Tokenization converts ownership rights in physical assets into digital tokens recorded on distributed ledgers, changing how liquidity forms and flows. A report by the Bank for International Settlements Bank for International Settlements explains that representing assets as tradable digital pieces lowers minimum investment sizes and reduces settlement frictions, while analysis by the International Monetary Fund International Monetary Fund highlights that smart contracts automate transfer processes and can expand participation across borders. These institutional findings make clear why tokenization matters: it can make previously illiquid assets accessible to a broader pool of buyers, mobilize local capital, and shorten the time between sale and usable funds.
Market access and fractional ownership
When a mortgage, a piece of art, or farmland is divided into tokens, individual investors can hold fractions rather than entire assets, which increases the number of potential counterparties and deepens secondary markets. The Bank for International Settlements Bank for International Settlements emphasizes that this fractionalisation changes market microstructure by enabling continuous trading and by allowing price discovery where few transactions occurred before. The International Monetary Fund International Monetary Fund points to cross-border trading as a mechanism that broadens demand and can reduce regional concentration of buyers, affecting local funding costs and investment patterns.
Territorial and environmental impacts
Tokenization also has human and territorial dimensions: communities that lack access to traditional capital markets may attract distant investors from diasporas or impact investors, altering local development trajectories. Tokenized carbon credits and nature-based assets create new channels for environmental finance, shaping incentives for conservation and land use. Institutional analyses by the Bank for International Settlements Bank for International Settlements note that while these channels can bring resources to underserved territories, they also introduce governance and custody challenges that regulators must address to protect local stakeholders.
Consequences and systemic implications
Greater liquidity can lower financing costs and stimulate economic activity, but it can also concentrate risks if platforms or market infrastructures fail. The International Monetary Fund International Monetary Fund warns that regulatory coordination, clear custodial standards, and robust disclosure are essential to prevent fragmentation and to ensure that tokenized liquidity benefits a wide range of people and places without amplifying instability.
