Want to know how DeFi turns real assets into digital tokens? This guide breaks down the process, advantages, and different types of tokens powering the future of finance.
When people hear “blockchain,” their minds often jump to cryptocurrencies like Bitcoin, Ethereum, or Dogecoin. While those are popular blockchain uses, the true power of the technology lies in its broad applications across industries, from finance and real estate to healthcare and supply chains.
One area where blockchain is reshaping traditional systems is decentralized finance (DeFi). With DeFi, real-world assets such as property, art, or bonds can be transformed into digital tokens that are easy to trade, divide, and use—without middlemen.
In this article, we explore how asset tokenization is fueling DeFi’s expansion, how the process works, and the most common token types in use.
What Is Asset Tokenization in DeFi?
In DeFi, tokenization refers to creating digital tokens that represent ownership of physical or financial assets—everything from company shares and real estate to gold or intellectual property.
What makes tokenization in DeFi revolutionary is its ability to digitally represent almost anything valuable, allowing secure and efficient access to decentralized financial systems. One real-world example is the 8lends platform by Swiss company Maclear, which allows businesses to tokenize real-world collateral for crowdfunding-based loans.
How Asset Tokenization Works
Step 1: Select the Asset
Assets can include real estate, stocks, art, or commodities. You must define the asset’s value and ensure legal compliance before tokenization begins.
Step 2: Verify the Asset’s Value
Accurate valuation is critical. For example, if a building is worth $5 million, that must be verified to create properly valued fractional tokens. Custodians or decentralized providers typically help validate and safeguard the asset.
Step 3: Mint Tokens via Smart Contracts
Developers use smart contracts—automated blockchain scripts—to create digital tokens that represent parts of the asset. These contracts also define token rules and actions. Popular platforms for this include Ethereum and OpenChain.
Step 4: Offer Tokens to Investors
Through an ICO or ITO (Initial Token Offering), tokens are made available for investors. Buyers receive tokens that serve as digital proof of ownership.
Step 5: Trade and Use Within DeFi
Once tokens are acquired, users can hold, trade, or use them on DeFi platforms. This brings real-world assets into decentralized markets.
Benefits of Tokenizing Assets in DeFi
Reduced Transaction Costs
Traditional finance often involves fees from banks or brokers. In DeFi, peer-to-peer transactions lower or eliminate these costs and delays.
Fractional Ownership
High-value items like real estate can be split into tokens. Investors can then own and trade smaller portions of expensive assets.
Improved Access and Flexibility
Tokenized assets are easy to buy and sell in real-time using DeFi apps, giving investors more control and agility in managing portfolios.
Built-in Blockchain Security
Each transaction is validated and stored on a tamper-proof blockchain, offering strong protection against fraud.
Types of Tokens in DeFi
Utility Tokens
Provide access to DeFi services or functions. Common in early-stage funding rounds or product access systems.
Stablecoins
Pegged to assets like USD or gold to reduce crypto volatility. Used for lending, payments, and yield farming.
Security Tokens
Represent ownership or profit-sharing rights in real assets. Think tokenized shares or real estate stakes.
NFTs (Non-Fungible Tokens)
Used to represent unique assets like digital art or collectibles. Popularized by creators like Beeple.
Conclusion
Asset tokenization is a core innovation in DeFi, enabling faster, cheaper, and broader access to financial assets. With platforms like 8lends making loans more accessible and investable, DeFi continues to bridge the gap between traditional finance and blockchain.
