Tokenization Explained: Asset to Blockchain Simplified

The tokenization process sounds sophisticated at a glance. But when we adopt a methodical approach, your doubts will disappear. At the beginning, we discussed fundamentals that will support our learning journey. Let’s discuss it step-by-step.

In Story 1, we explored why tokenisation matters. In Story 2, we defined what a token is. Now we will dive deep into the topic, asking a key question: How does tokenisation actually work?

Simply put, tokenisation is a process, not just a single piece of technology. It is a combination of legal, financial, and technical steps to transform a real-world asset into a tradable digital token on a blockchain platform.

Let us walk through it, one step at a time.

The 4 Core Steps of Tokenization

Step 1: Asset Identification

First, we need to identify the right asset. In the second story, we built a simple case study to understand how tokenisation could be utilised as an alternative in real estate. An asset can be real estate, a private equity fund, a piece of art, or even carbon credits. We defined them as Real-World Assets (RWA). An asset should have fundamental characteristics such as clear ownership, defined value, and legal standing. That means not every asset is ready for tokenisation, as it must meet fundamental criteria to be qualified. That is why we must exercise proper due diligence to determine the suitability of an asset for tokenisation. Through tokenisation, we add value to the asset, generating greater economic value.

Step 2: Legal Structuring

We already explored that a token only has real value if the legal framework is properly structured around tokenisation. That means there should be a proper interconnection between the underlying asset and the token.

Hence, legal structuring provides validity to a token. Basically, an asset or any process must be subject to the law to be legitimate. Therefore, legal structuring is a critical step in the tokenisation process.

In the tokenisation process, creating a Special Purpose Vehicle (SPV) or trust is often prominent. This is a widespread method globally that enhances transparency and investor confidence.

An SPV provides a safe layer that allows for ownership and revenue rights. An investor is entitled to a legal claim over the underlying asset that has been tokenised.

Now you will understand the core idea; likewise, a token is just a digital file with no legitimate value unless legal structuring is in place.

Therefore, we must think of it as writing the rules before the game begins.

Step 3: Token Issuance

Once the legal structuring is in place, the token will be created on the blockchain using smart contracts. Each token is a defined fraction of the asset, and investors are entitled to the legal rights over the asset. Smart contracts store investor details, compliance rules (e.g., KYC, AML), and transfer conditions, and the token is now a digital representation of the underlying asset.

Step 4: Trading, Settlement & Custody

After issuance, investors can trade (buy or sell) tokens on regulated platforms, such as exchanges built for digital securities. The settlement, exchange, and safekeeping processes are now real-time. At the outset, we explored difficulties with the traditional trading, settlement, and custody process. There was a middleman in each process, and these processes usually took longer. Unlike the traditional process, there is no middleman here. That’s the beauty of tokenisation.

Now, tokens are accessible for any investor who wishes to invest. But keep in mind the precise definition of tokenisation before investing. Knowing the fundamentals allows you to be an informed investor

Why This Process Matters

In Story 1, we asked key questions about the traditional way of storing and transferring value, asking

• There’s got to be a better way, right?
• Why does it take days to settle a stock trade?
• Why can’t you invest in real estate without legal headaches?
• Why is transferring ownership still so difficult across borders?

Trust that the above process clarified the doubts. Let’s reiterate it

Traditional asset transactions involve layers of intermediaries, such as brokers, custodians, clearinghouses, and legal teams. Each middleman and process adds cost and time.

Tokenisation compresses all those steps and eliminates middlemen. A smart contract replaces those middlemen and automates the process. Blockchain provides a shared and transparent record of the tokenised asset.

Finally, tokenization

• Allows transactions to be real-time

• No additional cost for middlemen

• Provides access to assets for a wide spectrum of investors, eliminating barriers

Another advantage is that when an asset is accessible to a wide range of investors, it enhances market liquidity.

A tokenised real estate asset, for example, can be settled in minutes rather than the 30- to 60-day period typical of traditional property transactions. (Source: World Economic Forum, 2025)

Key Takeaway

• Tokenisation is a process, not a single technology: it combines legal, financial, and blockchain steps.
• Legal structuring is the most critical step: without it, a token has no real-world meaning or legal standing.
• Smart contracts automate compliance and settlement, removing the need for multiple costly middlemen.
• Settlement can happen in minutes, e.g., compared to 30–60 days in traditional real estate asset transactions.
• A token is only as strong as the process behind it: the quality of the underlying asset and legal framework determines its value.

Coming Up Next in the Series

Story 4 — The Infrastructure

“The Invisible Rails: Blockchain, Smart Contracts, and Digital Custody”

Tokens don’t move on their own. In the next story, we go behind the scenes to explore the blockchain networks, smart contracts, and custody systems that enable tokenisation.