In the ever-evolving world of finance, tokenized securities are emerging as a transformative force, by leveraging blockchain technology to enhance transparency, efficiency, and accessibility. Tokenized securities refer to digital representations of traditional financial assets, such as stocks, bonds, mutual funds, and private equities, in the form of tokens, issued and managed on a distributed ledger. This approach enables fractional ownership, instant settlement, and reduced transaction costs, making investments more accessible to a broader range of investors. Unlike cryptocurrencies, tokenized securities are regulated financial instruments, meaning they must comply with securities laws in their respective jurisdictions. The concept has already moved beyond theory and is being implemented into real world application. Tokenized securities are projected to grow significantly, as multiple institutions have already begun issuing blockchain-based bonds. According to Business Research Insights, the Tokenized Securities Market was valued at approximately USD 5.6 billion in 2024 and is forecasted to rise to USD 6.66 billion by 2025. With a steady annual growth rate of 19% from 2025 to 2033, the market is expected to reach USD 26.8 billion by 2033.
Understanding Tokenized Securities
Tokenized securities are backed by real-world assets and governed by smart contracts that automate ownership rights, compliance, dividends, and transfers. Every stage of the process, from issuing securities and onboarding investors to trading and settlement are recorded on blockchain.
Tokenized Securities Lifecycle
1. Asset Selection: The process begins with selecting a real-world asset (e.g., equity, debt, real estate) and legally structuring it often through a Special Purpose Vehicle (SPV) to allow ownership to be represented digitally.
2. Token Creation: Security tokens are created on a blockchain using smart contracts. These contracts include ownership rights, transfer restrictions, dividends, or interest payments, and voting mechanisms. Platforms like Ethereum, Polygon, and Avalanche are commonly used for token issuance.
3. Investor Onboarding: Investors complete KYC and AML checks before participating ensuring only verified individuals can hold or trade the tokens.
4. Primary Offering: Tokens are sold in similar fashion like traditional securities that comply with securities regulations. Investors receive tokens in their digital wallets, representing ownership in the asset. For an investor there isn’t much difference between tokenized securities, digital/dematerialized securities or securities issued on paper as all are issued by same issuer in similar legal procedure giving all these securities same legal status.
5. Secondary Market Trading: After issuance, securities in the forms of tokens can be traded on regulated digital asset exchanges. These platforms offer 24/7 trading, instant settlement and global access.
6. Ongoing Management: Smart contracts automate dividend distributions, corporate actions and compliance enforcement.
7. Redemption: Token holders can either redeem their tokens for the underlying asset or convert them into traditional shares or participate in a liquidity event such as buyback, depending on the terms encoded in the smart contract.
Benefits of Tokenized Securities
1. Faster Settlement: In traditional finance, settlement of trades can take two to three business days (T+2 or T+3) due to the involvement of multiple intermediaries like clearinghouses and custodians. With automated smart contracts transactions can be settled instantly. This reduces counterparty risk, improves cash flow, and enhances operational efficiency.
2. Lower Costs: Tokenized securities eliminate the need for many traditional intermediaries such as brokers, custodians, and clearing agents. This significantly reduces transaction fees, administrative overhead, and compliance costs. Thus, cutting down associated expenses.
3. Greater Transparency: Every transaction involving tokenized securities is recorded on blockchain, creating an immutable and auditable trail. This transparency helps reduce fraud, ensures accurate record-keeping, and builds trust among stakeholders such as investors, regulators, and issuers.
Tokenized securities have the potential to transform capital markets by enhancing accessibility, streamlining processes, and increasing transparency in investing. Though tokenized securities are still in their early stages but is gaining traction. As global investment opportunities increase and financial infrastructure improves, tokenized securities could create new possibilities for new financial products and funding models.
