Asset tokenization

Asset tokenization involves creating a digital token that represents a real or digital asset on a blockchain.

This token acts as a digital version of the physical or intangible asset, allowing it to be exchanged more quickly, traceably and transparently.

The concept of tokenization is increasingly well known and is becoming steadily more relevant in technology, in the economy and even in society at large.

Depending on how it is defined, this token can represent all of what is tokenized or a fraction of it.

When we tokenize an asset we do not move it onto the blockchain: we create a digital representation of a right that already exists over it. That right still comes from the contract, the deed or the company bylaws. The token mirrors it and records who holds it.

Put simply, turning an everyday asset into a digital asset.

With this, what we achieve is that the asset is easier to transfer, fractionalize or market, avoiding some of the operational friction that physical assets usually involve.

Fragmentation of an asset consists of dividing the economic rights over it into small parts, where each part is represented by a token.

This allows several people to take part in the same asset, since each token represents a fraction of the rights agreed over the tokenized asset: revenue sharing, access to services or any other right set out in the contract. The token alone does not grant ownership (art. 609 of the Spanish Civil Code).

For example, in the case of a work of art:

• A single token can represent the whole right over the work, or several tokens can represent fractions of that right.

• The caveat that decides everything: the token alone does not transfer ownership. Co-ownership comes from the contract or the company that is set up, and transfer needs both title and delivery; the token only records who the holder is (art. 609 Spanish Civil Code, BOE-A-1889-4763).

All of this is recorded and managed traceably using the blockchain.

Difference between tokenized assets and cryptocurrencies

The key difference between the two is their origin and purpose:

• Cryptocurrencies are purely digital assets, created within a blockchain ecosystem and that have no direct support in the physical world.

• Tokenized assets, by contrast, point to something outside the chain: a real-world asset or right. That backing does not come from the token, it comes from the legal structure behind it. With no contract, deed or company holding it up, there is no backing, whatever the token says.

As for their use, cryptocurrencies work as a private means of payment or as a speculative asset, without being legal tender, while tokenized assets serve to represent and administer assets or rights that already exist, and to split them among several holders.

Asset tokenization is not just a technological innovation: it is a process that must fit properly within the European and Spanish legal and regulatory framework.

Ignoring this point is one of the main reasons why tokenization projects fail.

The role of the CNMV and the ERIR (the entity responsible for registering and recording securities represented by distributed ledger technology, Arts. 7 and 8 of Law 6/2023) in asset tokenization projects

In Spain, the CNMV is the body responsible for the supervision of the securities markets and the protection of investors.

The other piece is the ERIR: the entity responsible for administering the recording and registry of securities represented through distributed ledger systems. It does not supervise or authorize anything. The issuer appoints it in the issuance document; it keeps the record of who holds each security and logs corporate events and encumbrances. Only an entity authorized to provide safekeeping and administration of financial instruments for clients can act as one (arts. 7, 8 and 126(a) LMVSI, BOE-A-2023-7053).

Where a token:

• represents economic rights,
• is linked to financial assets,
• or is offered as an investment instrument,

it falls within the perimeter of securities law. That does not mean the CNMV authorizes the issuance: issuances of transferable securities do not require prior administrative authorization (Art. 34.1 LMVSI). What the law may require is a prospectus approved by the CNMV where there is a public offer without an exemption (Art. 35 LMVSI and Art. 20 of Regulation (EU) 2017/1129), and the involvement of firms authorized to provide investment services (Art. 129.1 LMVSI). None of those steps amounts to an endorsement, a guarantee or a recommendation by the supervisor.

Tokenization does not eliminate regulatory obligations: it simply changes the technological medium on which the rights are represented.

MiFID II and security tokens in Europe

When tokens represent financial instruments, they fall within the scope of MiFID II.

This involves, among other things:

• classification of the token as a tradable security or other financial instrument,
• reporting and transparency obligations,
• investor protection,
• requirements for marketing and distribution.

In practice, many security tokens are assessed under MiFID II and the LMVSI. If the token is a financial instrument it is excluded from MiCA; it is not left pending under it (Art. 2(4)(a) of Regulation (EU) 2023/1114).

MiCA and its impact on asset tokenization

The European Regulation MiCA establishes a common framework for certain cryptoassets, reinforcing:

• the transparency of issuers,
• governance,
• retail investor protection.

Although MiCA does not regulate financial security tokens (which fall under MiFID II), it does apply to tokens that are not financial instruments. For those tokens it governs:

• their issuance and their offer to the public,
• the operational and governance requirements of their issuer,
• their cross-border marketing within the EU,
• and the providers of crypto-asset services.

So both frameworks have to be checked up front — not to apply both at once, but to find out which one applies. If the token is a financial instrument it falls outside MiCA and inside MiFID II and the LMVSI; if it is not, the opposite. A project with several tokens can end up under a different regime for each one (art. 2(4)(a) MiCA, CELEX 32023R1114).

The importance of a legal structure consistent with technology

A common mistake is to think that “the token contains the right”.

In reality:

• the economic or legal right exists outside the blockchain,
• the token acts as a technical representation,
• there must be full coherence between legal contracts and smart contracts.

At Unknown Gravity we always approach tokenization from a legal-first perspective, so that the technical architecture correctly reflects the legal reality of the asset.

Blockchain technology is the basis that underpins tokenization, this is because it provides an immutable and transparent record of all transactions made with tokens. That makes records harder to tamper with once confirmed, although it does not remove the risk of fraud off-chain.

Thanks to blockchain, it is possible to manage and trade assets, turning them into digital representations, thus managing to transfer and manage them globally and traceably.

Blockchain and Smart Contracts

For context, it is worth bearing in mind that smart contracts are programs that execute themselves once the predefined conditions are met.

In the field of tokenization, smart contracts are associated with tokens, thus helping to establish the conditions and restrictions of the token, such as the period of validity, legal obligations, property rights, form of payment, and so on.

Popular tokenization networks and protocols

For the tokenization of assets, it is extremely important to choose a blockchain that meets a series of key characteristics:

• Scalability, tokenization can lead to a high demand for transactions that the blockchain must be able to handle. If the network scales well, the experience stays smooth and you avoid the congestion that pushes trading fees up.

• Security, the platform must have high cryptographic security measures to protect assets and transactions.
  

• Interoperability, this allows the transfer of tokens between different blockchain networks, facilitating integration with existing systems, improving the efficiency and adoption of asset tokenization.

Taking into account the above, let's get to know some of the blockchain networks used to tokenize assets:

• Ethereum
  One of the most popular platforms. In addition, its developer community and strong infrastructure make it a reliable and versatile option for projects looking to digitize real-world assets.
  
  
• Solana
  It stands out for its speed and ability to handle large volumes of transactions, ideal for tokenizing assets that require fast operations, such as stocks or bonds. On the other hand, its scalability should also be mentioned, from which projects that need to manage high demand without compromising efficiency can benefit.
  
  
• BASE, Arbitrum, Polygon and other L2 based on EVM
  They are blockchains based on Ethereum. Much faster than Ethereum, with lower fees and great versatility.

Real estate tokenization

Real estate tokenization consists of representing the rights over a property as digital tokens, so that its value can be divided into smaller units.

What is achieved with this?

Several people can take part in the same property with smaller amounts. That does not remove the regulatory barrier. In Spain real estate is not transferred by the token but by contract and delivery, usually in a public deed; entry in the Land Registry is what protects you against third parties. So what is usually tokenized are shares in the owning company or credit rights over its rental income. Placing those with the public is a securities offering, with its own mandatory documentation (art. 609 Spanish Civil Code, BOE-A-1889-4763; Regulation (EU) 2017/1129).

Spanish platforms already tokenize interests in real estate and place them with several investors. The design varies a lot: an owning company with tokenized shares, a participating loan, or a credit right over rental income. Each structure carries different documentation and marketing requirements, and some need a prospectus or a specific exemption (Regulation (EU) 2017/1129).

Finance and Digital Securities

In the field of finance, we also find the tokenization of bonds and stocks, thus making it possible to issue, transfer and trade on blockchain platforms. This opens issuance and trading to new channels, but it does not remove the regulatory barriers. If the bond or the share is a financial instrument, the usual documentation, marketing and registry requirements still apply (arts. 7 and 8 LMVSI, BOE-A-2023-7053).

To better differentiate it, let's see some real examples of both:

Tokenized shares

Tokenized shares are the on-chain representation of real shares and, by their nature as transferable securities, are financial instruments: they are governed by MiFID II and the LMVSI, not by MiCA. They should not be confused with synthetic tokens, which merely replicate a share's price without granting its ownership or shareholder rights; these are not tokenized shares and do not share their legal regime. You can see this distinction in detail in tokenized securities versus crypto-assets.

Tokenized bonds

Banco Santander

In September 2019 it issued a 20 million dollar bond directly on Ethereum, with a one-year maturity. It was a controlled pilot: a unit of the group itself subscribed it, not an open placement.

Other physical assets: Gold

There are tokens backed by vaulted gold: each unit matches a quantity of metal and the holder can request delivery. The legal nuance matters: what you hold is not the bar but a claim over the metal against the issuer and its custodian, and its scope depends on how the custody is set up. In the EU a token backed by an asset may be analyzed as an asset-referenced token, with an authorized issuer and a white paper (Regulation (EU) 2023/1114, MiCA, CELEX 32023R1114).

Digital art and collectibles

When it comes to art and digital collections, certifying the authorship and ownership of each piece through blockchain technology is essential. With these characteristics, it has marked a new frontier for artists and collectors. This is because they have democratized the art world, allowing many artists who did not find their space in traditional galleries to now have a showcase before a global audience.

On the collectors' side, it has also opened a door to acquiring art in a more accessible and user-friendly way.

Asset tokenization is not about digitizing for the sake of digitizing, but about designing sustainable models, regulated and aligned with the real economy.

For a complete view of the applicable legal framework in Spain, see our guide on regulated tokenization in Spain and the comparison MiCA vs MiFID II.

This page is for general information. It is not legal, tax or investment advice and does not replace professional advice. Tokenization and crypto-asset rules change; check the version in force on BOE and EUR-Lex.