7.2 Asset-Backed Tokens
How five categories of real-world assets get tokenized through SPV structures and on-chain compliance, and why the gap between BlackRock managing $2.4 billion in BUIDL and tZERO averaging 1,500 daily trades represents the central challenge every asset-backed token must solve.
RealT has tokenized over 700 rental properties across the United States. More than 65,000 investors from around the world hold fractional ownership in these buildings. Every week, smart contracts distribute rental income in USDC stablecoins directly to token holders' wallets. Total distributions to date: over $24 million 1.
Take 9943 Marlowe Street in Detroit, a renovated three-bedroom bungalow renting for $850 per month 2. The property was split into 1,000 tokens at $63.75 each. An investor buying a single token received daily rental income at a 13.9% cap rate. Investors from a dozen countries own pieces of this one house.
Compare that to traditional real estate investing. Buying into a private real estate fund typically requires $50,000 or more, weeks of paperwork, accredited investor verification, and a multi-year lock-up with no secondary market. RealT compressed this to minutes and lowered the minimum to under $100.
And real estate is just one category. By early 2026, BlackRock's tokenized money market fund (BUIDL) holds over $2.4 billion in assets 3. Paxos Gold tokens, each backed by one troy ounce of gold in London vaults, have a market cap above $2.3 billion 4. The European Investment Bank issued a €100 million digital bond on Ethereum in 2021 5. Blockchain Capital made its first on-chain dividend payment in January 2025 to holders of the world's first tokenized venture fund 6.
These aren't experiments. They're functioning financial products. This section covers what "asset-backed" actually means, how each category works, and where the model falls short.
What "Asset-Backed" Actually Means
A security token represents a legal claim on a real-world asset. The token is the digital wrapper. The legal agreement underneath gives it value.
This distinction matters: the token itself doesn't contain the asset. It represents ownership rights defined in legal documents. If the legal structure fails, the token becomes worthless regardless of what the blockchain says.
Three layers must work together:
- The real-world asset. A building, a gold bar, a bond, a fund portfolio.
- The legal structure. A Special Purpose Vehicle (SPV), trust, or direct equity arrangement that defines investor rights, revenue distribution, and governance.
- The token on-chain. The digital representation that enables transferability, automated distributions, and programmable compliance.
All three must function. A token without legal backing is just a number on a blockchain. A legal structure without a token is just traditional finance. The combination creates something new: programmable, transferable ownership of real-world value.
One overlap matters here: fractionalized NFTs (covered in Section 4.2) blur this line. Splitting a high-value NFT into fungible shares creates something that looks like a security token, with fractional ownership, profit expectations, and dependence on the organizer's efforts. The SEC has flagged this overlap. Projects fractionalizing NFTs should review the classification framework in Section 6.4.
Categories of Asset-Backed Tokens
| Category | Leading Example | Minimum Investment | Income Distribution | Legal Structure | Main Risk |
|---|---|---|---|---|---|
| Real Estate | RealT (700+ properties) | ~$50–$100 | Weekly rental income in USDC | Delaware Series LLC per property | Vacancy, maintenance, local property law |
| Equity and Revenue Shares | Blockchain Capital BCAP, SPiCE VC | Accredited investors only | On-chain dividends (irregular) | SPV + Reg D offering | Thin secondary liquidity |
| Debt Instruments | EIB digital bond, SG-FORGE | Institutional ($10M–$100M) | Automated coupon payments | Digitally native bond issuance | Issuer solvency and credit risk |
| Commodities | PAXG ($2.3B), XAUT ($2.6B) | Fraction of one troy ounce | 24/7 trading, no yield | ERC-20 + custodian attestation | Custody verification failure |
| Fund Shares | BlackRock BUIDL ($2.4B), Franklin FOBXX | $5M (BUIDL); $1 (BENJI) | Daily dividends | Tokenized fund shares via Securitize / Benji | Regulatory change, platform dependency |
Tokenized Real Estate
Real estate is the most active category of asset-backed tokenization, and the easiest to understand. A property is held inside an SPV (typically a Delaware Series LLC in the US), and shares of that SPV are tokenized as ERC-20 tokens. Token holders own a piece of the SPV, which owns the property.
RealT is the largest tokenized real estate platform by property count 1. The company has tokenized over 700 properties across Detroit, Cleveland, Chicago, and other US cities, with more than $150 million in total property value. Each property sits in its own legally isolated Series LLC. If one property has debt problems, other properties in the portfolio are protected. Tokens are offered to accredited US investors under Regulation D, with non-US investors also eligible. Average yields range from 9 to 14%, with rental income paid weekly in USDC.
Lofty.ai, backed by Y Combinator, takes a similar approach on the Algorand blockchain 7. Minimum investments start at $50. The platform lists over 150 revenue-generating properties across 11 US states and pays rental income daily, not weekly. Both accredited and non-accredited investors can participate.
The challenge: real estate is inherently local. Property management, vacancy risk, maintenance costs, and local regulations don't disappear because ownership is tokenized. A smart contract can distribute rent automatically, but it can't fix a broken pipe or find a new tenant.
Tokenized Equity and Revenue Shares
Company equity and fund shares represented as tokens bring venture capital and private equity to blockchain rails.
Blockchain Capital's BCAP launched in April 2017 as the world's first tokenized venture fund, raising $10 million from over 850 investors in 80+ countries 6. Each token represents indirect exposure to a portfolio including Coinbase, Kraken, and dozens of other crypto companies. In January 2025, BCAP made its first on-chain dividend payment and migrated to ZKsync for lower fees. Section 7.3 covers BCAP's full history, including what worked and where it struggled.
SPiCE VC, founded in 2018, took the model further 8. The tokenized venture fund raised $15 million under Reg D Rule 506(c) and has delivered a 6.3x Total Value to Paid-In Capital ratio across three payouts as of June 2025. Its portfolio of 15 companies includes Securitize and Blockdaemon.
INX completed the first SEC-registered security token IPO in May 2021, raising approximately $84 million from over 7,200 investors in 75 countries 9. The SEC review process took over two years and required 16 amendments to the registration filing. INX token holders receive 40% of cumulative net cash flow from operations, with no voting rights.
The promise of tokenized equity is clear: lower minimums, global access, and secondary market liquidity. The reality, covered later in this section, is that liquidity remains thin for most tokenized equity products.
Tokenized Debt Instruments
Bonds and debt instruments are where traditional finance has shown the most serious interest in tokenization.
In April 2021, the European Investment Bank issued a €100 million digital bond directly on the Ethereum blockchain 5. Goldman Sachs, Santander, and Societe Generale co-led the offering. Settlement took one day instead of the typical five, and the Banque de France provided on-chain settlement using Central Bank Digital Currency. It was the first multi-dealer, primary issuance of digitally native tokens on a public blockchain by a major international institution.
Societe Generale's SG-FORGE unit has been even more active. It issued a €100 million covered bond as a security token on Ethereum in April 2019, the first of its kind 10. In November 2023, SG-FORGE issued a €10 million digital green bond with enhanced ESG data transparency 11. By November 2025, the unit had issued its first digital bond in the United States on the Canton Network 12.
Why are institutions experimenting with bonds first? Bonds have predictable cash flows (coupon payments), clear maturity dates, and well-understood legal structures. Smart contracts can automate coupon distributions and redemption at maturity without manual processing. For institutions handling billions in bond portfolios, even small efficiency gains at scale produce large savings.
Tokenized Commodities
Gold leads the tokenized commodity market by a wide margin.
Paxos Gold (PAXG) holds a market cap above $2.3 billion as of early 2026 4. Each PAXG token represents one fine troy ounce of a London Good Delivery gold bar stored in Brink's vaults in London. The gold is allocated: each holder can look up the serial number and physical characteristics of their specific gold bar through the Paxos platform. KPMG provides monthly attestation reports verifying that physical reserves match the circulating token supply 13. Paxos is regulated by the New York Department of Financial Services.
Tether Gold (XAUT) commands an even larger share, with a market cap around $2.6 billion and approximately 60% of the entire gold-backed token market 14. Each XAUT token represents one troy ounce of 99.99% pure gold stored in Swiss vaults. BDO Italia provides quarterly attestations.
Together, PAXG and XAUT represent over $4.5 billion in tokenized gold. Holders can trade fractions of an ounce 24/7 on crypto exchanges, something impossible with physical gold bars.
Beyond gold, carbon credits represent an emerging tokenized commodity category. Toucan Protocol built infrastructure for bridging verified carbon credits on-chain, processing over 20 million credits by early 2022 15. KlimaDAO accumulated over 17 million tonnes of tokenized carbon offsets in its treasury 16. However, independent analysis revealed that many of the tokenized credits came from low-quality, long-dormant projects, raising questions about environmental impact 17. Carbon credit tokenization remains active but continues working through these quality concerns.
Tokenized Fund Shares
The entry of major asset managers into tokenization marks a turning point for the asset-backed token market.
BlackRock's BUIDL fund launched in March 2024 on Ethereum through Securitize 3. The tokenized US Treasury money market fund crossed $1 billion in AUM by early 2025 and peaked near $2.9 billion by mid-2025. It has since expanded to nine blockchain networks, including Solana, Avalanche, Arbitrum, and BNB Chain. In February 2026, BUIDL launched on UniswapX, marking BlackRock's first step into decentralized finance 18. The fund requires a $5 million minimum investment and pays daily dividends.
Franklin Templeton's FOBXX became the first US-registered mutual fund to use a public blockchain as its official record of transactions and share ownership 19. Launched in 2021 on Stellar, the fund has expanded to nine blockchains and holds over $740 million in assets. Each share equals one BENJI token. Franklin Templeton, which manages $1.7 trillion in total assets, built a proprietary platform called Benji to administer the fund.
Ondo Finance provides on-chain access to US Treasuries through its OUSG fund, which primarily invests in BlackRock's BUIDL 20. Ondo's total value locked surpassed $2.5 billion by January 2026. The SEC closed its investigation into Ondo in November 2025 with no charges filed. In January 2026, Ondo launched Global Markets on Solana with over 200 tokenized US stocks and ETFs.
When BlackRock and Franklin Templeton build tokenized products, the signal is clear: asset-backed tokens are moving from crypto-native experiments to institutional financial infrastructure.
The Technical Infrastructure
Security tokens require different technical architecture than standard ERC-20 tokens. The key difference: every transfer must be validated against compliance rules before it executes.
Two token standards handle this: ERC-1400 and ERC-3643, both described in detail in Section 7.1. What matters for asset-backed tokens is how each standard applies to different asset categories.
ERC-1400's partition system (ERC-1410) allows a single token contract to separate investor classes 21, useful when accredited and non-accredited investors hold different tranches of the same asset. ERC-3643's on-chain identity verification (ONCHAINID) checks an identity registry before every transaction 22 23. If the recipient hasn't passed KYC verification or falls outside approved jurisdictions, the transfer fails automatically.
| Aspect | ERC-1400 | ERC-3643 |
|---|---|---|
| Key mechanism | Partitioned security token with tranches inside a single contract | Identity‑centric token with modular compliance and registry contracts |
| Compliance approach | Built‑in transfer restrictions often tied to partitions, issuer‑defined rules | Externalized compliance engine (identity registry, claim issuers, rule contracts) |
| Partition support | Native partitions (tranches) for share classes, vesting, jurisdictions | No native tranches; focuses on who can hold/transfer rather than structural splits |
| Identity verification method | Typically integrates with off‑chain registries or custom KYC/AML middleware; not standardized | Standardized on‑chain identity via ONCHAINID and claim‑based verification |
| Best suited for | Complex equity, multi‑class shares, vesting schedules, tranche‑based securities | Regulated tokenization needing strong, automated identity‑based compliance (funds, real estate, private credit) |
| Real‑world users | Crypto platforms and issuers needing flexible partition logic and bespoke compliance stacks | Enterprise and institutional platforms (e.g., Tokeny) seeking turnkey compliance and identity rails |
Both standards enforce the compliance requirements described in Section 7.1 at the smart contract level. Transfer restrictions, whitelist checks, lock-up periods, and jurisdictional limitations are coded into the token itself. The legal framework and the code must match.
Compared to standard ERC-20 tokens, which anyone with a wallet can send and receive freely, security tokens add a compliance layer that makes every transfer conditional. This is the trade-off: programmable compliance enables legal operation, but it limits where and how tokens can move.
The Liquidity Problem
The biggest promise of security tokens is 24/7 liquidity for traditionally illiquid assets. The reality falls short.
Most security tokens trade thinly or not at all. The tZERO ATS, one of the most established security token platforms, reports average daily volume for its TZROP token of approximately 1,500 shares 24. Compare this to a mid-cap stock on the NYSE, where millions of shares change hands per day.
Three factors drive this gap:
Restricted investor pools. The compliance requirements covered in Section 7.1 work as intended, but they limit participation. Under Regulation D, only accredited investors can hold security tokens. Every secondary buyer must pass KYC verification before receiving tokens. This shrinks the potential trading base compared to public stock markets.
Limited exchange support. Security tokens can't trade on Uniswap or Coinbase. They require SEC-registered Alternative Trading Systems or broker-dealer platforms. tZERO, INX, and Securitize Markets are the primary venues in the US. The total number of active security token trading platforms worldwide remains in the single digits.
Small market sizes. Individual tokenized assets often have total market capitalizations under $50 million. Small markets produce thin order books, wide bid-ask spreads, and price discovery that may not reflect true asset value.
This is improving. Securitize reported $55.6 million in revenue for the first nine months of 2025, an 841% increase over the same period in 2024, and manages $4.6 billion in assets on its platform 25. tZERO expanded to 24/7 order entry in December 2025 and is planning a 2026 IPO 24. But the liquidity gap between security token markets and traditional securities markets remains the primary obstacle to mainstream adoption.
Custody and Verification Challenges
Asset-backed tokens face a problem that purely digital assets don't: someone must verify that the real-world asset actually exists and is maintained.
Proof of reserves takes different forms for different asset types. Paxos publishes monthly KPMG attestation reports confirming that physical gold in Brink's London vaults matches the circulating PAXG supply 13. RealT provides property documentation on IPFS, but ongoing property condition verification relies on traditional property management processes. Tokenized bonds depend on the issuer's continued financial health and ability to make coupon payments.
Issuer bankruptcy creates complex legal questions. If a tokenized real estate SPV's management company goes bankrupt, what happens to the property and the token holders' claims? The legal isolation of Series LLCs provides some protection, but cross-border insolvency gets complicated when token holders span multiple jurisdictions and the property sits in a single local court's jurisdiction.
The oracle problem applies here too. Blockchain can record that you own a token, but it can't independently verify that the apartment building is maintained, that the gold bar is in the vault, or that the bond issuer is solvent. Off-chain verification, through auditors, property managers, and custodians, remains necessary. The token automates ownership transfer and income distribution. It doesn't automate trust.
Jurisdictional complexity compounds these challenges. A tokenized Detroit rental property might have holders in Singapore, Germany, and Brazil. US property law governs the asset. Delaware corporate law governs the SPV. Securities regulation in each holder's home jurisdiction may add additional requirements. This legal patchwork creates costs and risks that tokenization alone doesn't solve.
Looking Ahead
The theory of asset-backed tokens is compelling. Fractional ownership, automated distributions, global access, and 24/7 transferability address real limitations in traditional finance. Boston Consulting Group and ADDX project that tokenized assets across all categories could reach $16 trillion by 2030 26.
But the practice reveals how much execution matters. Legal structures must hold up under stress. Custody and verification can't be hand-waved away. Liquidity requires both compliant infrastructure and enough participants to create functional markets. And the compliance costs described in Section 7.1 apply to every category of asset-backed token.
This section has covered asset-backed tokens as investment products: you buy a token, you hold a fraction of an asset. Section 7.5 covers a second model this section doesn't address — RWAs functioning as yield infrastructure inside DeFi protocols, where the asset generates sustainable returns for lending pools rather than for end investors. Section 7.5 also frames the scale question: what the $330 trillion global real estate market and $130 trillion bond market mean for a category where $24 billion is currently on-chain.
The next section examines two projects that built security token platforms through these challenges: tZERO (exchange infrastructure) and Blockchain Capital's BCAP (tokenized venture fund). Their experiences show what works, what has struggled, and what the path forward looks like for asset-backed tokens.
- A security token represents a legal claim, not the asset itself; if the SPV structure fails under stress, the blockchain record doesn't preserve investor rights.
- RealT lowered real estate investment minimums below $100 and pays 9-14% yields weekly in USDC, but decentralized ownership doesn't decentralize broken pipes or vacant units.
- Compliance restrictions that protect investors also shrink the trading base; tZERO's TZROP averages 1,500 daily shares while comparable NYSE listings move millions.
- PAXG uses KPMG attestation reports to confirm vault gold matches circulating supply; tokenization moves ownership on-chain but cannot move trust verification on-chain with it.