Financial Tokenization is a Meaningless Buzzword

"Tokenization" is the financial industry's latest buzzword, echoing from crypto startups to the highest echelons of Wall Street, including DTCC and BlackRock's CEO Larry Fink in his annual letter, and even capturing attention at the SEC. The purported benefits range from "efficiency" to "democratized access to wealth" to a full-on revolution of finance.

So what is tokenization? At its simplest, tokenization means changing how we do bookkeeping. Today, when you buy stocks or bonds, that ownership is recorded in secure electronic databases managed by regulated financial firms. These databases are part of a larger system — when you tap "buy" in your brokerage app, your broker coordinates with the seller's broker and sends the trade details to a clearinghouse, which ensures the money and assets change hands properly. This entire process is overseen by government regulators to protect investors. Tokenization proposes moving this recordkeeping to a blockchain—the distributed ledger technology known for cryptocurrencies. Why? That's a good question.

Understanding this push first requires considering the internal pressures within large organizations. There's an immense drive to appear innovative, often leading to "innovation theatre"—superficial engagements with trendy technologies. These projects generate positive PR and allow companies to project a cutting-edge image, even if the underlying technology is a poor fit. When the mandate is "we must use blockchain," technical realities often take a backseat to marketing.

This is precisely where the tokenization argument falters from a technical perspective. The core features of public blockchains like Bitcoin's—immutability, public transparency, and operation without trusted intermediaries—are derived from an architecture designed for anonymous, potentially adversarial global environments. (And public blockchains have their own serious problems, but that's a separate discussion.) These very features are fundamentally incompatible with the needs of regulated, enterprise-grade financial bookkeeping.

To make blockchain usable, enterprises must systematically strip away these core attributes: absolute immutability is neutered to allow for error correction and fraud reversal; public ledgers are made private to ensure confidentiality; and permissionless access is replaced with centralized, permissioned controls. The expensive consensus mechanisms designed for trustless environments become redundant overhead in a trusted, private system. What's left is not a revolutionary ledger but an over-engineered, inefficient, and ultimately more costly database, significantly less practical than existing bookkeeping systems. It's like buying a tank to drive to the grocery store, then removing the armor, weapons, and tracks to make it street-legal — at that point, you haven't "disrupted driving" you just have a really expensive, impractical car.

The real question is why BlackRock—with tacit approval from the SEC—would champion an objectively inferior blockchain system to replace proven recordkeeping infrastructure. Looking past the marketing spin reveals a more cynical reality. While regulatory flexibility around internal recordkeeping technology isn't inherently problematic, that's not the endgame here. The tokenization evangelists are orchestrating a calculated strategy: by repackaging traditional assets in blockchain wrapping paper, they can manufacture artificial novelty and complexity, enabling them to charge premium fees for essentially identical products. More worryingly, this technological obscurantism could help sidestep regulatory oversight by making products appear novel and "innovative" rather than what they truly are: conventional financial instruments that would otherwise face greater scrutiny. This technological sleight-of-hand serves primarily to expand BlackRock's addressable market and justify higher fee structures, all under the guise of democratizing finance.

Fink's claims that tokenization enables "fractional ownership" or "democratizes yield" conveniently overlook existing financial products and the real, regulatory barriers to Main Street accessing certain private investments. Most major brokers already offer fractional shares of stocks and ETFs, and the barriers to private investment access have nothing to do with the underlying recordkeeping technology. There's nothing wrong, per se, with alternative recordkeeping approaches that fit within SEC rules, but that's not what this push is about. Instead, "tokenization" serves as a smokescreen, potentially to offload riskier, less transparent private equity and credit onto less sophisticated investors, especially as some analysts warn of instability in these markets.

Offering private equity and private credit to retail investors is widely considered problematic because these asset classes are inherently illiquid, complex, and high-risk, making them unsuitable for the average individual who may need access to their capital or lack the sophistication to navigate opaque valuations and information asymmetry. Private credit in particulary shows some signs of being a financial bubble and "tokenization" efforts may be little more than a hope of turning retail into "bagholders of last resort," buying into less desirable high-risk assets or at inflated prices, while facing high fees that erode returns, all without the robust investor protections and diversification capabilities that institutional players possess.

And let's look at the actual fees: BlackRock's tokenized money market fund charges investors between 0.2% to 0.5% of their investment amount in management fees. Compare that to their regular, non-tokenized money market fund which charges as little as 0.012% — that's 17 to 42 times less expensive. So investors are paying significantly more just because their investment is tracked using blockchain technology instead of traditional bookkeeping systems, with no clear benefit to show for the higher cost. It's like paying $100 for "organic, free-range" salt at a grocery store when it's chemically identical to the 99-cent table salt sitting right next to it — you're just paying extra for the fancy packaging and buzzwords.

And there's the orthogonal claim of "tokenization" of real-world assets will create new markets and liquidity, which goes something like this:

Asset tokenization is the process of converting rights to physical real-world assets into digital tokens on a blockchain. These tokens represent ownership and can be traded, similar to traditional securities, but on a decentralized platform. It allows for fractional ownership and more liquid markets for various asset classes.

And that's a lot of very plausible sounding words that almost make sense, until you think about it for more than 2 minutes.

The rub is that real-world assets still demand trusted third-party custodians and blockchain networks cannot serve as the ultimate arbiter of legal truth, then tokenization appears to be an elaborate exercise in adding unnecessary digital layers. The persistent need for intermediaries in tokenized asset custody fundamentally ignores the legal reality of owernship or would just end up recreating existing custodial structures.

Furthermore, the legal finality of asset ownership remains firmly rooted in traditional legal systems, not on some arbitrary digital ledger. Consider home ownership: a physical deed, registered with a local government registrar, is what signifies legal title, backed by the state’s power through courts and law enforcement like the police. It is this synthesis of institutions that grants true "ownership," not what a blockchain says. A token claiming to represent that house is secondary; it cannot evict a squatter or enforce a sale if the underlying legal deed isn’t recognized. Crucially, numerous real-world events affecting ownership—such as a bank repossession due to mortgage default, disputes over inheritance upon a death, or government exercising eminent domain—fall far outside the scope of any digital ledger. These situations invariably require human judgment, due process within established legal frameworks, and state intervention, rendering the blockchain record merely an extraneous, rather than foundational, layer.

When a blockchain ledger and court ruling conflict, the courts invariably have the final say. If a judge orders ownership to be transferred or modified, that change must be reflected in the ledger regardless of what the blockchain consensus says. And if courts can unilaterally force updates to this supposedly "immutable" and "decentralized" ledger through legal authority, then we've simply recreated a traditional database with extra steps and overhead. The blockchain adds no meaningful value — it's just a more complex and inefficient way to store the same data that must ultimately bend to real-world legal authority.

Consequently, all the purported benefits of tokenization often come with significant caveats or could be achieved through existing means. Real-world assets are not inherently digital or abstract; their existence and transfer are governed by tangible processes and legal precedents outside any digital ledger. Tokenization is either just hand-waving or merely 'extra digital steps' without fundamentally altering the bedrock of ownership. This is the fundamental flaw in tokenization: you can't escape the primacy of legal systems by wrapping them in technological buzzwords and any system that would comply with the law would by definition just be a database.

Which is what makes DTCC's pronouncements on "Asset Tokenization," a masterclass in corporate gish gallop. Their whitepaper is dripping with vague promises of "revolutionizing" finance while being completely devoid of any substance. The paper reads like what would happen if you locked a dozen McKinsey consultants in a conference room with a pallet of Red Bull and a mandate to "innovate or die." It's a fever dream of corporate buzzwords and blockchain hand-waving that somehow manages to say absolutely nothing while using every consulting catchphrase known to mankind.

These documents tout "blockchain-powered" solutions as transformative, yet their core proposals reveal an architecture that meticulously re-implements the centralized controls and functionalities of traditional financial infrastructure, merely wrapped in a trendy DLT veneer. Instead of addressing novel challenges, this innovation theatre largely focuses on "re-solving" solved problems that systems have been managing effectively for decades—like asset tracking, compliance, and error correction—now with an added layer of blockchain complexity and buzzwords for no reason. It's hard to know where to even begin with whitepapers this vague and ambiguous, they're almost beyond criticism because there's nothing concrete to even critique. And maybe that's the point.

Ultimately, the tokenization push looks less like a technological imperative and more like a strategic business play. It's a chance to rebrand existing concepts, tap into new investor pools, justify higher fees, and perhaps navigate the regulatory landscape with a novel "innovative" label. After all, that’s what the crypto industry did: slap a blockchain on unregistered securities products and call it “innovation.” It seems traditional finance now wants its shot at the same playbook.

In essence, the fervent promotion of tokenization within large financial institutions is driven by a confluence of factors largely divorced from genuine technological merit. First, it's a prime example of 'innovation theatre,' a performance designed to project a modern, tech-savvy image to investors and the public. Second, it offers a potential pathway to regulatory arbitrage and the justification of higher fee structures, using the perceived complexity of blockchain as a convenient veil. Finally, on an individual level, it enables internal stakeholders to pad their resumes and advance their careers by championing such 'cutting-edge' projects, regardless of whether the initiatives deliver tangible, sustainable value to the organization or its clients. Thus, for all the revolutionary rhetoric, 'tokenization' in its current enterprise guise risks being little more than a new name for old ambitions, offering no evidence of the meaningful change it purports to deliver.