By Amol Agrawal, The writer teaches at the National Institute of Securities Markets
French writer Jean-Baptiste Alphonse Karr in 1849 wrote that “the more things change, the more they remain the same”. In a way, he summed up much of human history—we think we have progressed, yet the core foundations remain the same. We are witnessing a similar change in the financial system with tokenisation; yet at its core, nothing changes.
The International Monetary Fund’s (IMF) magazine Finance and Development (F&D) is based on the theme of tokenisation of finance. It has also released a dictionary to simplify terms in this new world of finance, and it defines finance token as a “unique digital representation of ownership of a financial (money or bonds) or real asset (commodities) that exists on a distributed ledger”. To simplify, tokens are plastic coins we get in amusement parks. In an amusement park, you exchange cash for a token and then take multiple rides across the park. On your return, you return the token and take back any remaining amount as cash. Tokenisation simplifies the economics of a theme park, where one does not have to deal with multiple counters and exchanges. In fact, the coins and banknotes are also like tokens used to settle transactions. Similar ideas apply to finance as well.
The digitalisation of finance is leading to its tokenisation. Itai Agur, senior economist at the IMF, in the same edition of F&D, explains that tokenisation is helping cut middlemen of finance. Trading in financial assets requires a broker-registrar to settle securities and money, and that takes time and involves transaction costs. Tokenisation will help reduce time and transaction costs via two additional features. First, a secure programmable code stores all the investors’ assets and money on a decentralised ledger. When there is a financial transaction, the code is simply transferred from buyer to seller. The second is interoperability, wherein ledgers should be standardised.
In a nutshell, in the near future all our assets will be stored in a programmable token on an interoperable ledger that will enable seamless trading. Even physical assets such as land and real estate will be represented via tokens. These assets will still need to be maintained physically, and tokenisation will be hybrid.
Tokenisation is already underway in the monetary world. Central banks have issued central bank digital currencies, private companies have issued stablecoins, and banks have issued tokenised deposits. According to a Citigroup report (Stablecoins 2030: Web 3 to Wall Street), the issuance of stablecoins has grown 10-fold from $28 billion to $282 billion in 2025 and is expected to touch $4 trillion by 2030.
Tokenisation is obviously no free lunch, and it will bring its own risks. Agur points out that faster automated finance, like faster driving, will also be prone to sudden crashes. The programmability will add another layer of complexity to complicated financial products. The programmable assets can also fall like dominoes, as seen in the 2008 crisis where the collapse of one entity/asset triggered the collapse of other entities/assets too. Helene Rey of London Business School in another F&D article writes that stablecoins pose risks concerning dollarisation, capital flows, and exchange rate volatility, as well as the potential weakening of the banking system, money laundering, and other financial crimes.
Likewise, Yao Zeng of Wharton School notes that the financial landscape may have changed, yet the rules remain the same. He highlights that stablecoins may falter under stress. Interestingly, despite these large-scale changes in finance, the latter remains the same. The title of Ugar’s article is “Tokens Are Finance’s Newest and Oldest Innovation”. It highlights how cowries, a type of seashell, were physical tokens which didn’t need a middleman to verify the transaction, stating that “cowries were the first financial innovation”. They have been followed by coins, cash, payment cards, and more, which are nothing but some forms of token.
Historians of money will also argue that tokenisation is hardly new. Many historians disagree that money evolved not out of barter but as a token to settle debts. They cite Yap Island’s stone money as an example. American anthropologist William Henry Furness III spent several months on the Micronesian islands and wrote The Island of Stone Money in 1910. He highlighted how the islanders transacted through large stones, but the stones remained wherever they were. Natives simply believed that the stone belonged to them. The island money drew attention from both John Maynard Keynes and Milton Freidman. (Interested readers should look up David McWilliams’s The History of Money: A Story of Humanity). In a way, Yap money is nothing but physical tokenisation. It is a mere coincidence that the island’s stone money looks like a token!
In sum, tokenisation is the new buzzword of finance. It is interesting how technology and digitalisation are enabling this new transformation. However, if we look at financial history, it resembles old wine in a new bottle.