Tokenization in the real world—three industries that can be transformed by blockchain

(Written by @ElliotHill of the Cardano Foundation)

In September 2020, we introduced the concept of tokenization, the representation of an asset as a token on the blockchain, and explored what tokenization may look like in the near future on Cardano.

We discovered that with the arrival of native custom token capabilities on Cardano as a component of Goguen, the stage will be set for the proliferation of tokens that power decentralized applications (DApps) and smart contracts on the blockchain.

We have already learned that tokenization is one of the most powerful use cases for blockchain technology. But while we have looked in-depth at the types of blockchain-based tokens and the benefits of representing assets as tokens, we haven’t yet explored which industries could be transformed most significantly by tokenized assets on the blockchain.

Here, we will highlight three industries that are particularly ripe for disruption by tokenization, and find out why they are all equally important focus areas in the quest for mainstream blockchain adoption.

Traditional finance

If 2020 is going to be remembered for anything in the blockchain space, it will likely be the disruption of traditional financial products through the arrival of decentralized finance, or ‘DeFi’. We touched a little on DeFi in our last tokenization article, but we only scratched the surface of what tokenization means to the way we access financial products.

Essentially, decentralized finance covers many of the financial products and services that traditional finance covers, except that DeFi does so through decentralized protocols.

One of the most common use cases for DeFi is lending protocols, where users can lend out their digital assets, such as Bitcoin, to provide liquidity to trading platforms in exchange for ‘yields’—which are loosely similar to interest in traditional banking environments.

This has given rise to a huge number of lending protocols and yield-farming tokens, which generate a consistent APY for users. Asset holders lend out a tokenized version of their original asset in exchange for a set yield. This can be paid out in the original token, or a native token issued by the lending protocol.

Although the majority of DeFi users are currently tech-savvy or blockchain natives, there is a growing demand for interest-generating products in the average consumer finance market.

Across the world, interest rates in banks and traditional finance are falling to historic lows. In the United Kingdom, official interest rates from the Bank of England are just 0.1% at the time of writing, providing strong disincentives for savers who watch their money lose its purchasing power as inflation outstrips interest by a significant margin.

Instead, many DeFi tokens and lending protocols often offer APYs significantly higher than current traditional interest rates.

If DeFi protocols can onboard non-technical users and offer consistent interest-generating products, they may have the potential to transform the current banking and lending environment—providing access to decentralized financial products to users worldwide, irrespective of the current financial environment in their jurisdiction.

Real estate

The real estate industry has long been a favorite of wealthy traditional investors, who see bricks and mortar as a safe hedge against stock market volatility and other types of assets.

But real estate’s attractiveness to high net worth individuals raises the barrier to entry for investors without deep pockets, as properties are most often purchased as a single lot—and prices usually start in the hundreds of thousands of euros.

To help smaller investors pool their resources, property crowdfunding and joint venture investment schemes exist, but they are fraught with their own pain points. For example, selling a partial stake in a jointly owned property would involve finding a buyer for your portion, selling the entire property, or having your equity bought out by the other investors.

As a result, liquidity is often the most common problem with these approaches to real estate investing. Simply put, it is often too difficult to exit your position, or takes too long to realize profits from your property investment.

Instead, investors are turning to an alternative option—tokenization. According to professional services firm EY, non-fungible tokens (NFTs), which we introduced in our last tokenization article, are particularly well-suited to use in real estate because two properties rarely share the same value and features. NFTs would allow a single property to be represented as a predefined number of tokens.

Let’s say a property worth US$1m has ten original investors, all of whom own 10 tokens each, with one token worth US$10,000. These tokens would be stored as native tokens on a blockchain protocol and could be traded on secondary marketplaces peer-to-peer.

Alice, one of the token holders, decides she would like to release 50% of the equity from her investment, as the property has gone up in value. Instead of finding a buyer for her equity stake, or asking the other investors to buy her share of the property, Alice would simply list five tokens on a secondary marketplace powered by blockchain.

The purchaser, who could be anywhere in the world, would buy the tokens and become the new owner of 5% of the property. The ownership agreement could then be delivered and signed in the form of a smart contract—completely transforming the way we invest in property and opening access to investors with smaller portfolios.

Medical and pharmaceutical

The pharmaceutical industry is enormous. Estimated to be worth some US$1.3trn in 2020, and anticipated to grow thanks to demand from developing nations, the supply chain of pharmaceutical products is one of the most complex in the world—and it’s also one of the most important.

A fraudulent product making it through the supply chain in other industries may cost businesses money and time. But if a fraudulent medical or pharmaceutical product, or an unlicensed copy of existing medication, makes its way through the supply chain of the healthcare industry, it could cost both money and lives.

Recent data from the Organization for Economic Co-operation and Development (OECD) found that counterfeit pharmaceuticals—fake medication passed off as real drugs—accounted for 0.84% of the total pharmaceutical imports globally.

This may seem a low number, but it accounts for around US$4.4bn in trade, and more importantly, results in fake medication being distributed to unsuspecting patients. To make matters worse, over 35% of these fake drugs are antibiotics, potentially life-saving medication for critically-ill individuals.

If blockchain-based tokens are to help solve this problem, we first need to rethink the way we approach tokenization. In the industries we have examined above, tokens take on the role of a tradable asset, which are used to send, store, and represent financial value.

Instead, in the pharmaceutical industry, a token could be used to represent a single box of antibiotics, for example. The original supplier could represent the box as a token on the blockchain, and each participant along the supply chain could verify—via a unique product identifier such as a tamper-proof QR code—that the box was genuine and associated with the token.

The corresponding token could be transferred to each supply chain participant, easily tracking the medication as it makes its way from the supplier to the patient. In turn, this would eliminate the need for each participant to keep their own records, with the blockchain serving as a single version of the truth—limiting the likelihood that fake pharmaceuticals could infiltrate the supply chain.

Genuine suppliers would be given the power to issue tokens to prove the drug’s authenticity, while counterfeiters would be unable to provide the corresponding token to access the supply chain.

The future of tokenization

Naturally, this isn’t an exhaustive list of tokenization applications. Almost any asset can be tokenized, and a huge range of contract agreements can be represented through a smart contract.

But despite the clear benefits of blockchain-powered tokens, innovation will only happen once regulators worldwide recognize tokenization and adapt existing legislation to enable it to flourish. This is one of the core reasons that the Cardano Foundation is dedicated to helping shape legislation globally.

The future of tokenization also lies in its ease of access for the masses. For example, in DeFi, consumer desire for greater APY on savings and investments is strong, and lending protocols’ value proposition is clear—but access and a steep user learning curve is a major barrier to adoption.

Ease of access is decided by the complexity of both the underlying blockchain protocol and the way smart contracts are deployed on it. On the Cardano blockchain, there are multiple initiatives to promote the inclusion of all participants regardless of their technical ability.

For example, Cardano’s Marlowe smart contracts will make it easier than ever for subject matter experts in the finance, insurance, and legal industries to write and deploy their own smart contracts, without the need for complex coding experience.

If you are an industry expert interested in laying the foundations of the decentralized future through smart contracts on Cardano, you should explore the Marlowe Playground today.

Or, if you are an existing developer and you want to learn more about developing on Cardano, join our developer portal waiting list.


I’m excited about the potential of tokenization of assets, but I also think we still have a long way to go. Primarily I worry that NFTs may become yet another product label like ‘certified organic’ that end users rarely understand the actual meaning of and adds to the cost of the product that the manufacturer rarely sees because it is all used to pay for the infrastructure and certification process.