# What is Asset Tokenization?

### Team Allinfra

2022-06-09

Asset tokenization is the process of creating a digital representation of an asset on the blockchain.

To understand how this process results in a range of benefits, it’s important to first understand how they are created and how they work.

## Which assets can be tokenized?

Almost any digital or physical asset can be tokenized from a technical perspective. However, whether this is possible and has material benefits from a practical perspective depends on the specific asset, jurisdiction and use case.

For example, creating a token that represents the equity interest (a share) in a company is of limited value if there needs to be a physical register of share ownership (and physical certificates) in that company’s jurisdiction of incorporation. Conversely, when a token can represent the actual financial product, you’re likely to see meaningful benefits – whether that be from a self custody perspective, record keeping, issuance or transferability.

## Type of tokenized assets

Assets can be tokenized in various ways, with tokens able to be fungible, non-fungible or partially fungible. This structural flexibility allows for the technology to be applied across a variety of asset classes and types:

**Fungible asset tokenization:** Each unit of a fungible asset is both interchangeable and divisible. This works for equity, debt and derivatives.

**Non-fungible asset tokenization:** Each unit is unique and therefore neither interchangeable and divisible. This is used for digital art and collectibles.

**Partially fungible asset tokenization:** The token contract is allowed to partition a token holder’s balances into tranches, within which tokens are fungible, and outside of which they may not be. This works best for certain financial instruments.

## Why do we tokenize assets?

[There are many advantages](https://allinfra.com/blog/post/5/The-Advantages-of-a-Token) associated with tokens compared to traditional assets, impacting cost, compliance, liquidity and flexibility. Tokenized assets and digital securities can be a far more streamlined, cost-effective and ultimately beneficial way of owning and financing assets, removing friction costs and resulting in a more streamlined investment, trading and reporting processes.