Session:

Tokenization in Web3
Session: Tokenization in Web3
Agenda
1. Introduction to tokenization
2. Stablecoins
3. Stablecoin Classification
4. Central Bank Digital Currencies (CBDCs)
5. Conclusions
6. Further Reading

Session: This work is released under a Creative Commons Attribution 4.0

Tokenization in Web3 International (CC BY 4.0) License © University of Nicosia, 2
Institute for the Future, unic.ac.cy/blockchain
Session: Tokenization in Web3
Session Objectives
• Understand the concept of tokenization and how it brings traditional assets on-chain.
• Learn the process of creating on-chain representations of assets through custodians.
• Explore the potential benefits of tokenization, such as liquidity, accessibility, and transparency.
• Analyze the challenges and risks of tokenization, including centralization and liquidity risks.
• Investigate the spectrum of tokenization from off-chain assets to fully on-chain enforcement.
• Examine real-world examples of tokenization, and their potential

Session: This work is released under a Creative Commons Attribution 4.0

Tokenization in Web3 International (CC BY 4.0) License © University of Nicosia, 3
Institute for the Future, unic.ac.cy/blockchain
Session: Tokenization in Web3

1. Introduction to Tokenization
Session: Tokenization in Web3
Tokenization is bringing traditional assets on-chain
Tokenization refers to the process of creating on-chain representations of real or financial assets
that are not traditionally issued on-chain. While any asset can theoretically be tokenized,
USD-backed tokens remain the most common example.
It (usually) works as follows:
• A custodian gains control of the real or financial asset to be tokenized.
• The custodian creates an on-chain representation of the asset on a blockchain, either as a fungible token or a
non-fungible token (NFT).
• In cases of non-fractional ownership, the custodian may commit to redeeming the token for the underlying asset
at a set exchange rate (often 1:1, but this is not a fixed rule).
• Custodians typically charge fees for their services.
• The market between the custodian and the token holder is considered the primary market, while secondary
markets exist for token holders to trade their tokens with others.
This is a rough representation of how tokenization works. Each market has its own conventions.

Session: This work is released under a Creative Commons Attribution 4.0

Tokenization in Web3 International (CC BY 4.0) License © University of Nicosia, 5
Institute for the Future, unic.ac.cy/blockchain
Session: Tokenization in Web3
Potential Benefits of Tokenization
• Liquidity: Tokenizing traditionally illiquid assets • Efficiency: Automating processes through smart
(e.g., real estate, art) can create new, global liquid contracts reduces intermediaries and accelerates
markets, making it easier to trade and access traditionally slow transactions, lowering costs and
them. increasing speed.
• Accessibility: Tokenization allows for fractional • Composability: Tokenized assets could integrate
ownership, enabling smaller investors to into other DeFi protocols, allowing for the creation
participate in high-value markets, such as luxury of new financial services and products.
real estate or private equity.
• Global Reach: Blockchain’s borderless nature
• Transparency: Blockchains are immutable and means tokenized assets can be accessed and
ensure transparent record-keeping, potentially traded globally, expanding the investor base and
reducing fraud and improving trust in ownership removing geographical barriers.
and transaction history.
• Fractional Ownership: An asset (such as real
• Programmability: Assets can be embedded with estate or art.) can be divided into smaller, tradable
rules or conditions through smart contracts, digital tokens, allowing multiple investors to own
enabling automated, real-time compliance, and portions of a high-value asset, thus creating new
reducing administrative overhead. markets.

Session: This work is released under a Creative Commons Attribution 4.0

Tokenization in Web3 International (CC BY 4.0) License © University of Nicosia, 6
Institute for the Future, unic.ac.cy/blockchain
Session: Tokenization in Web3
Potential Pitfalls of Tokenization
• Centralization: Despite the goal of decentralization, tokenized
assets rely on custodians or other intermediaries for off-chain
management, introducing risks tied to trust and centralization.
• Liquidity Risks: While tokenization aims to create liquidity,
some markets may lack enough buyers, leaving token holders
unable to sell or forcing them to accept lower prices.
• Market Fragmentation: Multiple tokenization platforms with
different standards can lead to fragmented markets, reducing
liquidity and interoperability across ecosystems.
• Regulatory Uncertainty: Tokenized assets face complex and
varying regulations across jurisdictions, leading to compliance
risks and legal challenges.
• Valuation Complexities: Accurately valuing tokenized assets,
particularly non-standard or illiquid ones, can be difficult,
leading to price volatility and potential mispricing.

Session: This work is released under a Creative Commons Attribution 4.0

Tokenization in Web3 International (CC BY 4.0) License © University of Nicosia, 7
Institute for the Future, unic.ac.cy/blockchain
Session: Tokenization in Web3
The Spectrum of Tokenization
• M1: Currently most assets reside entirely off-chain, managed
through traditional systems (e.g., real estate deeds, paper-based
ownership). There is no digital representation of the asset or its
ownership on a blockchain.
• M2 On-chain Representation: Assets are represented on a
blockchain, but ownership rights and transactions are still handled
off-chain. For example, a token may reflect an asset like real estate,
but legal ownership transfers remain off-chain, and the blockchain
merely serves as a reference point.
• M3 On-chain Integration: Certain aspects of asset ownership and
transfer are moved on-chain, such as using blockchain for
record-keeping or transaction settlement. However, key components
like legal enforcement or some ownership rights still exist off-chain.
• M4 On-chain Enforcement: Tokens represent legally recognized
bearer assets, where ownership and rights are enforced on-chain.
For instance, tokenized assets may be legally recognized, and
ownership can be transferred directly via blockchain transactions
with minimal off-chain involvement.
• M5 Fully on-chain: All activities, including ownership, legal
recognition, value transfers, and enforcement, are conducted entirely
on-chain. The asset and its entire lifecycle, from transfer to
enforcement of rights, exist only on the blockchain, with no reliance
on off-chain mechanisms.
Source: RWA.xyz - The Spectrum of Tokenization

Session: This work is released under a Creative Commons Attribution 4.0

Tokenization in Web3 International (CC BY 4.0) License © University of Nicosia, 8
Institute for the Future, unic.ac.cy/blockchain
Session: Tokenization in Web3
Trends in Tokenization
• Tokenized assets are projected to reach between $2 trillion and $24 trillion by 2027. Real
estate alone could see $3.2 trillion in tokenized home equity by 2030.
• Government and corporate bonds, Private equity, private debt, collectibles, and luxury real
estate , and commodities are lead tokenization trends
• Major asset managers like BlackRock, Fidelity, and Franklin Templeton are exploring
tokenization
• Currently, BlackRock's BUIDL Fund is the largest tokenized treasury fund, and surpassses
Franklin Templeton's similar offering.
• The fund provides a yield, on tokens price at $1 each, and is aimed at institutional investors
only (permissioned)

Source: McKinsey

Session: This work is released under a Creative Commons Attribution 4.0

Tokenization in Web3 International (CC BY 4.0) License © University of Nicosia, 9
Institute for the Future, unic.ac.cy/blockchain
Session: Tokenization in Web3
RWA in numbers

Source: Dune Analytics

Session: This work is released under a Creative Commons Attribution 4.0

Tokenization in Web3 International (CC BY 4.0) License © University of Nicosia, 10
Institute for the Future, unic.ac.cy/blockchain
Session: Tokenization in Web3
Blackrock’s BUIDL fund in numbers

Source: Dune Analytics

Session: This work is released under a Creative Commons Attribution 4.0

Tokenization in Web3 International (CC BY 4.0) License © University of Nicosia, 11
Institute for the Future, unic.ac.cy/blockchain
Session: Tokenization in Web3
Interesting read
• Crypto has designs on real estate, by the FT:
• https://on.ft.com/3BLjwMa

• You can use this website to access the article:

• https://archive.is/
• Simply put the ft link in the search bar

Source: McKinsey

Session: This work is released under a Creative Commons Attribution 4.0

Tokenization in Web3 International (CC BY 4.0) License © University of Nicosia, 12
Institute for the Future, unic.ac.cy/blockchain
Session: Tokenization in Web3

2. Stablecoins
Session: Tokenization in Web3
Cryptocurrencies are not always ‘good money’
Good money acts as a good: The above rely on the stability and general acceptability of
money. Cryptocurrencies are arguably not good money
due to their exchange rate volatility. That is despite having
other desirable properties of money. Those include:
• Medium of Exchange: Facilitates trade by being • Durability: Not subject to physical wear and tear, ensuring
widely accepted in exchange for goods and longevity.
services, eliminating the need for barter. • Transportability: Easily transferable across borders
• Unit of Account: Serves as a common reference electronically, offering convenience.
for valuing goods and services, simplifying price • Divisibility: Can be split into smaller units for
comparison and economic calculation. micro-transactions, increasing utility.
• Fungibility: Each unit is interchangeable, maintaining
• Store of Value: Preserves purchasing power over
consistency in transactions.
time, enabling saving and deferring consumption.
• Resistance to Counterfeiting: Uses advanced cryptographic
security, reducing fraud risk.

Stablecoins aim to provide the best of both worlds, by

creating a cryptocurrency that is also stable.

Session: This work is released under a Creative Commons Attribution 4.0

Tokenization in Web3 International (CC BY 4.0) License © University of Nicosia, 14
Institute for the Future, unic.ac.cy/blockchain
Session: Tokenization in Web3
Why are most stablecoins denominated in USD?
There is no such thing as a universally accepted
measure of “stability”

• The USD, while not perfectly stable, is widely regarded as

"stable enough" due to its global acceptance and relative
economic strength.
• Technologically, stablecoins are capable of pegging to various
targets including other fiat currencies, physical assets, baskets
of assets, or even self-defined benchmarks.
• This flexibility allows stablecoins to act as blockchain-based
derivatives, offering diversified financial instruments and
hedging opportunities in digital finance.
• The choice of the USD as a peg is largely driven by its
dominant role in international trade and finance, underpinning
its perceived stability and reliability.

Session: This work is released under a Creative Commons Attribution 4.0

Tokenization in Web3 International (CC BY 4.0) License © University of Nicosia, 15
Institute for the Future, unic.ac.cy/blockchain
Session: Tokenization in Web3
The ‘instability’ of the USD

https://seekingalpha.com/article/137051-the-dollars-20th-century-decline

Session: This work is released under a Creative Commons Attribution 4.0

Tokenization in Web3 International (CC BY 4.0) License © University of Nicosia, 16
Institute for the Future, unic.ac.cy/blockchain
Session: Tokenization in Web3
Stablecoins have experienced explosive growth (1/2)

Session: This work is released under a Creative Commons Attribution 4.0

Tokenization in Web3 International (CC BY 4.0) License © University of Nicosia, 17
Institute for the Future, unic.ac.cy/blockchain
Session: Tokenization in Web3
Stablecoins have experienced explosive growth (2/2)

Session: This work is released under a Creative Commons Attribution 4.0

Tokenization in Web3 International (CC BY 4.0) License © University of Nicosia, 18
Institute for the Future, unic.ac.cy/blockchain
Session: Tokenization in Web3
They are also extremely centralized

Session: This work is released under a Creative Commons Attribution 4.0

Tokenization in Web3 International (CC BY 4.0) License © University of Nicosia, 19
Institute for the Future, unic.ac.cy/blockchain
Session: Tokenization in Web3

3. Stablecoin Classification
Session: Tokenization in Web3
The different types of stablecoins (1/2)
Stablecoins are categorized based on:

Their degree of reliance on custodians for their On how they maintain price stability: utilizing traditional
operation, into centralized (custodian) or decentralized financial assets as collateral, crypto collateral,
(non-custodian): algorithmic methods, or hybrid approaches:
• Centralized stablecoins are managed by an entity • Exogenous Collateral: Backed by real-world assets like
(which can be regulated) but introducing central point of fiat currencies or commodities, offering more stability but
failure risks. at the cost of centralization. This collateral can also be
tokenized and on-chain.
• Decentralized stablecoins operate without a central • Endogenous Collateral: Utilizes other cryptocurrencies
authority but may face regulatory challenges. as collateral, often favoured for greater decentralization
but can face capital efficiency challenges.
• Algorithmic Stablecoins: Rely on algorithms to regulate
supply and demand, aiming for capital efficiency and
decentralization, but with potential stability risks. As we
will see, they are essentially backed by equity in their
ecosystem.

Session: This work is released under a Creative Commons Attribution 4.0

Tokenization in Web3 International (CC BY 4.0) License © University of Nicosia, 21
Institute for the Future, unic.ac.cy/blockchain
Session: Tokenization in Web3
The different types of stablecoins (2/2)

Algorithmic (Equity Collateral)

Session: This work is released under a Creative Commons Attribution 4.0

Tokenization in Web3 International (CC BY 4.0) License © University of Nicosia, 22
Institute for the Future, unic.ac.cy/blockchain
Session: Tokenization in Web3
The example of Tether
Fully collateralized stablecoins aim to maintain a stable USDT creation and management process
value by backing each token with real-world assets,
1. Deposit: Bob deposits 1 USD into Tether’s bank account.
such as USD, held in reserves. These reserves ensure
that each stablecoin can be redeemed for an equivalent 2. Minting: In response, Tether mints and sends 1 USDT to
amount of the underlying asset. Bob’s address.
3. Redemption: Bob can exchange 1 USDT back for 1 USD
This collateral type is called exogenous collateral, as it at any time.
is not a native blockchain asset.

Benefits and Drawbacks

• Simple and direct method to maintain stability against the
USD.
• As a centralized system, it requires users to trust that Tether
holds sufficient reserves and will fulfill redemption requests.

Session: This work is released under a Creative Commons Attribution 4.0

Tokenization in Web3 International (CC BY 4.0) License © University of Nicosia, 23
Institute for the Future, unic.ac.cy/blockchain
Session: Tokenization in Web3
The example of DAI
DAI is an on-chain collateralized stablecoin, primarily DAI creation and management process
backed by Ether (ETH) and other digital assets. Its
1. Borrowing into Existence: Users, like Alice, deposit a higher
issuance is managed by MakerDAO, a Decentralized value of ETH (e.g., $150 worth) into a MakerDAO vault (a
Autonomous Organization (DAO) that oversees the smart contract).
protocol.
2. Minting DAI: Alice can mint up to $100 worth of DAI (100
DAI), effectively borrowing against her ETH collateral.
This type of stablecoin uses endogenous collateral,
meaning it is backed by cryptocurrencies native to the 3. Collateral Retrieval: Alice can reclaim her ETH collateral by
blockchain ecosystem. repaying the 100 DAI at any time.
4. Collateral Liquidation: If the value of the ETH collateral
drops below a certain threshold, a portion of it is liquidated
Benefits and Drawbacks to maintain DAI’s stability.
• DAI’s decentralized, overcollateralized model ensures
stability without relying on a centralized entity.
• However, overcollateralization can be inefficient, requiring
users to lock in significantly more value than the DAI they
borrow.

Session: This work is released under a Creative Commons Attribution 4.0

Tokenization in Web3 International (CC BY 4.0) License © University of Nicosia, 24
Institute for the Future, unic.ac.cy/blockchain
Session: Tokenization in Web3
Algorithmic stablecoins (1/2)
Algorithmic stablecoins rely on arbitrage within a If stablecoin price falls below peg (e.g., $0.9):
two-token system: a stablecoin and an equity-like
• Users can exchange (remove from circulation) 1 unit of
token. The equity token is not a stablecoin, and its stablecoin for $1 worth of equity.
value fluctuates freely. • By doing so, the profit the $0.1 difference
• Removing the stablecoin from circulation decreases
• Holders can always exchange (remove from circulation)
supply, pushing the price back up towards the peg.
$1 worth of the equity token to create 1 unit of stablecoin,
• In the process, the price of the equity token also rises.
and vice versa.
• This mechanism makes the equity token more desirable
• When the stablecoin is at peg ($1), nothing happens. the higher the utility of, and demand for the stablecoin.
• The equity token is essentially a bet on the utility of the
stablecoin, and its ecosystem
• This mechanism continues to work, so long as users
If stablecoin price rises above peg (e.g., $1.1):
believe that the stablecoin and equity token will retain
• Users exchange (remove from circulation) $1 worth of some value.
equity token for 1 newly created unit of stablecoin.
• They can then sell the stablecoin for $1.1, profiting from
the $0.1 difference.
• This arbitrage increases supply, driving the price back
down towards the peg.

Session: This work is released under a Creative Commons Attribution 4.0

Tokenization in Web3 International (CC BY 4.0) License © University of Nicosia, 25
Institute for the Future, unic.ac.cy/blockchain
Session: Tokenization in Web3
Algorithmic stablecoins (2/2)
Read this case study on the collapse of
UST:
• UST, an algorithmic stablecoin of the Terra (Luna)
ecosystem, lost its 1:1 peg to the US dollar. This
depegging triggered a loss of confidence among
investors, leading to a massive sell-off.
• As UST's value fell, the protocol began minting
excessive amounts of Luna to buy back and burn
UST to restore its peg. This excessive minting
drastically inflated Luna's supply, causing its price
to collapse.
• The rapid devaluation of both UST and Luna
created a downward spiral. Investors' rush to exit
caused further devaluation, leading to a collapse
of the Terra ecosystem.

https://lambisdion.medium.com/post-mortem-the-death-of-luna-terrausd-simply-explained-177e0612fb7e

Session: This work is released under a Creative Commons Attribution 4.0

Tokenization in Web3 International (CC BY 4.0) License © University of Nicosia, 26
Institute for the Future, unic.ac.cy/blockchain
Session: Tokenization in Web3

4. Central Bank Digital Currencies

(CBDCs)
Session: Tokenization in Web3
Defining CBDCs
CBDCs are a new form of digital central bank money to address contemporary issues in our
economies.
• Retail CBDCs: Available to domestic consumers and households as digital equivalents of cash
• Wholesale CBDCs: Available to banks and appointed institutions for intrabank/settlement functions
• Universal CBDCs: Available to the foreign sector too

Session: This work is released under a Creative Commons Attribution 4.0

Tokenization in Web3 International (CC BY 4.0) License © University of Nicosia, 28
Institute for the Future, unic.ac.cy/blockchain
Session: Tokenization in Web3
Virtually every central bank is engaged in CBDC work

Session: This work is released under a Creative Commons Attribution 4.0

Tokenization in Web3 International (CC BY 4.0) License © University of Nicosia, 29
Institute for the Future, unic.ac.cy/blockchain
Session: Tokenization in Web3
Motivations differ between advanced & emerging economies

Session: This work is released under a Creative Commons Attribution 4.0

Tokenization in Web3 International (CC BY 4.0) License © University of Nicosia, 30
Institute for the Future, unic.ac.cy/blockchain
Session: Tokenization in Web3
CBDCs are a response to challenges of the financial system
Coherent response to contemporary economic events:
• 2011-2015: As a Monetary Policy Tool: Addressing low inflation
post-2008 crisis and the ineffectiveness of Quantitative Easing (QE)

• 2015-2019: Adapting to Digitization and the Rise of Fintech,

Cryptocurrencies, and Blockchain: Responding to the mid-2010s surge
in cryptocurrency usage and industrial applications of blockchain

• 2019-2025: Preservation of Financial Sovereignty: Mitigating

challenges posed by cryptocurrencies, global stablecoins, and foreign
CBDCs

Addressing other challenges:

• Declining use of cash in the economy
• Concerns about privacy in digital payments
• Potential for programmable money and its applications

Session: This work is released under a Creative Commons Attribution 4.0

Tokenization in Web3 International (CC BY 4.0) License © University of Nicosia, 31
Institute for the Future, unic.ac.cy/blockchain
Session: Tokenization in Web3
The CBDC design space and options
1. Nature: CBDCs represent a central bank liability, either a direct obligation of
the bank or designed through new legal structures. Unlike traditional central
bank reserves, CBDCs can extend beyond interbank uses and reach the
private sector.
2. Availability: CBDCs may be designed for different users: wholesale (banks,
institutions), retail (households, individuals), or universal (including foreign
participants). The availability of CBDCs affects financial inclusion and
accessibility, possibly improving access to money for underserved groups.
3. Provision: CBDCs can be issued directly by central banks or through
intermediaries like commercial banks. The structure impacts the central bank’s
role in money management and can influence financial system stability.
4. Access: Account-based CBDCs rely on identity verification, while token-based
CBDCs act like cash, where ownership is linked to knowledge of a private key.
The choice affects privacy, security, and usability of the system.
5. Infrastructure: CBDCs can be built using traditional banking systems or
blockchain technology, with the latter offering potential benefits like
programmability, but also presenting challenges in scalability and security.

Session: This work is released under a Creative Commons Attribution 4.0

Tokenization in Web3 International (CC BY 4.0) License © University of Nicosia, 32
Institute for the Future, unic.ac.cy/blockchain
Session: Tokenization in Web3
The alternative options
1. Nature – Reserve vs Non-Reserve: CBDCs distinct from central bank reserves may offer greater flexibility, enabling
broader use in the private sector, but they could introduce higher risks and be less stable compared to traditional reserves.
2. Availability – Wholesale vs Retail vs Universal: Wholesale CBDCs are limited to financial institutions, while retail
CBDCs are available to the general public. Universal CBDCs, which are accessible to all, provide the most flexibility for
achieving policy goals, such as enhancing financial inclusion. The wider the availability of a CBDC, the easier it is to adjust
monetary policy.
3. Access - Tokens vs Accounts: Token-based CBDCs are favored for their cash-like privacy, but privacy concerns can
arise from digital fingerprinting and regulatory compliance needs. Account-based CBDCs, linked to identity, offer stronger
regulation but may compromise privacy.
4. Infrastructure - DLT vs RTGS: While provides transparency and security but incurs high overhead and scalability issues.
Traditional RTGS (Real-Time Gross Settlement) is preferred by banks for its scalability, efficiency, and familiarity, though it
lacks the flexibility and programmability of DLT.
5. Provision - Direct vs Indirect, Hybrid: Direct CBDC issuance by central banks risks disintermediating commercial banks
and increasing operational costs for central banks. Indirect or hybrid models, where private banks manage customer
relations, help maintain the existing financial structure while involving central banks in oversight and regulation.

Session: This work is released under a Creative Commons Attribution 4.0

Tokenization in Web3 International (CC BY 4.0) License © University of Nicosia, 33
Institute for the Future, unic.ac.cy/blockchain
Session: Tokenization in Web3
Important CBDC Components
• Availability: Wholesale, retail, or universal
• Interest: Ability to bear positive and negative
interest
• Convertibility and Nature of Liability: At par with
other monies (cash, deposits)

The above considerations are important as they facilitate

new proactive and reactive capabilities for Central Banks.
Those include:

• Wide availability of remunerated CBDC leads to direct

implementation of monetary policy.
• Interest can vary depending on size of holdings or type of This Photo by Unknown Author is licensed under CC BY

entity.
• Convertibility ensures transmission of rate adjustment and
non-reserve nature flexibility.

Session: This work is released under a Creative Commons Attribution 4.0

Tokenization in Web3 International (CC BY 4.0) License © University of Nicosia, 34
Institute for the Future, unic.ac.cy/blockchain
Session: Tokenization in Web3
CBDC and Financial Disintermediation
An attractive CBDC may cause financial There are several proposals to mitigate those
instability due to its substitutability: negative impacts:
● Unsophisticated consumers may switch deposits for ● Non-reserve, adjustable interest rate, no guaranteed
CBDC at the first sight of crisis (e.g., SVB) convertibility, only issued against eligible securities.
● Despite existing tools enabling bank runs, CBDC's ● Counterpropose deposit insurance schemes.
digital nature makes runs easier ● Lending of CBDC deposits to banks.
● The literature studies impact on funding, rates, credit ● Limiting CBDC holdings and interest rate tiers.
provision
The overall goal is an arrangement that enables
growth without disrupting the banking system.
The takeaway from academic literature is:

CBDCs can influence market dynamics and

competition in the banking sector:
● Imperfectly competitive market: banks offer more
deposits, reduce loan rates, and expand financial
inclusion. Reduces monopoly profits of banks.
● Competitive market: banks pass costs to consumers,
decreasing aggregate lending and investment.

Session: This work is released under a Creative Commons Attribution 4.0

Tokenization in Web3 International (CC BY 4.0) License © University of Nicosia, 35
Institute for the Future, unic.ac.cy/blockchain
Session: Tokenization in Web3
Deposit tokens vs CBDCs vs stablecoins
Deposit tokens are digital representations of commercial bank deposits, issued by regulated financial institutions
and fully backed by deposits held at the bank. They are a middle ground between a retail CBDC and a stablecoin.

Deposit Tokens vs CBDCs: Deposit Tokens vs Stablecoins:

• Issuer: Deposit tokens are issued by commercial banks, • Issuer: Stablecoins are unregulated in certain
while CBDCs are issued directly by central banks. jurisdictions and can be issued by any entity. Deposit
tokens would be issued by commercial banks.
• Liability: Deposit tokens represent a claim on a private
bank’s reserves, while CBDCs are direct claims on the • Reserves: Deposit tokens are fully backed by bank
central bank, offering greater safety but potentially deposits and regulated under existing banking laws.
altering traditional banking roles. Stablecoins, especially those like USDT or USDC, are
backed by a mix of assets (fiat, treasuries, etc.) and are
often issued by non-bank entities, facing less stringent
regulation.
• Regulation: Deposit tokens are subject to strict banking
regulations, while stablecoins may operate under varying
regulatory frameworks, leading to differences in
transparency and risk.

Session: This work is released under a Creative Commons Attribution 4.0

Tokenization in Web3 International (CC BY 4.0) License © University of Nicosia, 36
Institute for the Future, unic.ac.cy/blockchain
Session: Tokenization in Web3

5. Conclusions
Session: Tokenization in Web3
Conclusions
• Tokenization enables the creation of on-chain representations for real-world assets, making
them tradable in blockchain environments.
• It can offer significant benefits such as enhanced liquidity, fractional ownership, and improved
transparency for traditionally illiquid assets.
• Despite its advantages, tokenization introduces challenges like reliance on custodians,
centralization risks, and liquidity constraints in certain markets.
• The spectrum of tokenization ranges from off-chain managed assets to fully on-chain
enforcement, with varying levels of blockchain integration.
• Stablecoins and tokenized assets continue to drive innovation, particularly in decentralized
finance (DeFi) and new financial products.
• The future of tokenization may see greater regulatory scrutiny, interoperability improvements,
and broader adoption across different asset classes.

Session: This work is released under a Creative Commons Attribution 4.0

Tokenization in Web3 International (CC BY 4.0) License © University of Nicosia, 38
Institute for the Future, unic.ac.cy/blockchain
Session: Tokenization in Web3

6. Further Reading
Session: Tokenization in Web3
Further Reading
• From ripples to waves: The transformational power of tokenizing assets
https://www.mckinsey.com/industries/financial-services/our-insights/from-ripples-to-waves-the-transformational-p
ower-of-tokenizing-assets

• What is Tokenization?
https://www.mckinsey.com/featured-insights/mckinsey-explainers/what-is-tokenization

• BlackRock Launches Its First Tokenized Fund, BUIDL, on the Ethereum Network
https://securitize.io/learn/press/blackrock-launches-first-tokenized-fund-buidl-on-the-ethereum-network

• The dark side of tokenisation

https://www.ft.com/content/4c3ebc9f-d447-466a-8816-d4a166143029

• Deposit Tokens
https://www.bis.org/publ/arpdf/ar2023e3.htm

• Crypto has designs on real estate

https://www.ft.com/content/cf036ebf-6f4e-474f-a1ef-ca7179b712b0

Session: This work is released under a Creative Commons Attribution 4.0

Tokenization in Web3 International (CC BY 4.0) License © University of Nicosia, 40
Institute for the Future, unic.ac.cy/blockchain
Questions?
Contact Us:

Twitter: @mscdigital
Course Support:
[email protected]
discord.gg/bq2P9XUfnD
IT & Live Session Support: [email protected]