Tokenization

Definition

Tokenization is the process of representing an asset, entitlement, or defined relationship through a digital token. A system might tokenize a membership, an in-game item, a claim to stored goods, or an interest associated with a financial arrangement. Blockchain records can help track issuance and transfers, but the connection between the token and anything outside the chain requires additional mechanisms. A token referring to a physical asset cannot independently prove that the asset exists, remains available, or will be delivered. Custody, verification, redemption procedures, and applicable agreements therefore remain important. Tokenization also does not automatically divide an asset into economically useful fractions or make it liquid. The design must specify what each unit represents and whether transfers carry the intended rights. The central distinction is between ownership of the token record and the separate rights, obligations, or assets that the record is intended to represent.