Tokenization and Securitization – A Comparison with Reference to Distributed Ledger Technology

The application of well-known techniques to make an asset investable is the base of a whole financial industry, the securitization of assets. Securitization is the packaging of assets in order to mitigate risks or simply to make them investable. The processes can be complex, lengthy, and expensive due to legal regulation, securities law, and settlement.The rise of Distributed Ledger Technology (DLT) may solve some of the issues of securitization, especially by eliminating process steps and increasing accessibility of asset investments for a larger group of investors. Distributed Ledger Technology introduces the opportunity to create a digital representation, a so-called token, of a given asset and might lead to the elimination of process steps or even of parties involved in the traditional securitization process. By creating DLT-based digital representatives, assets may be fractionalized which may increase liquidity and tradability of the given assets. The aforementioned process of creating asset-representing tokens can be described in the wording of tokenization.The aim of this paper is to discuss the use of Distributed Ledger Technology in the field of tokenization and securitization by comparing fundamental processes.