Tokenization is the New Decimalization
Market structure changes have always been met with resistance
Wall Street was drowning in its own paperwork. Literally. This was the late 1960s and traders were smoking cigars over mountains of stock certificates. Clerks were sleeping on the floor. Every transaction meant a signature, a stamp, and a messenger sprinting across lower Manhattan with a manila envelope.
When regulators suggested moving to electronic records, the reaction wasn’t curiosity or excitement - it was horror.
“You want me to trust a machine with my client’s stock? What if the power goes out?”
Thirty years later the SEC proposed decimalization to replace fractional quotes. NYSE floor traders were convinced it would destroy liquidity and ruin the market. But after lots of kicking, screaming, and even senate hearings, the change was made.
Spreads tightened, efficiency soared, and global markets became a modern miracle.
Every major market structure advancement has faced the same instinctive recoil. Paper to digital, fractions to decimals, screens to algorithms. Each time, incumbents are apoplectic, and yet the market evolves.
Today, we’re watching that same story play out again with tokenization and blockchain settlement. The same arguments, the same fear, the same disbelief that something cleaner, faster, and fairer could actually work. But progress never asks permission. It just waits for the old guard to finish complaining.
When it comes to transacting real estate, the promise of tokenization and the potential for efficiency gains are even more pronounced. Yet, the institutional CRE professionals I talk to remain highly skeptical.
Skepticism is good. Any idea that can’t stand up to skepticism isn’t worth pursuing. And any client or market that has no skepticism will likely learn the hard way.
I talked to Brad Hargreaves on the podcast last week, and he said something very interesting about real estate tokenization.
“One headwind here, in terms of picking the investors that are going to be early and going to really make the market in its nascent stage is that a lot of institutions, and family offices in particular, are very comfortable being late to the party.
In fact, they look at it as a point of pride. Like, ‘we’re just never going to be first. And that’s okay. We’re fine leaving a few hundred basis points on the table to be third or fourth in the door.’” -Brad Hargeaves
This is the reality of the top end of the market. It is going to take time.
Personally, I am building critical infrastructure at Skyline Standard for better real estate markets. If it’s going to take time, and if institutional CRE investors are skeptical, then the market structure benefits and the efficiencies better be bulletproof. They better be crystal clear and demonstrable.
So I am going to go back to first principles and re-state the benefits to real estate tokenization. And if you, my wonderful subscriber, want to push back on any of these, please do. We need to tighten this case up a bit, and I’m counting on your skepticism to help me do so.
What follows is the opening and closing pages from our working paper on the implementation and benefits of real estate tokenization. Read it, poke holes in it, and tell me I’m crazy. And if I’m not crazy, let’s get this tokenization party started.
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A New Architecture for Trust: Beyond Cassettes and Central Ledgers
The arrival of blockchain technology is not an incremental upgrade; it represents a foundational shift in how we record, verify, and transfer ownership. As former Acting Comptroller of the Currency Brian Brooks once analogized, comparing the leap from the current financial system to blockchain is like comparing the leap from cassette tapes to CDs. It’s not just a better version of the old thing; it’s an entirely new medium that renders the old one obsolete. This new architecture for trust, the very plumbing for the Great Reliquification, is built on a few core, interlocking components that replace the need for centralized intermediaries with the certainty of mathematics and distributed consensus.
Blockchain: At its core, a blockchain is a digitized, decentralized public ledger of all transactions. Instead of being held in a central location, data is shared across a vast network of computers. Each new block of transactions is linked to the last using cryptography, and the entire ledger is downloaded and updated automatically for all participants, creating an indelible and universally agreed-upon record of events.
Smart Contracts: These are programmable contracts where the terms of an agreement between parties are written directly into lines of code. This code exists across a distributed, decentralized blockchain network, controlling the execution of the agreement. Once initiated, transactions governed by smart contracts are trackable, irreversible, and self-executing, automating complex processes without the need for a human administrator, who might be prone to error, expense, or a sudden change of heart.
Distributed Ledger Technology (DLT): This is the broader technological category that encompasses blockchain. DLT refers to any system that enables a shared, synchronized, and distributed digital database. It is the foundational concept that allows multiple parties to have a common, trusted system of record without relying on a central authority.
Permissioned vs. Permissionless Ledgers: Not all DLTs are created equal. Permissionless ledgers, like public blockchains, are open for anyone to join and participate in. In contrast, permissioned ledgers restrict access to authorized participants. While permissionless models offer greater decentralization, institutions often favor permissioned ledgers as they provide more control and allow for the integration of critical compliance tools for Anti-Money Laundering (AML) and Know Your Customer (KYC) risk mitigation.
This underlying technology is a new architecture for verifiable truth. It enables the most powerful financial application of our time: the ability to turn any real-world asset into a programmable, liquid, digital instrument.
The Antidote to Financial Sclerosis: The Core Tenets of Tokenization
Tokenization is far more than a technical exercise; it is a strategic and potent antidote to the chronic inefficiencies that plague traditional finance. The problems of illiquidity, exclusivity, and opacity, which are foundational features of the old system, are the very problems tokenization is designed to solve. It achieves this by fundamentally re-engineering the nature of an asset’s ownership rights.
Tokenization is the process of converting the ownership rights of a physical or financial asset into a digital token on a blockchain. This process is the engine of the Great Reliquification, transforming static, ‘dead’ capital into dynamic, tradable value. By representing an asset as a digital token, it gains all the native properties of a digital asset: it becomes divisible, instantly transferable, and programmable. This transformation unlocks five critical value propositions that directly counter the weaknesses of the old system.
Unlocking Liquidity A vast portion of the world’s wealth is trapped in illiquid assets like real estate, art, and private equity. Selling these assets is a slow, costly, and manual process. This friction imposes what is known as an “illiquidity tax,” a discount estimated to be between 20-30% of an asset’s true value, which owners must accept to find a buyer. Tokenization dismantles this by creating secondary markets for previously untradable assets. By converting a fraction of a building or a stake in a private fund into a tradable token, owners can access a global pool of buyers, turning static capital into dynamic, liquid value and reversing decades of financial sclerosis.
Democratizing Access Traditional finance is a gated community. High-value investments like private equity funds or trophy real estate have massive capital requirements, restricting participation to a small circle of institutional and high-net-worth investors. Tokenization shatters these barriers through fractional ownership. By dividing an asset into thousands or millions of digital tokens, it allows smaller investors to participate. For example, the private market exchange ADDX has used tokenization to reduce minimum investment sizes from $1 million to as low as $10,000, radically expanding the pool of potential investors and democratizing access to wealth creation.
Driving Radical Efficiency The current financial system is a patchwork of intermediaries, each adding time, cost, and complexity to transactions. Tokenization streamlines this entire process by using smart contracts and a shared ledger to automate functions that once required legions of administrators, brokers, and lawyers. Settlement times are slashed from days to minutes, and operational costs are radically reduced. The gains are not marginal; they are orders of magnitude, representing a quiet bonfire of the administrative vanities that have bogged down finance for decades.
Enforcing Transparency In traditional finance, ownership records are fragmented across countless siloed, private databases, creating opacity and risk. A blockchain provides a “golden record”—a single, shared system of record that offers an unambiguous and instantly auditable view of asset ownership and transaction history. Because the ledger is immutable and distributed, it eliminates the possibility of disputes and provides a level of transparency that is simply impossible in the old world of siloed ledgers.
Enabling Programmability and Composability Tokens are not just static representations of value; they are programmable. Smart contracts can embed complex logic directly into an asset, automating corporate actions like dividend distributions or compliance checks. Furthermore, tokenization enables “composability”—the ability to combine different tokenized assets like digital LEGO bricks to create novel financial products. This allows for rapid innovation in financial engineering, moving beyond the rigid, one-size-fits-all products of traditional finance.
These theoretical benefits are not confined to academic whitepapers; they are being proven out in the real world with high-value, tangible assets, demonstrating the viability and power of this new financial architecture to re-liquify the world’s most tangible assets.
Navigating the Transition from Fragile to Antifragile
The road to a fully tokenized financial system is not without its obstacles. Significant challenges remain, including navigating a patchwork of regulatory uncertainty, establishing global standards for token issuance and trading, ensuring seamless cross-chain interoperability, and, most critically, building deep and persistent secondary market liquidity. These are formidable hurdles that will require sustained public-private coordination and pragmatic, risk-aware strategies to overcome.
However, it is crucial to recognize what these challenges are and what they are not. They are primarily logistical, political, and operational problems to be solved. They are not fundamental flaws in the technology’s underlying logic. This stands in stark contrast to the debt-based fiat system, whose flaws are not logistical but foundational and systemic. The modern financial system is inherently fragile, built on an ever-expanding mountain of unpayable debt and reliant on opaque, centralized control. The new architecture is, by its very nature, antifragile, transparent, distributed, and based on verifiable rules rather than the whims of central planners.
The shift from an opaque, centralized, and illiquid system to a transparent, distributed, and liquid one is therefore not a matter of if, but when. The old world of finance, with its T+2 settlement, fragmented ledgers, and exclusive access, is a relic. It was built for an analog era and has been stretched to its breaking point. The transition may be gradual, then sudden, but it is inevitable. The “Great Reliquification” of the global economy has begun, and it promises to unlock trillions in stranded value, democratize access to wealth, and build a financial system on a foundation of verifiable truth instead of sand.