How does tokenization affect real world asset liquidity?

Tokenization converts rights to physical and financial assets into digital tokens recorded on distributed ledgers, changing how ownership is expressed and transferred. Christian Catalini at the Massachusetts Institute of Technology and Joshua Gans at the University of Toronto have examined blockchain economics and shown how reducing verification and transfer costs can alter market structure. By enabling fractional ownership, 24/7 trading and automated settlement through smart contracts, tokenization lowers entry barriers for investors and can compress time between trade and finality, which are central levers for liquidity.

How tokenization works

A token represents a claim on an asset or stream of revenues while the underlying legal title often remains governed by existing property, corporate or securities law. Smart contracts automate custody, distribution of income and compliance checks, but legal enforceability depends on the interplay between code and jurisdictional rules. Bank for International Settlements research highlights that operational, legal and governance frictions persist even when technology reduces transaction costs, because off-chain processes and reconciliation remain necessary for many real-world assets. These frictions determine how quickly and reliably ownership can change hands and therefore the practical liquidity available to market participants.

Liquidity effects and real-world consequences

Tokenization can increase liquidity by expanding the pool of potential buyers, enabling fractional trades that match small investors with traditionally illiquid assets such as real estate, private equity or infrastructure. Greater granularity of ownership tends to shorten holding periods and raise turnover, supporting price discovery. Evidence on the platform side shows that secondary markets for tokenized funds and real estate can produce more frequent transactions, although results vary by asset class and jurisdiction. At the same time, splitting assets into many small claims can create fragmentation and coordination problems for decision-making, which may depress liquidity for assets requiring collective governance.

Human, cultural and territorial dimensions shape how benefits and risks play out. In emerging markets, tokenization can channel global capital to underfunded projects and enable diaspora investment in local housing or farms, but weak land registries, unclear indigenous land rights and uneven legal protections increase the risk of disputes that limit effective liquidity. Market inclusion may therefore coexist with heightened social conflict if community consent and customary tenure are not respected. Environmental considerations also matter. Some public blockchains historically consumed large amounts of energy, raising concerns about the sustainability of token-based markets, while newer consensus mechanisms and permissioned ledgers offer lower carbon footprints that affect adoption choices.

Regulatory clarity and reliable custodial and legal frameworks determine whether tokenization truly enhances tradable liquidity or simply relocates illiquidity into new technical forms. Where regulators, courts and market infrastructure align to recognize tokenized claims and streamline on-chain-off-chain reconciliation, optionality and participation rise and liquidity follows. Where legal uncertainty, fragmented markets or governance gaps persist, tokenized assets risk appearing liquid in technology but remaining brittle in practice, exposing investors and communities to valuation swings and enforcement challenges.