Tokenization: The Most Anticipated, and Perhaps the Most Misunderstood, New Technology of the Decade

By: Kyle M. Lawrence, Esq. and Moish E. Peltz, Esq.

In the early days of 2026, you can’t open your internet browser, check the news or talk to a neighbor without hearing the word tokenization. To some, it’s the dawn of a new era, the convergence of new and efficient technology with the old ways of doing business.  To others, it’s just another in a long line of shiny new toys that is bound to be forgotten in a year’s time.

But what is tokenization? For all of the attention that this emerging technology is getting, there is a lot of misinformation surrounding what tokenization actually is. 

To get a baseline understanding, let’s start with an analogy to the advent of another new technology – the internet.

Consider the experience of booking a flight pre-internet. You may remember the halcyon days when would-be travelers had to call airlines directly on the phone, visit a travel agent, or even physically go to the airport in person, often with limited visibility into pricing and availability across carriers or flight availability. The process was slow, opaque, and regularly burdened by intermediaries. It could take a person hours to obtain a ticket to their desired destination, often without the ability to compare prices across airlines. The internet transformed this process entirely. Suddenly, consumers could compare fares across dozens of airlines in seconds, book at any hour, and receive instant confirmation, all without leaving the comfort of their homes.

Tokenization promises a similarly transformative effect on financial transactions. Today, buying, selling, or transferring traditional assets like real estate or stocks often involves layers of intermediaries, lengthy settlement periods, restricted trading windows, and high minimum investments. By representing these assets as digital tokens on a blockchain, tokenization can enable near-instantaneous settlement, frictionless transferability, fractional ownership, and around-the-clock liquidity, all while reducing costs simply due to the reduced number of people and agencies involved in the process. Just as the internet didn’t change what an airline ticket was but fundamentally reimagined how we access and purchase one, tokenization doesn’t alter the underlying nature of financial assets—it simply removes the friction, expands access, and accelerates the speed at which value can move from Point A to Point B.

Whenever there are technological breakthroughs, understanding what the technology is (and isn’t), often remains a hurdle that slows or altogether prevents mass adoption. In this article, we will define tokenization and analyze its promise to upgrade our financial system.

What Tokenization Is:

• A digital representation of ownership.Tokenization converts ownership rights in an asset (whether real estate, a fund interest, a bond, a share of stock, or virtually any other asset) into a digital token recorded on a blockchain or distributed ledger.  Think of an NFT but fungible, and with a more focused, practical connection to underlying real-world assets.
• An infrastructure upgrade.It modernizes how assets are issued, transferred, and settled, much like how electronic trading replaced paper stock certificates. 
• A tool for fractional ownership.By dividing assets into smaller units, tokenization can lower investment minimums, be used to create more liquid markets, and broaden investor access.
• A mechanism for programmability.On-chain technology (like smart contracts) can automate compliance, distributions, and transfer restrictions directly into the token itself, and off-chain platforms can build around composable asset classes.

What Tokenization Is Not:

• Not a new asset class. Tokenization is a technology layer, and that technology is not by itself necessarily a distinct category of investment. A tokenized bond is still a bond; a tokenized share of real estate is still real estate.
• Not an automatic guarantee of liquidity. While tokenization can facilitate easier transferability, and enable markets that trade tokenized assets, the actual liquidity of that market still depends on market demand and regulatory permissions.
• Not a way to bypass securities laws. Tokenized assets that qualify as securities remain subject to applicable registration, disclosure, and investor protection requirements. This is discussed in more detail below.
• Not the same as cryptocurrency. Cryptocurrencies like Bitcoin are native digital assets with no underlying real-world asset, whereas tokenization represents existing off-chain assets in digital form. Stablecoins, like USDC, can be considered a tokenized form of the U.S. dollar.

A Tale of Two Transactions: Traditional Stock Purchase vs. Tokenized Stock

To understand the practical difference tokenization can make, consider what happens today when an investor buys a single share of stock in a publicly traded company through the traditional infrastructure by utilizing a transfer agent, and then compare that to purchasing a token representing the exact same share of stock.

The Traditional Process

When an investor places an order to buy a share of stock, the transaction travels through a surprisingly complex chain of intermediaries. The investor’s broker receives the order and routes it to an exchange or market maker. Once a match is found and the trade executes, the real work begins. The transaction must be cleared through a central clearinghouse, which acts as the counterparty to both sides to reduce settlement risk. The clearinghouse then coordinates with a central securities depository, which holds the securities in “street name” on behalf of the brokers. Finally, a transfer agent (the official recordkeeper for the issuing company) updates its books to reflect the change in beneficial ownership. This entire settlement process, despite decades of technological advancement, still takes one full business day in the United States. During that window, capital is tied up, counterparty risk exists, and neither buyer nor seller has finality. For the most part, this system operates only during market hours on business days, and each intermediary extracts fees for its role in the chain (reducing the amount of money that either side can collect).

The Tokenized Alternative

Now imagine that same share of stock represented as a digital token on a blockchain. The investor connects to a platform, initiates the purchase, and the transaction settles in minutes (if not seconds), rather than a full day. Ownership transfers automatically, by operation of a smart contract. The moment payment clears in the same transaction where the token moves to the buyer’s digital wallet (an atomic swap), and the blockchain serves as an immutable, real-time ledger of the ownership change. There is no need for a separate clearinghouse to stand between the parties because the blockchain’s consensus mechanism ensures both sides of the trade execute simultaneously, eliminating settlement risk. The transfer agent’s recordkeeping function can be embedded directly into the blockchain itself, with the distributed ledger serving as the single source of truth. Since blockchains operate continuously, the transaction can occur at any time, such as on a weekend, during a holiday, or in the middle of the night, and even autonomously, without human oversight. Dividend distributions, corporate actions, and proxy voting can be automated through smart contracts that push payments and information directly to token holders without manual processing. This alleviates administrative risk on the part of the issuers, and there are no fees being paid to transfer agents and clearinghouses. 

It is worth noting that platforms like Robinhood have made it easier to buy stock, but it did not fundamentally change how stock ownership works behind the scenes. Tokenization, by contrast, has the potential to completely revamp the underlying plumbing itself by collapsing settlement times, reducing reliance on intermediaries, and giving investors a more direct and transparent relationship with the assets they own.

Fractional Ownership in Practice

One of tokenization’s most compelling advantages is its ability to divide high-value assets into smaller, more accessible units. Consider commercial real estate as a prime example of how this can work.

In Manhattan, a Class A office tower might be valued at $500 million, which would typically be an investment opportunity reserved for institutional investors, sovereign wealth funds, or the ultra-wealthy. The legal and administrative costs of syndicating such an asset among hundreds or thousands of smaller investors have traditionally been cost-prohibitive, requiring extensive documentation, manual cap table management, and cumbersome transfer processes.

Tokenization changes this calculus entirely. By representing ownership interests in the property as digital tokens, the sponsor can issue thousands—or even millions—of fractional units, each representing a pro rata share of the building’s equity. An individual investor could purchase $1,000 worth of tokens and gain economic exposure to the property’s rental income and appreciation, something that would have been practically impossible under the traditional model, which would normally require a minimum investment of the order of $100,000.

The same concept applies across asset classes. A $50 million Picasso painting hanging in a museum could be tokenized to allow art enthusiasts to own a piece of cultural history for a few hundred dollars. A private equity fund with a $5 million minimum investment could tokenize its interests to accept commitments as low as $10,000 (or lower). Infrastructure projects, venture capital portfolios, music royalties, and even litigation finance arrangements can all be fractionalized in ways that were previously uneconomical. Now, assets that were once the exclusive province of the wealthy can theoretically become available to a broader universe of investors.

Programmability in Practice

Beyond fractional ownership, tokenization introduces a fundamentally new capability that can dramatically reduce administrative burden: programmability. Traditional securities are static in that they exist as entries in a database or notations on a ledger, and any action involving them requires manual intervention by intermediaries which takes time and is subject to human error.

Tokenized assets, by contrast, can embed rules and logic directly into the token through smart contracts, enabling automation that was previously impossible. Consider a private placement subject to Rule 144 under the Securities Act, which imposes a holding period before resale. In the traditional world, compliance depends on the transfer agent or broker manually checking whether the holding period has elapsed before approving a transfer, coupled with the investor having to provide a legal opinion that would enable the transfer agent to release the shares. With tokenized securities, the holding period restriction can be coded directly into the smart contract. If an investor attempts to transfer the token before the restriction lifts, the transaction simply will not execute because compliance is automatic and tamper-proof.

The same principle applies to investor eligibility. A tokenized fund interest could be programmed to verify that any prospective transferee is an accredited investor before the transfer can be completed and recorded. The smart contract can interface with third-party verification services, check the buyer’s credentials in real time, and either approve or reject the transaction immediately without any human involvement (and, again, without unnecessary fees).

Distributions become similarly seamless. Rather than a fund administrator calculating each investor’s share of a quarterly dividend, cutting checks or initiating wire transfers, and reconciling records across multiple systems, a smart contract can automatically calculate pro rata entitlements and push stablecoin payments directly to token holders’ wallets the moment funds are available. Corporate actions, such as stock splits, rights offerings, or redemptions can be executed programmatically across the entire investor base. Even complex waterfall structures in private equity or real estate syndications, which traditionally require accountants and attorneys to manually calculate preferred returns, catch-up provisions, and carried interest, can be encoded into smart contracts that execute distributions precisely as the governing documents specify. The token becomes not just a record of ownership, but an intelligent instrument that carries its own rulebook and cap table, and enforces it autonomously.

Not a Sidestep of the Federal Securities Laws

Perhaps the primary misconception is that tokenization offers a way to sidestep securities laws, that by calling something a “token” instead of a “share” or “bond,” issuers can avoid the registration, disclosure, and investor protection requirements that have governed capital markets in the United States for nearly a century. This is not the case.

Securities regulators in the United States have made clear that the economic substance of an instrument, not its technological wrapper, determines whether it is a security. Specifically, on January 28, 2026, the SEC issued a Joint Staff Statement which discussed the idea that tokenization changes the format of the asset, not its legal status. If a tokenized asset represents an investment of money in a common enterprise with an expectation of profits derived from the efforts of others, it will almost certainly qualify as a security under the Howey test, regardless of whether it is recorded on a blockchain.

This means that tokenized securities must still generally be registered with the SEC or issued pursuant to an exemption, such as Regulation D for private placements or Regulation A for smaller public offerings. Issuers remain subject to anti-fraud provisions, and broker-dealers and exchanges that facilitate trading in tokenized securities must comply with applicable licensing and operational requirements.

Conclusion

Tokenization is not a revolution in what we own, but in how we own it. Much like the internet did not invent air travel but fundamentally transformed how we search for, compare, and purchase flights, tokenization does not by itself create new asset classes (at least, not yet).  Instead, it reimagines the infrastructure through which existing assets are issued, held, and exchanged. The layers of intermediaries, the settlement delays, and the friction that define today’s financial plumbing are not immutable features of capital markets; they are artifacts of a system built before distributed ledger technology existed. Tokenization offers the possibility of stripping away that complexity, enabling faster settlement, broader access, and greater transparency, all while operating within the same regulatory framework that protects investors today and ensures that token issuers abide by the existing rules. The transformation will not happen overnight, and it will require continued collaboration between technologists, market participants, and regulators. For those willing to look past the hype and understand what tokenization is, and what it is not, the opportunity to modernize the backbone of global finance is both real and significant.

The path to leveraging tokenization, whether through fractionalizing assets, programming compliance, or upgrading financial infrastructure, is complex and requires navigating through an ever-developing legal landscape. If you are ready to explore how this transformative technology can be applied to your specific assets or business model, or if you have any questions regarding your business or digital asset portfolio, please contact us for personalized guidance.

DISCLAIMER: This summary is not legal advice and does not create any attorney-client relationship. This summary does not provide a definitive legal opinion for any factual situation. Before the firm can provide legal advice or opinion to any person or entity, the specific facts at issue must be reviewed by the firm. Before an attorney-client relationship is formed, the firm must have a signed engagement letter with a client setting forth the Firm’s scope and terms of representation. The information contained herein is based upon the law at the time of publication.