Tokenization: what it is and why banks are testing it

What tokenizing means

Today, when you buy a share, you don't get a piece of paper: an institution, such as the Depósito Central de Valores in Chile, records in its ledger that you own it. Tokenizing means moving that record onto a blockchain, where the right is represented by a token that moves under programmed rules and that anyone authorized can verify.

If you saw in the previous block that a token can represent dollars, the idea is the same applied to any asset. There are two big families:

How it works, in five steps

1. The asset is structured. It's defined in writing what right the token gives —ownership, participation, debt—, who is liable and under which law. It's the most important step and the least visible.
2. The real asset is held in custody. If the token represents something external, an entity holds the bond, the money or the property title.
3. The token is issued. A smart contract creates the tokens with their rules: who can hold them —for example, only verified investors—, transfer limits and payments.
4. It trades. The tokens are bought, sold or used as collateral, at any hour, and every movement is recorded.
5. It pays out and is redeemed. Interest, dividends or the final payment are distributed by the contract. At maturity, the tokens are taken out of circulation.

The technology moves the record. What makes the token worth something is the legal contract and the custodian behind it.

Why banks are interested

• Near-instant settlement. Many securities trades take one or two business days to settle. With tokens, the asset and the payment can change hands in minutes.
• Delivery versus payment in a single step. The asset and the money are exchanged in the same operation, or neither happens. That reduces the risk of one party delivering and the other not.
• Markets that don't close. A blockchain runs on weekends and at night.
• Smaller fractions. An expensive asset can be split into many parts and reach more investors.
• Built-in rules. Automatic payments, restrictions on who can buy and audit trails, inside the same contract.
• Collateral that moves fast. A tokenized fund can be posted as collateral in minutes, without selling first.

Who is doing it

Asset managers and banks

On March 20, 2024, BlackRock, the world's largest asset manager, launched its first tokenized fund, BUIDL, on Ethereum and together with the company Securitize. It invests in cash and US Treasury bills, and its shares are tokens that move on-chain. It later expanded to other networks. It's the most cited example of tokenization leaving the lab, and one of the reasons we explain in why Ethereum matters.

Central banks

In April 2024, the Bank for International Settlements (BIS) launched Project Agorá with seven central banks, including the Bank of Mexico, to test cross-border payments with tokenized bank deposits and central bank money. In May 2026 it reported that the prototype showed how tokenization can improve wholesale cross-border payments, and that the work would move on to real-value testing. In July 2026, Deutsche Bank reported one of the first: it acted as intermediary agent for a €10,000 treasury payment between Lloyds Banking Group and CaixaBank.

Chile

In its August 2026 Payment Systems Report, Chile's Central Bank reported a proof of concept that used wholesale central bank money with tokenized financial instruments. The Bank itself stated that the test is not a decision to issue. In parallel, it is preparing a regulatory proposal for stablecoins, which we summarize in crypto regulation in Chile.

What's missing: the risks

• The legal link. If the custodian goes bankrupt, disappears or the contract is badly drafted, the token doesn't protect you. The on-chain record is only as good as the right it represents.
• Liquidity. Being able to sell at any hour doesn't mean someone is willing to buy.
• Code and keys. A bug in the contract or a stolen key can affect every holder.
• External data. Prices, payments or real-world events enter the chain through services called oracles, which can also fail.
• Regulation. A token representing a financial instrument can fall under securities market rules. In Chile, that means Law 18,045 and CMF supervision.
• Fragmentation. There are public and private networks that don't always talk to each other, and moving an asset from one to another adds risk.

Public or private network?

Many banks run pilots on private networks, where only authorized entities take part: they control who gets in, but lose part of the point of an open record. Others issue on public networks such as Ethereum and use the contract itself to limit who can hold the token. The trend of recent years is to combine both: regulated assets, with lists of participants, on public infrastructure.

What it means for you in Chile

• If someone offers you “investing in tokens” of properties or companies, ask what right the token gives you, who holds the asset and whether the platform is registered with and authorized by the CMF. The guide on how to check a platform with the CMF applies just the same.
• Tokenized doesn't mean profitable. A bad asset turned into a token is still a bad asset.
• If you work in finance, tokenization is already on the agenda of the Central Bank and the big asset managers. Understanding Ethereum and its standards means understanding the infrastructure the pilots run on.

Where to go next

We end the series where identity begins: with a name. The last block explains what happens under the hood when someone sends you something at yourname.eth: how a .eth name works.