Tokenized representations of real world assets require accounting recognition that maps established principles to novel technology while protecting users and markets. Standard setters should anchor recognition on observable rights and control, not on the technical form of a token. The International Accounting Standards Board IASB and the Financial Accounting Standards Board FASB emphasize substance over form when classifying economic resources, and that principle should guide tokenized asset accounting. Christian Catalini MIT Sloan has described tokenization’s potential to change market access and liquidity, which increases the urgency for clear treatment.
Recognition and control
Recognition should depend on whether the reporting entity holds control and ownership rights that meet existing recognition criteria under financial reporting frameworks. If a token conveys enforceable contractual rights to cash flows or ownership, it may be a financial instrument under models that evaluate contractual cash flows and transferability. If the token merely records provenance or access without enforceable claims, it may be an intangible or a service arrangement. Assessment must reflect legal title under local law, enforcement mechanisms, and custodial arrangements that can affect ability to control the asset.
Measurement and disclosure
Measurement should align with established fair value frameworks where active markets exist. International guidance such as fair value measurement frameworks requires valuation inputs to reflect market participant assumptions and liquidity. Where markets are thin or fragmented, measurement should emphasize observable inputs, robust valuation models, and extensive disclosures about assumptions, custodial counterparty risk, and smart contract governance. Standard setters must require disclosure of token protocol risks, jurisdictional legal uncertainty, and operational custody arrangements because these factors materially affect valuation and investor understanding.
Causes and consequences
Tokenization arises from distributed ledger technology enabling fractionalization, programmability, and secondary market access. These causes create benefits such as fractional ownership and financial inclusion, documented by researchers at leading institutions, but they also produce consequences including custody failure risk, regulatory arbitrage, and cross-border legal ambiguity. Poorly specified recognition rules could lead to inconsistent reporting, investor harm, and systemic risk if leverage builds on unrecognized liabilities.
For robust practice, accounting standards should apply existing recognition principles while issuing implementation guidance addressing records of ownership, smart contract enforceability, and platform governance. Requiring consistent measurement, enhanced disclosures, and coordination between accounting standard setters and legal authorities will help ensure transparency and comparability as tokenized real world assets scale.