As per the current business finance news, you might have probably come across terms like digital assets, blockchain, tokenization, etc.

In today’s Koffi break, let’s actually understand one of these terms properly which is tokenization. Tokenization isn’t just a tech buzzword anymore. It’s quietly making its way into how money moves, how assets are held, and how businesses manage their cash.

What Is Tokenization?

Tokenization is the process of converting a real-world asset, or the rights to that asset, into a digital token that lives on a blockchain or a similar distributed system.

Assume you own a fixed deposit worth Rs. 10 lakh. Normally, that FD is a paper or electronic record sitting with your bank. You can’t split it into smaller pieces and sell part of it to someone else. You can’t transfer it instantly at midnight. You can’t use it as collateral in a digital lending system without a week of paperwork.

Now imagine that same fixed deposit is converted into 10,000 digital tokens, each worth Rs. 100. Every token represents a fractional ownership of that asset. These tokens can be transferred, traded, used as collateral, or redeemed on a system that runs 24 hours a day, seven days a week, without needing a bank employee to process your request.

That’s the basic idea. Tokenization takes something that exists in the real world and gives it a digital identity that can move freely through financial systems.

Why Tokenization Exists: The Core Problems It Solves

To appreciate what tokenization offers, you first need to understand what’s broken about the current system.

Settlement delays are a real cost

1. 1. 1. When you buy or sell a government security or a debt instrument in India today, settlement typically happens on a T+1 basis, meaning the actual transfer of ownership and funds happens the next business day.
      2. For large corporations parking hundreds of crores overnight, that one-day delay is not a minor inconvenience. It’s a genuine cost. Funds are stuck in transit, unavailable to deploy elsewhere.
         
         

Minimum ticket sizes exclude smaller players

1. 1. 1. Many high-quality debt instruments, commercial papers, certificates of deposits, certain bonds, have minimum investment sizes that start at Rs. 25 lakh or higher.
      2. A mid-sized business with Rs. 5 lakh to park for a week simply doesn’t have access to these instruments. That’s money sitting in a savings account earning 3%, when it could theoretically be doing better.
         
         

Liquidity is conditional

1. 1. 1. Most financial instruments are liquid only during market hours, on working days. Try redeeming a debt mutual fund on a Sunday or a public holiday and you’ll be waiting.
      2. For a business with dynamic cash flows, this rigidity creates real planning headaches.
         
         

Counterparty and operational friction

1. 1. Every transaction in the traditional system involves intermediaries like brokers, custodians, registrars, and clearing corporations.
   2. Each one adds time, cost, and a point of potential failure. For cross-border transactions, this multiplies dramatically.

Tokenization, when built properly, directly addresses each of these problems.

What Assets Can Be Tokenized in Finance?

Theoretically, any asset that has value and can be legally owned can be tokenized. In practice, the financial world is currently focused on a few clear categories.

• Government Securities (G-Secs) and Treasury Bills are among the most promising candidates. They’re standardized, regulated, and widely trusted. Tokenizing them would allow businesses to invest in small denominations and exit positions at any time, not just during market hours.

• Mutual Fund Units are already dematerialized in India, but tokenization would take this further. Fractional units, instant settlement, and peer-to-peer transferability become possible on a tokenized platform.

• Corporate Bonds and Commercial Papers today require large minimum investments and have limited secondary market liquidity. Tokenization could open these up to a wider pool of investors by splitting them into smaller denominations.

• Real Estate is perhaps the most talked-about use case globally. Owning a fraction of a commercial property in BKC or Cyber City and being able to sell that fraction whenever you want becomes technically feasible through tokenization.

• Gold and Commodities have already seen partial versions of this through Sovereign Gold Bonds and Gold ETFs. Full tokenization would make these even more liquid and accessible.

• Invoice Receivables and Trade Finance instruments are highly relevant for Indian businesses. A manufacturer holding receivables worth Rs. 50 lakh could tokenize those invoices and sell them instantly to investors, improving working capital without waiting 90 days for payment.

Tokenization vs Traditional Financial Systems

The differences between tokenization and the traditional financial system aren’t just technical. They show up in real ways, every single day, for businesses that move money, park funds, or trade instruments. Here’s a clear breakdown:

How Tokenization Can Change Fund Parking

Today, the primary tools are liquid mutual funds, overnight funds, and bank fixed deposits. These work reasonably well, but they have constraints. Liquid funds settle in one business day (T+1 for redemptions). FDs can’t be broken partially without penalty. Overnight funds are limited to next-day returns.

Now imagine a tokenized version of a liquid fund or a short-duration debt instrument. A business could park Rs. 2 crore at 9 PM on a Wednesday, earn a return for as long as they want, even just a few hours, and redeem at 6 AM the next morning before a major payment goes out. This is not possible today with any mainstream instrument.

The efficiency gains go further. A business could set automated rules: if the current account balance drops below Rs. 50 lakh, automatically redeem from the tokenized fund. If it crosses Rs. 1 crore, automatically invest the surplus. These aren’t new ideas, but tokenization makes them technically executable without manual intervention or delays.

For businesses with multiple entities, tokenized instruments could allow treasury pooling across subsidiaries in a way that’s fully transparent and auditable, with every token transfer recorded in real time.

If the currency itself becomes programmable and instantly transferable, the case for tokenized fund parking becomes even stronger.

The Risks and Cons of Tokenization

Tokenization in India: Where We Stand Today

India is not sitting on the sidelines. But it’s moving deliberately rather than quickly, which is probably the right approach for a market of this size and complexity.

The RBI has been running a wholesale digital rupee pilot since November 2022, focused on government securities settlement. Several major banks including SBI, HDFC Bank, ICICI Bank, and Kotak have participated. The goal is to reduce settlement risk in the inter-bank government securities market. Early results have been encouraging.

SEBI, in its 2023 consultation paper on the securities market, acknowledged tokenization as a significant area to watch and indicated plans to develop a regulatory framework for security tokens. As of now, there’s no formal regulatory green light for tokenized securities to be sold to retail or institutional investors at scale, but the groundwork is being laid.

Globally, the picture is more advanced. JPMorgan’s Onyx platform has been processing tokenized repo transactions worth hundreds of millions of dollars daily. BlackRock launched a tokenized money market fund on the Ethereum blockchain in 2024. The Bank for International Settlements has been actively conducting experiments on tokenized cross-border settlements through its Innovation Hub.

For India-specific fintech startups, a few players are building in this space, including experiments in tokenized invoice financing and digital gold, but they’re operating in a regulatory gray zone that limits scale.

The trajectory is clear. India will have a formal tokenization framework within this decade. The question for businesses is whether to track it now or scramble to catch up later.

Final Thought

Tokenization is not a revolution that will arrive overnight and displace everything you know about finance. It’s more like a long-term infrastructure upgrade, the kind that looks invisible while it’s happening and then suddenly seems obvious once it’s done.

For businesses managing treasury operations, the practical benefits are genuinely compelling: better liquidity, lower costs, round-the-clock access, and more granular control over short-duration investments. For investors, the promise of fractional ownership in assets that were previously out of reach is real and meaningful.

Tokenization is coming to Indian finance. The businesses that understand it early will be better positioned to use it well, and to avoid the mistakes that tend to come with chasing any new idea before it’s truly ready.