taken together or when measured relative to the market size of each token’s
reference asset. However, many projects involving various categories of reference assets are
in development, suggesting that tokenization may become a larger part of the digital asset
ecosystem. Among the benefits of tokenization, lowering barriers to entry into otherwise
inaccessible markets and improving the liquidity of such market are the most prominent. The
financial stability risks of tokenization mainly relate to the interconnections that tokenization
creates between the digital asset ecosystem and the traditional financial system, possibly
transmitting shocks or volatility from one to the other or possibly raising incentives to run

30
While interconnections between the digital and traditional financial systems remain limited at the
moment, financial network theory indicates that the interconnections between two markets need not be large
for a shock in one market to spread to the other. See Chang and Chuan (2023).
31
See J.P. Morgan (2022).
32
See https://defillama.com/protocol/ondo-finance. For an example of how OUSG can be used as
collateral, see https://fluxfinance.com/.

9
on issuers failing to provide a transparent account of the mechanism linking the reference
asset to its tokenized counterpart.

10
Appendix

Table 1: Tokenization Examples with Blockchain Characteristics

Token Issuer Token Name Token Blockchain Blockchain Type First Issued
European Investment Bank Bond-specific tokens GS DAP Permissioned Nov-22
European Investment Bank Bond-specific tokens HSBC Orion Permissioned Jan-23
Onyx by J.P. Morgan Repo security-specific tokens Onyx Digital Assets Permissioned Nov-20
Obligate Bond-specific tokens Polygon Permissionless Mar-23
Franklin Templeton BENJI Stellar & Polygon Permissionless Apr-23
Ondo Finance OUSG Ethereum Permissionless Jan-23
RealT Tokens Multiple, property specific tokens Ethereum Permissionless Nov-21
MatrixDock STBT Ethereum Permissionless Feb-23
Lofty Multiple, property specific tokens Algorand Permissionless Aug-22
Tangible USDR Polygon Permissionless Oct-22
Aktionariat DAKS Ethereum Permissionless Jan-21
Agrotoken SOYA Ethereum Permissionless Mar-21
Agrotoken CORA Ethereum Permissionless Sep-21
Agrotoken WHEA Ethereum Permissionless Dec-21
Paxos Trust Company PAXG Ethereum Permissionless Sep-19
TG Commodities Limited TXAUT Ethereum Permissionless Jan-20
Vave Property-specific token, bundled token Ethereum Permissionless Aug-23
Toucan Protocol TCO2 Polygon& Celo Permissionless Oct-21
Centrifuge DROP/TIN Ethereum Permissionless Jun-21
Goldfinch Pool-specific tokens Ethereum Permissionless Nov-21

11
 Table 2: Tokenization Examples with Reference Asset Characteristics
Token Issuer Token Name Reference Asset Reference Category Redemption Option On or Off-chain Asset
European Investment Bank Bond-specific tokens Bonds Financial asset No On-chain
Onyx by J.P. Morgan Repo security-specific tokens Intraday repo Financial asset No On and off-chain
Obligate Bond-specific tokens Corporate Bonds Financial asset No On-chain
Franklin Templeton BENJI MMMF shares Financial asset Yes On and off-chain
Ondo Finance OUSG iShares Short Treasury Bond ETF Financial asset Yes Off-chain
RealT Tokens Multiple, property specific tokens Residential properties Real asset - Real estate No Off-chain
MatrixDock STBT Short-term Treasury Bill Financial asset Yes Off-chain
Lofty Multiple, property specific tokens Residential Properties Real asset - Real estate No Off-chain
Tangible Real USD Real Estate Real asset - Real estate Yes Off-chain
Tangible Item specific Tangible NFTs (TNFTs) Wine, gold, watches, or real estate Real asset - Other Yes Off-chain
Aktionariat DAKS Private Equity Investments Real asset - Other No Off-chain
Agrotoken SOYA Soybeans Real asset - Commodity Yes Off-chain
Agrotoken CORA Corn Real asset - Commodity Yes Off-chain
Agrotoken WHEA Wheat Real asset - Commodity Yes Off-chain
Paxos Trust Company PAXG 1 fine Troy ounce of gold Real asset - Commodity Yes Off-chain
TG Commodities Limited TXAUT 1 fine Troy ounce of gold Real asset - Commodity Yes Off-chain
Toucan Protocol TCO2 Carbon credits Real asset - Other No Off-chain
Centrifuge DROP/TIN Pools of reference assets Multiple assets Yes Off-chain
Goldfinch Pool-specific tokens Pools of reference assets Financial asset Yes Off-chain

12
 Figure 1: TVL Across All DeFi Categories

Daily $ Billions
400

350

300

250

200

150

100

50

0
July Oct. Dec. Feb. Apr. June Aug. Oct. Dec. Feb. Apr.
2021 2022 2023

Source: DeFi Llama.

13
 Figure 2: TVL in DeFi Categories Related to Real-World Assets

Daily $ Millions
900
Real−world assets lending
Real−world assets 800

700

600

500

400

300

200

100

0
July Oct. Dec. Feb. Apr. June Aug. Oct. Dec. Feb. Apr.
2021 2022 2023

Note: Real-world assets lending refers to the specific category of DeFi lending protocols that collateralize
loans with tokenized assets that reference real-world assets. Real-world assets refer to the category of
protocols that involve the tokenization and trading of real-world assets.
Source: DeFi Llama.

14
 Figure 3: Meta Stock and Tokenized Stock Prices

Note: Bittrex FB refers to the tokenized stock of META listed by crypto exchange Bittrex.
Source: Yahoo Finance & Coinmarketcap.

15
 Figure 4: Daily Trading Volume of META on NASDAQ

Source: Yahoo Finance.

Figure 5: Daily Trading Volume of Bittrex FB

Source: Coinmarketcap.

16
Details of some Tokenization Projects

Digital Bonds Issued by the European Investment Bank

The European Investment Bank, the lending arm of the European Union, has issued
several bonds on multiple blockchains. The first issuance occurred on a combination of
private and public blockchains operated and accessed via HSBC Orion and was denominated
in pound sterling.33 . The bond was for 50 million pounds. The blockchain serves as the
record of legal ownership of the bonds and serves as the framework to manage the floating
rate instrument and lifetime events. The bond will be held in digital accounts on HSBC
Orion.
The second bond was a euro-denominated bond issued on Goldman Sachs’ private
blockchain, GS DAP.34 The €100 million, 2-year bond was issued on GS DAP, a tokeniza-
tion platform developed and operated by Goldman Sachs Bank Europe (GBSE). Investors
could use traditional currency to purchase and pay for the bond, which was represented in
the form of security tokens. The joint lead managers — Goldman Sachs Bank Europe SE,
Santander and Société Générale — then settled the underwriting against the issuer using a
representation of central bank money in the form of central bank digital currency (CBDC)
tokens. These tokens were provided by the Banque de France and the Banque centrale du
Luxembourg. Société Générale Security Securities Services (SGSS Luxembourg) serves as
the on-chain custodian and GSBE serves as the account keeper for the CBDC. The bond
features instant settlement at T+0. Secondary trading is OTC only and is settled using fiat
cash off chain on a free of payment basis. Bond coupons are paid out in fiat EUR and GSBE
serves as the paying agent for distributing these payments to bond holders.

J.P. Morgan’s Onyx Platform

The Onyx blockchain-based platform operated by J.P. Morgan has the ability to tokenize
and transact digital assets. Onyx is based upon a permissioned blockchain and primarily
serves institutional clients. It has served as the underlying blockchain for several projects,
including a cross-currency transaction involving tokenized Japanese Yen and Singapore Dol-
lar deposits, as well as Singapore Government Securities Bonds, for the Monetary Authority
of Singapore.35 In the future, J.P. Morgan has stated that it aims to tokenize U.S. Treasuries
or money market funds on Onyx.36

33
European Investment Bank (2023)
34
European Investment Bank (2022)
35
Monetary Authority of Singapore (2022)
36
Allison (2022)

17
 The Onyx platform has also completed the settlement of intraday repo transactions be-
tween J.P. Morgan’s broker dealer and banking entities.37 Both the collateral and cash legs
of the repo transaction can be settled using Onyx. For repo transactions, the cash trans-
actions are settled using J.P. Morgan’s JPM Coin, a blockchain-based bank account. The
platform has settled $300 billion since its launch in 2020.

Obligate

Obligate is a blockchain-based debt securities protocol which allows companies to issue

bonds and commercial paper directly on blockchains.38 The protocol facilitated a euro-
denominated bond issuance for Siemens, a German industrial firm, on the Polygon network,
for $64 million.39 Obligate also facilitated issuance for Muff Trading AG, a Swiss physical
commodities trading firm. Investors received ERC-20 tokens in their crypto wallets when
purchasing the bonds. The Muff Trading bonds were funded using the USDC stablecoin
and all future bonds will be denominated in USDC according to their website. Issuers are
required to go through a KYC process.
Investors will be able to access Obligate through their existing crypto wallet. For each
investment, the investor holds the respective eNote (ERC-20 token), which carries the right
to receive payment at maturity or collateral in the case of a default.40 The tokens can only
be redeemed at maturity.

Franklin Templeton’s Tokenized Money

Market Mutual Fund Franklin Templeton, a US-based asset manager, offers a U.S. Gov-
ernment Money Fund tokenized on the Stellar and Polygon public blockchains.41 Investors
can purchase BENJI tokens, each of which represents one share of the Franklin OnChain
U.S. Government Money Fund and which aim to maintain a stable $1.00 share price.42 The
BENJI tokens can be redeemed at any time for $1.00. The official record of share own-
ership is maintained on a “proprietary blockchain-integrated system that currently utilizes
the Stellar blockchain network for transaction activity”. The fund has 92.5% of its total as-
sets in U.S. Agency, with the rest in Cash. The tokens can be purchased and held in wallets

37
BusinessWire (2020)
38
Sandor (2023)
39
Siemens (2023)
40
See https://fluxfinance.com/
41
Franklin Templeton (2023), Khatri (2023).
42
See Franklin OnChain U.S. Government Money Fund overview: https://www.franklintempleton.co
m/investments/options/money-market-funds/products/29386/SINGLCLASS/franklin-on-chain-u-s
-government-money-fund/FOBXX#portfolio.

18
through the Benji Investments app. The fund currently has over $272 million in assets under
management. The project operates on the Stellar and Polygon blockchains.

Ondo Finance

Ondo Finance offers several tokenized securities, including OUSG, OSTB, OHYG, and
OMMF, tokenized ETFs referencing Blackrock U.S. Treasuries ETF, PIMCO Enhanced
Short Maturity Active ETF, Blackrock iBoxx High Yield Corporate Bond ETF, and U.S.
Money Mark Funds, respectively. Returns for the OMMF tokens are airdropped to token
holders on a daily basis, while returns on other tokens such as the OHYG are automatically
reinvested into the underlying fund assets. Token holders receive traditional fund accounting
reports from third-party service providers which validate the fund’s assets.
Tokens can be redeemed daily, although redemptions can take multiple days to settle. If
the fund has USDC on hand, the redemption occurs immediately. If not, the fund sells ETF
share for USD, transfers USD from Clear Street to Coinbase, swaps USD for USDC, then
pays out the USDC to the token holder.

RealT

RealT collects an inventory of residential properties and tokenizes a variety of legal rights
on them. Each property itself is owned by a Limited Liability Company (LLC) that is legally
independent of Real Token Inc.43 The property itself is not directly tokenized, rather the
membership interests in the LLC are tokenized. Therefore, each property corresponds to its
own LLC whose membership can be fractionalized into shares for co-ownership. For exam-
ple, tokenized properties by RealT are “REALTOKEN-15634-LIBERAL-ST-DETROIT-MI”
and “REALTOKEN-25097-ANDOVER-DR-DEARBORN-MI.”44 RealTokens are mostly in-
tended for international investors to own domestic real estate and collect rental income. As
of September 2022, RealT has tokenized 970 units of property valued at over $52 million.45
Legally, RealT has a registered company in Delaware called Real Token LLC. This entity
exists to simplify the process of conducting an investment security offering when placing
each property under a Series LLC and offering membership shares to earn returns.46 RealT
tokens can be used as collateral for the DeFi lending protocol RMM which is based on the

43
https://faq.realt.co/en/articles/3922308-who-holds-the-deed-to-the-house-who-owns-t
he-property.
44
See https://coinmarketcap.com/currencies/15634-liberal-st-detroit-mi-48205/,https:
//coinmarketcap.com/currencies/realtoken-25097-andover-dr-dearborn-mi/.
45
RealT (2022).
46
https://faq.realt.co/en/articles/7143772-what-s-the-difference-between-realtoken-inc
-and-realtoken-llc

19
Aave protovol V2. As of now, only non-U.S. users can access RMM and borrow DAI. Other
cryptocurrencies may be expanded to in the future.47

MatrixDock

MatrixDock issues stablecoins (STBT) that are each pegged to 1 USD and backed by U.S.
treasury securities with maturities within 6 months and reverse repurchase agreements. They
can be minted or redeemed. To mint, users must deposit USDC/USDT/DAI which will mint
STBT tokens once the underlying T-bill subscription and/or reverse repo is “confirmed.”
STBT redemption can be requested through MatrixDock’s app or by transferring STBT to
the Issuer’s dedicated address. The timeline for redemption is T+4 (New York Banking Day
only). If holders redeem STBT prior to its maturity, the Execution Price is calculated as
the T-bill settlement price divided by the fair market value (“FMV”) on the preceding day.
The T-bill settlement price can be lower than the fair market price for such T-bill on the
preceding day, causing the STBT/USD ratio (the ”Execution Price”) to be less than 1. It is
unclear how the settlement price is determined. The final settlement amount is calculated
as the STBT redemption amount * Execution Price * (1 - 0.1% redemption fee).48

Lofty

Lofty is a platform that provides the ability to fractionally own U.S. rental properties
through the Algorand blockchain.49 They operate very similarly to RealT where properties
are transferred from sellers to Lofty by placing each property under an independent LLC
and membership shares of the LLC are tokenized. The returns from holding these tokens
come from rental income and property appreciation.50 It is unlikely that there would be an
option to redeem as the reference asset is a legal claim to the returns generated by the token,
not the property itself.

Tangible

Tangible is an NFT marketplace for Real World Assets.51 They allow users to convert
wines, gold bars, watches, and real estate as NFTs. The real-world items are custodied with
Tangible and stored in their secure storage facilities. Users can purchase and own Tangible
NFTs (TNFTs) using the platform’s native stablecoin Real USD which is primarily backed

47
https://realt.co/understanding-the-technical-mechanisms-realted-to-rmm/
48
MatrixDock (2023).
49
https://learn.lofty.ai/en/articles/3788501-what-is-lofty
50
https://learn.lofty.ai/en/articles/6145558-how-the-lofty-marketplace-works
51
See https://docs.tangible.store/

20
by tokenized, yield-producing real estate (real estate TNFTs) but also DAI, TNGBL, and
USDR.Rental income from Real USD’s real estate TNFTs is paid out to Real USD holders
in the form of a daily rebase projected to range between 10 - 15% APY. All TNFTs are
redeemable for their reference assets only when holders own all fractions of the TNFT. Real
USD is minted 1:1 with DAI and can be redeemed/burnt 1:1 for DAI.52

Aktionariat

Aktionariat is a platform provider for legal security tokens only available in Switzer-
land. They issue their equity in the form of tokenized shares called DAKS. The Aktionariat
platform also provides the tools needed for other firms to tokenize and trade their equity.
As Aktionariat is capable of holding and transacting with both tokenized and traditional
stock, the price of the shares will depend on the total supply, including the shares that are
non-tokenized, and the firm’s valuation. It is not possible to fractionalize tokenized shares
on Aktionariat. The price is adjusted upwards for each investment made and down for each
share repurchased by the firm as the relationship between shares outstanding and the price
is assumed to be linear.53 There is a distinction between holding the tokenized share and
being legally recognized as its shareholder. The latter requires holders to traditionally reg-
ister off-chain as shareholders with the firm and therefore, it could be the case that a token
is transferred but not the shareholder rights. Token holders who do not register as a share-
holder are not entitled to the dividend payments or the right to vote at the general assembly,
but would be recognized as owners of the shares by tax authorities. Aktionariat constructs
a shareholder registry from tracking transactions on the blockchain and a mapping between
addresses and shareholders stored in an off-chain database. Aktionariat updates the share-
holder registry accordingly as transactions take place. However, due to the differentiation
between being a shareholder and a token holder, a token transfer may not necessarily lead
to a change in the registry.54 Firms may also convert back to a traditional share system by
repurchasing all their tokenized stocks from shareholders and “burning” them. There seems
to be no redemption feature for token holders.

Agrotoken

Agrotoken is a provider of tokenized agricultural commodities. Their SOYA, CORA, and

WHEA tokens reference soybeans, corn, and wheat, respectively. Each token represents 1
ton of the reference commodity. The commodities can be tokenized for 30, 60, or 90 day
52
Tangible (2023)
53
https://www.aktionariat.com/documentation/tokenization-checklist
54
https://www.aktionariat.com/documentation/shareholder-registry

21
periods and can be renewed until the maximum contract date. An exporter or collector is
designated as the “Oracle” and is responsible for safeguarding the Proof of Grain Reserve,
which certifies that each token has a ton of grain backing it. The protocol operates on the
Ethereum public blockchain and each token is an ERC-20. The tokens are “detokenized”
automatically when the period ends.
The pilot launched in March 2022 in Argentina by a joint-venture between Santander
and Agrotoken.55 The claims on the underlying commodities embedded in these tokens, and
the infrastructure to validate and process transactions and redemptions, are designed to be
sufficiently robust to allow for Santander to accept these tokens as collateral for loans. In
partnership with Visa, Agrotoken has created a card accepted by 80 million shops and busi-
nesses associated with its tokenized grains program. The firm is effectively linking Argentine
farmers and exporters who have surplus grains with a global business network.56

Paxos Trust

Paxos Trust Company is a financial institution specializing in blockchain infrastructure

and payment systems. They are also the custodian for various crypto-related projects such
as the stablecoin Pax Dollar (USDP) in addition to Pax Gold (PAXG). PAXG is available
24/7 to be settled, only available on the Ethereum blockchain, and comprises of around half
of the tokenized gold market. One PAXG token equates to one fine Troy Ounce of gold and is
redeemable for the underlying gold itself (allocated), gold entitlements/credit (unallocated),
or can directly be sold for USD through Paxo’s platform.57 Physical redemptions can only
be made for full bars of gold which ranges from 370 to 430 fine Troy Ounce. A holder cannot
physically redeem one PAXG for one fine Troy Ounce of gold. When redemptions are made,
PAXG are remapped to different gold bars. For example, if a redeemer has 430 PAXG, each
of which are associated with 430 different gold bars, then they are entitled to a gold bar
that may not be the exact ones their coins were originally mapped to.58 Unallocated gold
is similar to a bank deposit where holders are entitled to the gold stored by the custodian
upon request but do not technically own the gold. This gold is also being invested and
utilized in other ways by the custodian. To redeem for unallocated gold, a holder must have
a Loco London bank account. Paxos Trust Company is also regulated by the New York
State Department of Financial Services (NYDFS).

55
Engler (2023)
56
Vassigh (2022)
57
Paxos (2022)
58
Cascarilla (2019)

22
TG Commodities Limited

TG Commodities Limited is the issuer of Tether Gold (XAUt) and is based in London. It
is not legally the same entity as Hong Kong-based Tether Limited who issues the stablecoin
Tether (USDT), but they would both be considered the same issuer Tether. One XAUt token
equates to one fine Troy Ounce of gold and are redeemable for the underlying gold itself or
for fiat currency after the underlying gold is sold in the off-chain, Swiss gold market. All
XAUt tokens are backed by allocated gold and holders can search which specific gold bars are
associated with their XAUt via Tether Gold’s “Look-up Website.”59 Redemptions can only
be made for full bars of gold which ranges from 385 to 415 fine Troy Ounce. For example,
a holder cannot redeem one XAUt for one fine Troy Ounce of gold. When redemptions are
made, XAUt are remapped to different gold bars. For example, if a redeemer has 430 XAUt,
each of which are associated with 430 different gold bars, then they are entitled to a gold bar,
but may not be the exact ones their coins were originally mapped to. After this redemption,
the remaining XAUt supply is remapped to the current gold supply instantaneously.60

Toucan Protocol

Toucan Protocol allows users who own carbon credits in registries to tokenize their cred-
its and users to purchase them. The tokenized carbon credits are called TCO2s which are
programmed as NFTs and can be differentiated by the carbon credit’s project and specifica-
tions by adding an additional name to it (i.e. TCO2-GS-0001-2019). Toucan also manages
2 pools: the Base Carbon Pool and the Nature Carbon Pool to enhance liquidity by pooling
similar carbon credits together. The Nature Carbon pool only takes TCO2 tokens linked to
nature-based projects (nature-based credit).
Toucan Protocol bridges its crypto-based registry to traditional carbon registries to tok-
enize carbon credits. Holders can retire TCO2 directly from the blockchain the TCO2 lives
on (Celo or Polygon). Therefore, TCO2 are not redeemable since holders of TCO2 who
would want to redeem for carbon credits are most likely aiming to retire them. If a holder
wants to keep their carbon credits off-chain, they may open a standard registry account and
transfer the credits there to retire. Pool tokens may be redeemed for the TCO2 tokens within
the pool.61

59
See https://gold.tether.to/
60
Tether (2022)
61
For more details, please refer to Toucan’s documentation, Toucan (2023)

23
Centrifuge

Centrifuge is an open DeFi protocol and marketplace for real-world asset pools. Owners
of real-world assets act as originators and create pools of assets that are fully collateralized.
The protocol is asset-class agnostic and has pools for assets across several categories such
as mortgages, trade invoices, microlending, and consumer finance. Centrifuge integrates
into other DeFi protocols. For example, it is the mechanism that hosts the RWA pools for
MakerDAO.
The tokenization of real-world assets is carried out by asset originators, who set up the
pools. Each pool is linked to a special purpose vehicle (SPV) that takes over legal ownership
of assets from the asset originator in order to keep the assets in the pool bankruptcy remote
and separate from the asset originator’s business. The real-world assets are tokenized as
NFTs and linked to off-chain data. Investors put stablecoins, typically DAI, into the pools.
In return, they receive TIN and DROP tokens which represent junior and senior tranches
of the pool, respectively. TIN and DROP tokens can be redeemed in regular intervals.62
Returns to investors come from fees paid by the borrowers who obtain financing from the
pools, and investors can also earn rewards in CFG tokens.

Goldfinch

Goldfinch is a decentralized credit protocol that facilitates crypto borrowing with loans
fully collateralized off-chain. There are three main types of participants: Investors, Borrow-
ers, and Auditors.63 Investors can also become Members by supplying capital to a Goldfinch
Membership Vault to support the protocol’s growth.
Borrowers are off-chain lending businesses. They propose deal terms for credit lines,
known as Borrower Pools, to the protocol. Investors supply capital to Pools either directly
to individual Pools or indirectly through an automatic process that allocates capital across
the protocol. Investors can redeem their token on specific dates, such as once per quarter.
Borrowers use their credit lines to draw down USDC from their Pool. They then exchange
the USDC for fiat currency, which they lend out to end-borrowers in their local markets.

62
https://docs.centrifuge.io/learn/epoch/#the-investredeem-process
63
Goldfinch (2021)

24
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