Towards a Framework for Understanding the Potentials of Tokenized Assets

Distributed ledger technology enables transactions to be modeled in a new way, fundamentally changing how the digital transfer of value can be designed.

Tokenization, the process of representing the rights to an asset as a digital asset token, is said to be a powerful disruptive change to our economic system that will lead to greater efficiency and democratization. Likewise, the issuance, transfer and storage of tokens on decentralized platforms is expected to reduce the disadvantages of intermediaries (e.g. single point of failures, delayed processing times). In particular, the digital representation of bankable assets (e.g., stocks, bonds) has become a promising use case (Heines et. al. 2021). The Financial Times estimates that DLT-based market infrastructures could save asset managers up to $2.7 billion per year just in buying and selling funds (Mooney 2018). However, by no means is tokenization limited to the issuance and transfer of financial assets. It has been described as an “enabler” for new innovative services and frictionless collaboration in a new type of economy called a token economy. For example, the origin of food or drugs can be traced through the product lifecycle, or the holder of a token can use a car-sharing platform to access services. In each of these cases, the reason for using tokenized assets, the actual value proposition, may be different (e.g., improved transparency, increased liquidity). For decision makers, the value proposition is most relevant when choosing to implement a token-based business model, as are potential barriers to implementation. However, when trying to assess the potential of tokens for their business, they face the challenge that while there are tons of technical literature on token design, there are no simple decision support tools to help identify appropriate use cases for their own business (Harwood-Jones 2019).

This is the starting point of a study we conducted together with Roger Heines and Prof. Dr. Reinhard Jung and recently presented at the PACIS 2021 conference. To support companies in the strategic selection of a token-based use case, the study derives archetypes that can be observed in a variety of existing token-based solutions. These archetypes, together with the underlying set of criteria, provide companies with an initial starting point for exploring the benefits and potential applications of token-based solutions.

This post is structured as follows:

  • Information on the Study
  • Criteria for the Analysis of Token-based Applications
    • Token Characteristics
    • Drivers for Tokenization
    • Barriers to Tokenization
  • Archetypal Use Cases for the Tokenization of Assets
    • Programmable Money
    • Smart Bankable Assets
    • Opening Up Illiquid Assets
    • Crowdfunding
    • Service Access
    • Platform Governance
    • Digital Sovereignty
    • Track & Tracing

Of course, if you’re mainly interested in the results, you can skip right to the archetypes and use the explanations in the first part of the post as a reference if needed.

Information on the Study

The study follows a three-stage research approach. First, we conducted a literature review and analysis to gather all previously researched criteria relevant to the design of token-based applications in the categories of token design, value proposition (also referred to here as drivers), and obstacles. In a second step, we completed and validated the criteria in interviews with 22 participants (e.g., executives and product managers from banks and fintechs). Finally, we applied the identified criteria to a sample from a database of 129 DLT- and blockchain-based companies in German-speaking Europe (i.e., Germany, Austria, Switzerland, and Liechtenstein). For the sample, we selected companies that represent a viable ecosystem around tokenization. We excluded wallet providers, crypto exchanges, miners, or broader DLT infrastructures (e.g., Ethereum) from the study, as the study focuses on companies that use tokens beyond mere provisioning to offer innovative products and services based on them. Based on the identified criteria, we were able to derive eight empirically based archetypes.

In the following, we will first present the criteria for the analysis of token-based solutions and business models, before going on to present the derived archetypes.

Criteria for the Analysis of Token-based Applications

The set of criteria described below from the identified token properties (1-10), drivers (11) and barriers (12) for tokenization provides a comprehensive framework that can be applied in describing and evaluating use cases related to asset tokenization. It consists of 12 dimensions and 44 sub-criteria along the aforementioned three overarching themes[1]:

Figure 1 Criteria Catalog for Tokenization Use Cases
Token Characteristics

Tokens can have a variety of characteristics. The study identified ten relevant properties for the criteria catalog: first, the industry in which a token can be used; second, the right or asset that the token represents (e.g., art, gold, football tickets); third, the type of asset to which the token relates – digital assets (e.g., digital twins), physical assets (e.g., real estate), or contracts (e.g., usage rights); fourth, the function or reason for holding a token (e.g., access to a service); fifth, the underlying purpose of a token, e.g. payment tokens such as Bitcoin; sixth, the unit or divisibility of a token; seventh, the tradability of the token to another party (e.g., sale of a registered security); eighth, the fungibility or interchangeability of a token based on interchangeable value (e.g., currency token vs. artwork); ninth, the supply or number of tokens that can be generated; and tenth, the technical setup or level at which a token is applied – native tokens such as Bitcoin or non-native tokens such as ERC-20. For example, many of the well-known DeFi projects use the ERC-20 standard. These tokens are not executed in their own blockchain, but are issued on the Ethereum network. 

Drivers for Tokenization

In addition to token characteristics, the analysis criteria also include six different drivers of tokenization that represent the value proposition of a token as part of an operating and business model. Democratization and facilitated access to assets refers to the level of financial inclusion. For example, real estate tokenization allows retail customers to participate in large-scale real estate development projects to which they previously had no access. The correlation to the democratization factor is thus strong in this use case. This does not apply to tracing the origin of items (e.g., food), for example. Another possible advantage of tokenization is increased liquidity. For example, tokenization enables investment in previously non-tradable or private assets (e.g., venture capital, real estate in certain markets, collectibles such as wine, classic cars, etc.) and 24/7 market access, creating liquidity and thus facilitating trading of these assets and settlement of transactions (Harwood-Jones 2019; Shtybel 2019). Furthermore, tokenization has the potential to reduce the need for trusted intermediaries (disintermediation). Peer-to-peer trading and atomic settlement are examples of disintermediation in financial markets (Shtybel 2019). That all participants on the DLT access a common, immutable database (single source of truth) can significantly increase the efficiency of internal and cross-enterprise processes and the correctness of data, and reduce the need for coordination between different parties. The increased transparency and traceability of token ownership, enabled by tokenization, therefore represents a key value proposition of tokenization (Shtybel 2019). Another driver of tokenization is process optimization. Typical examples of process optimization through tokenization is the automation of corporate actions (e.g., automated dividend payments through smart contracts) (Shtybel 2019). Tokenization introduces the concept of scarcity or predictable supply into the digital realm (digital scarcity), which also enables the creation of exclusive digital artifacts for the first time. The properties of digital media, such as mutability and copyability, have previously prevented this (Chen 2020; Lotti 2019; Macedo 2019).

Barriers to Tokenization

In the course of the analysis, in addition to the drivers of tokenization, we identified the following five obstacles, which describe the challenges in the introduction and implementation of token-based solutions.

One of these obstacles is the integration of a distributed ledger into existing structures and legacy systems, such as a financial institution’s core banking system (legacy structures and transition risk). Depending on whether a business case requires the use of sensitive data, data privacy requirements change and may even conflict with existing regulations, such as when the ability to delete personal data must be available (Shtybel 2019). Another obstacle can be uncertainties regarding regulatory and legal aspects as well as compliance. Among other things, they arise from the limited legal enforceability of blockchain transactions. For example, in order for a property to be transferred to a new owner, a land registry entry is required; the entry on the blockchain alone is not sufficient. This applies to all cases where the law requires an entry in a register maintained by official bodies. Other potential legal barriers include lack of global standards and slow adaptation of regulation and law (Savelyev 2018), as well as uncertainties and insecurities in legal compliance and legal interpretation of a specific business case. An important aspect of token-enabled business models is new governance mechanisms. There is often a lack of experience in designing appropriate decentralized governance mechanisms, such as granting voting rights, incentivizing, or designing consensus mechanisms on the blockchain. The extent of the obstacles may depend on the complexity of the underlying network, the number of partners involved in the ecosystem, and the incentive mechanisms applied. The interfaces between the digital and physical worlds pose a challenge, as users must be able to trust that the data stored on the blockchain is authentic and trustworthy (oracle problem). For example, airline insurance contracts are offered via smart contracts on the blockchain, which provide immediate reimbursement to the unfortunate passenger in the event of a departure delay or cancelled flight. However, the smart contract must have reliable real-world data on whether the plane was grounded, which is provided by a third-party (oracle). The more a business case relies on off-chain data, the more important this factor becomes.

Archetypal Use Cases for the Tokenization of Assets

In the study, we identified a total of eight archetypal use cases to which all the applications examined in the sample can be traced (see figure). Each archetype consists of a typically co-occurring combination of the characteristics of tokenized business models.  

Programmable money, primarily driven by new players in the financial industry, represents applications that use tokenized currencies (e.g., Bitcoin, stablecoins, digital central bank currencies) as a means of payment and store of value. Unlike central bank currencies, DLT-based currencies can be sent anywhere in the world at any time without intermediaries, streamlining previous payment processes. They also enable event triggering and automation of a variety of services on automated decentralized platforms (e.g., micropayments). However, governance between stakeholders (e.g., central and commercial banks) and adaptation of the legal framework increase transition risks, as centralized solutions already exist.

Smart bankable assets have similar potential to optimize existing processes. Tradable, fungible asset tokens also provide a broader investor base with access to digital investment products and investment profits, which in turn increases market liquidity. By implementing financial contract logic, recurring payment flows and voting rights can be automated, and immutable documentation of transactions increases market transparency. The integration of the distributed ledger into existing legacy systems poses a risk and obstacle, as unexpected complications could arise and data could be lost during the system changeover. Financial institutions must first familiarize themselves with the technology and may have to use several systems in parallel for a while until they have confidence in the functioning of the new application. Another obstacle is the complexity of the market structures, as the legal and regulatory foundations are only slowly being established.

The opening of illiquid assets focuses on the creation of tokens as proxies for physical assets. Due to the increased efficiency with which tokens can be traded as opposed to the assets they represent, shared investments in assets such as real estate and classic cars become possible and accessible to a wide range of investors, liquidity increases. However, the complex network of actors must be taken into account, as well as the oracle problem, as the data on each physical asset must be authenticated before being stored on the blockchain. Also, as described above, the legal basis for legally transferring ownership of assets, such as real estate, has yet to be established. However, unlike smart bankable assets, no legacy systems need to be considered here. It is assumed that a functioning market infrastructure has not yet been established and that such use cases offer high potential for new products and services.

Crowdfunding represents another, more specialized form of democratization. Such applications, which have taken the form of ICOs, are characterized by reduced transaction costs due to the elimination of external service providers, such as investment banks or consulting firms, which are normally involved in a regular IPO. Where an IPO would not have been worthwhile due to low market capitalization, tokens enable efficient, divisible real-time crowdinvestment from private projects to venture capital participation. The focus is on fast and flexible tradability as a basis for increased liquidity. However, barriers remain in establishing such regulated market infrastructures and incentivizing their use by stakeholders. Examples include investor onboarding and documentation compliant with the Swiss Anti-Money Laundering Act (KYC & AML) or the integration and mapping of these assets at the customers’ house bank. Furthermore, it must be possible to bring a sufficiently high number of demonstrably attractive crowdfunding projects and prospective buyers onto the platform.

In many use cases, tokens are used as a tool to acquire rights to a specific service (service access). Tokenized licenses or memberships used by various industries provide simplified and effective access to decentralized platforms. They are categorized by the functions a token grants the holder (e.g., general, exclusive, or DLT infrastructure access). Both fungibility and non-fungibility can be implemented to assign a unique private or public function. For example, there are brands or sports clubs (e.g. football club Juventus) that grant exclusive access to new releases to fans who own corresponding utility tokens. Unlike other cases, tokens are not regulated in any way. Where tokens merely provide access to a service platform (e.g., tokenized goods in logistics), a new legal framework is not necessarily required, since there is usually no special form of contract legally required in such cases, so existing law can be applied. The services offered are solely dependent on the provider and pose governance and external data source implementation challenges.

Platform governance represents a more abstract set of use cases for tokenizing incentive mechanisms as a means of coordination and cooperation. Embedded in a DLT protocol, tokens are issued to users as rewards for performing certain tasks or behaving in a certain way (e.g., staking or mining rewards for transaction validation). For example, a validator’s stakes are penalized by a deduction for malicious or unfair behavior (slashing), thus ensuring that validators provide stable and secure services through a specific set of rules. In addition to DLT-specific consensus means, a token can also be claimed and valued on its own to provide further incentives for community building or voting. They are not primarily based on future monetization, but have social value by regulating voting rights and creating a sense of community. Democratization, process optimization, disintermediation, privacy (e.g., pseudonymity, anonymity), and increased complexity are characteristic of such use cases.

Digital sovereignty is based on digital scarcity verifiable through DLT and refers to applications that require unique representations and decentralized data access control for the token holder (e.g., digital identities). Once implemented as non-counterfeitable tokens, they provide proof of authenticity and cannot be replicated by anyone, including their issuers. This democratization of interaction on decentralized platforms allows users, for example, to control and trade assets in-game independently of a single platform owner (e.g., CryptoKitties). When tokenizing unique physical assets or sensitive data, it is necessary to consider data privacy and to ensure the authenticity of the data stored on the blockchain.

Finally, track & tracing is used to create a tamper-proof proof of ownership between different stakeholders. Such use cases are often associated with logistical processes across many industries and allow organizations to leverage tokens for increased visibility along the lifecycle of tangible or intangible assets. While consumer goods can be implemented as fungible tokens because, for example, two identical cameras from the same manufacturer are indistinguishable from each other, non-fungible tokens are preferred for high-value goods. In particular, for traceability across supply chains, the authenticity of external data and integration with legacy systems must be considered. In addition, several combinations of archetypes have been identified. For example, use cases in supply chain finance that rely on both track and tracing and the opening of illiquid assets. As an archetype has a primary purpose, there may be additional purposes that can be combined and extend the utility of tokens in a decentralized system.


Decision makers interested in the possibilities of using tokens have mostly had access to technical literature that focused more on token design than on the problems solved or value created by tokenization. The archetypes derived here, on the other hand, provide a practical entry point for managers who want to understand how they can use tokenization to develop innovative products and services or optimize their processes, and what difficulties they may face in implementing it. Once they have decided on one or more use cases, the archetypes also serve as a basic framework for the design of the token-based applications, which can be completed using the criteria identified here.

[1] In selecting the criteria collected in the literature review and interviews, we omitted highly technical features (e.g., burnability), grouped subordinate criteria under an umbrella term (e.g., real-time processing was assigned to process optimization), and grouped similar aspects for evaluation (e.g., facilitated access, democratization).


Harwood-Jones, M. 2019. “Digital and Crypto-Assets: Tracking Global Adoption Rates and Impacts on Securities Services,” Journal of Securities Operations & Custody, p. 10.

Heines, Roger; Dick, Christian; Pohle, Christian & Jung, Reinhard: The Tokenization of Everything: Towards a Framework for Understanding the Potentials of Tokenized Assets. 2021. – Twenty-fifth Pacific Asia Conference on Information Systems. – Virtual AIS Conference.

Lotti, L. 2019. “The Art of Tokenization: Blockchain Affordances and the Invention of Future Milieus,” Media Theory (3:1), Rethinking Affordance, Media Theory, pp. 287–320.

Macedo, J. M. 2019. “A Taxonomy of Token Models and Valuation Methodologies,” Medium, , May 28. (, accessed January 18, 2021).

Mooney, A. 2018. Blockchain ‘Could Save Asset Managers $2.7bn a Year.’ (

Savelyev, A. 2018. “Some Risks of Tokenization and Blockchainizaition of Private Law,” Computer Law & Security Review (34:4), pp. 863–869.

Shtybel, U. 2019. “A New Era of Private Securities: Application of Blockchain in Private Capital Markets Infrastructure,” Journal of Digital Banking (4:2), pp. 152–160.

Christian Dick

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