Original Title: "So That's It! The Vice President of the Bank for International Settlements (BIS) Tells You What Tokenization Is and How to Tokenize?"

Written by: Zhang Feng

At the Singapore FinTech Festival in November 2025, Andréa M. Maechler, Vice President of the Bank for International Settlements (BIS) and Acting Head of the BIS Innovation Hub, delivered a thought-provoking speech focusing on "tokenization," a key trend reshaping the global financial system.

In her speech, she not only clarified the definition and mechanism of tokenization but also revealed how it drives innovation in payment systems and spawns new business models through programmable platforms. We believe her remarks also provide an important framework for regulators to consider.

1. What is Tokenization? From Static Records to Dynamic Programmable Assets

Tokenization, in simple terms, is the process of transforming the static ownership records of financial assets—such as deposits, bonds, and notes—into verifiable, transferable, and digitally tokenized assets that can operate on programmable platforms. This process is not merely digitization; it involves giving assets a digital identity in the form of "tokens" through blockchain or distributed ledger technology, endowing them with properties that are divisible, traceable, and programmable.

In traditional financial systems, asset records are often centralized, isolated, and updated with delays. For example, a cross-border payment may require multiple banks and clearing systems, going through various steps such as messaging, reconciliation, and settlement, taking days and incurring high costs. Tokenization creates digital tokens that correspond one-to-one with underlying assets, allowing assets to flow and interact in real-time on open, programmable platforms.

Programmability is one of the core features of tokenization. This means that tokens can not only represent value but also embed smart contracts—automated code logic. For instance, a token can be programmed to automatically pay interest at a specific time or transfer ownership when certain conditions are met. This programmability brings unprecedented automation and precision to financial transactions.

2. How to Tokenize? Mechanisms, Platforms, and Typical Cases

The implementation of tokenization is not instantaneous; it relies on several key elements: asset onboarding, token minting, platform integration, and compliance frameworks. Maechler illustrated the practical path of tokenization in cross-border payments using the BIS Innovation Hub's "Agorá Project" as an example.

(1) Technical Implementation Path of Tokenization

Asset Identification and Anchoring. First, it is necessary to identify the asset to be tokenized and establish a reliable, auditable correspondence between it and the digital token. This is typically ensured through legal agreements and technical certificates.

Token Minting and Issuance. On a qualified programmable platform (such as a permissioned blockchain), tokens representing the asset are issued. These tokens must comply with relevant financial and securities regulations.

Platform Integration and Interaction. Tokens need to operate on platforms that support smart contracts, enabling interoperability with other tokens, payment systems, and traditional ledgers.

Clearing and Settlement Automation. By bundling transaction instructions, asset transfers, and fund settlements through smart contracts, "atomic settlement" is achieved—where all steps succeed or fail simultaneously, eliminating counterparty risk.

(2) Agorá Project: How Tokenization Reshapes Cross-Border Payments

The Agorá Project is a flagship initiative promoted by the BIS in collaboration with seven central banks and over 40 financial institutions. This project integrates tokenized deposits (digital representations of commercial bank deposits) and tokenized reserves (digital representations of central bank currency) on the same programmable platform. In cross-border payment scenarios, the tokenized deposits of the payer and payee can be instantly exchanged through smart contracts, with final settlement completed in central bank currency in real-time, compressing the entire process into a single atomic operation.

This approach significantly reduces delays, costs, and risks associated with cross-border payments while enhancing transparency and traceability. Maechler pointed out that such experiments provide key technological and governance templates for future large-scale applications.

3. The Value of Tokenization: Efficiency Gains and Emergence of New Business Models

Tokenization is highly valued by international institutions like the BIS because it can create value across multiple dimensions:

(1) Efficiency Gains and Cost Reductions

In traditional financial transactions, reconciliation, clearing, and settlement involve substantial manual and intermediary operations. Tokenization, through automation and atomic settlement, greatly compresses processing time and reduces operational risks and compliance costs. Maechler emphasized that especially in cross-border contexts, this efficiency gain could bring "huge systemic benefits."

(2) New Business Models and Financial Products

Tokenization is opening up a series of unprecedented application scenarios:

Tokenization of the Bond Market. The global government bond market is approximately $80 trillion in size; tokenization can automate the entire process of issuance, trading, interest payments, and redemption, enhancing liquidity and lowering entry barriers.

AI and IoT Payments. Programmable tokens can be combined with AI agents to enable real-time, high-frequency micro-payments between machines (such as automatic charging payments for electric vehicles) or to automatically execute invoice settlements in trade finance.

Digitalization of Traditional Instruments. For example, the "Commitment Project" in collaboration between the BIS and the World Bank aims to tokenize paper promissory notes used by governments to fund multilateral development banks, enhancing the efficiency and transparency of fund utilization.

(3) Financial Inclusion and Market Integrity

Tokenization can also reach areas traditionally underserved by financial services. By lowering transaction costs and enhancing credibility, it can facilitate easier participation of small and medium-sized enterprises and individual investors in global financial markets, while also strengthening anti-money laundering and anti-corruption capabilities through traceability.

4. The Deeper Significance of the BIS Vice President's Discussion: Logic, Operations, Distinguishing Fakes, and Regulation

Maechler's speech is not only a description of technological trends but also implies a complete cognitive framework for tokenization:

Revealing the Underlying Logic of Tokenization. She clearly pointed out that the essence of tokenization is reconstructing financial processes through programmability and combinability. This involves not only technological upgrades but also a systematic reflection on the roles of financial intermediaries, forms of currency, and methods of contract execution.

Clarifying the Operational Path of Asset Tokenization. From projects like Agorá, it can be seen that successful tokenization must currently rely on central bank currency as the final settlement asset to ensure a credit foundation; it should be promoted on regulated, interoperable platforms; and it should focus on integration with traditional systems to avoid fragmentation.

Proposing Mechanisms for Distinguishing and Ensuring the Quality of Tokenized Assets. Tokenization does not automatically resolve trust issues. Maechler suggested that the authenticity and quality of tokens must be ensured through: robust legal declarations and asset endorsements; transparent issuance and redemption mechanisms; independent audits and on-chain verification tools; and regulatory oversight of issuers and platforms.

Providing References for Regulating Tokenized Assets. She mentioned that recent regulatory progress in various countries regarding tokenized currencies (such as stablecoins) provides a legal foundation for broader asset tokenization. Regulation should focus on: clarifying the legal attributes of tokens and investor protection; preventing fragmentation and systemic risks; and encouraging cross-jurisdictional cooperation and standardization.

5. Challenges and Future Outlook

Despite the strong momentum of tokenization, Maechler also pointed out that the transformation is still in its early stages. The actual deployment of tokenized deposits is limited, and large-scale promotion still faces multiple challenges, including technological interoperability, legal certainty, and regulatory coordination. Additionally, how to balance innovation with financial stability and how to design platform architectures that consider both openness and security remain unresolved issues.

However, the direction is clear. Tokenization represents a more efficient, transparent, and inclusive financial future. As Maechler emphasized, this is not just an evolution of technology but a paradigm shift in financial infrastructure. Central banks, commercial banks, technology companies, and regulatory agencies must explore and cautiously advance together to ensure that this transformation truly serves the stability and development of the global economy.

The Bank for International Settlements, through the forward-looking discussions and innovative experiments of its executives, provides us with an authoritative and clear roadmap for understanding tokenization. Tokenization is not a distant science fiction scenario but a financial reality that is happening now. It redefines the way assets flow, reconstructs the mechanisms of trust, and reshapes the boundaries of financial services. For policymakers, financial institutions, and market participants, understanding what tokenization is and how to achieve it has become a necessary course to embrace the next financial era.

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