The OECD report has highlighted that there has been a substantial increase in bond participation from 5% to 11% but when we look at stock participation, the numbers might numb bond participation. For example, in 2025, there’s almost 35% retail ownership in shares. But why such a disparity despite the fact that bonds are much more secure? High tickets are the reason to blame. To put that in perspective, if you want to buy a share, even a $100 bill is enough, but for a T-Bond, you need a minimum $1,000 + some brokerage fees due to low accessibility. Tokenization is here to change that, making bonds as inclusive as stocks/ shares in 2026.
What is Tokenization?
Tokenization is the process of creating a digital representative of a real world asset in a fractionalized form on the blockchain and making the same available for trading. Due to tokenization, ownership of anything can be customized to the granular level based on demand despite the inability to do that with a traditional system. Thereby, making some of the assets more liquid than they used to be in the past.
How Does it Work?
Tokenization works by consolidating origination, distribution, trading, clearing, settlement and safe-keeping operations from a single checkpoint by using blockchains as an underlying technology for achieving that. In this process, there are several steps followed like;
Defining the token type (fungible/non-fungible)
Choosing the blockchain for issuance based on (High TPS/ Low Latency/ Low fees/ Interoperable/ Better Liquidity / Network Effect/ Security / Decentralization)
Third Party auditors to verify offchain assets for validation
Issuance of the assets
Settlements
Why Is This Needed For the Bond Market?
Tokenization is becoming a necessity for the bond market because at the moment, the bond market stands at a staggering $141 trillion generating stable yield of as high as 5%, which could beat inflation of developed economies as shown in the image below
but participation of general public has been limited due to the following reasons;
- Asset Issuance Cost In order to issue bonds, companies/ governments have to create records of the firm’s bonds, shareholders and other specs. Storing the information in such volumes could end up very expensive for the businesses. As a result, they go for intermediaries in the form of registrars which are designated the task of validating the bond issuance process. For that matter, these intermediaries charge a fee for storing such huge chunks of data. But they do that because of the volume they get keeping their cost of operations low. But in the process, the cost burden is transferred to the bond holders.
2. Asset Trading Cost
Asset trading is another segment which the bond market has to overcome because there are multiple counter party risks involved with the traditional bond market. For example, what if the other party involved in the trade would default. Or, it is impossible to find a trustworthy buyer or seller. For that matter, there are clearing houses like central counterparties CCHs and CSD to mitigate the risks. But they impose heavy fees for such services making the asset trading experience level a very high paying experience for investors.
3. Asset Servicing and Redemption Cost
Finally coming down to the payments, in this process as well, there’s over dependency on intermediaries. For example, since governments/ corporations outsource the data to mid party or clearing houses, at the time of dividend payments, interest and principal payouts, these firms/ corporations have to bear the cost of facilitating the same through an intermediary since they have all the data of the stakeholders for payment processing. To put that in numbers, every year these firms/ corporations have to bear fees in the following manner;
Trustee or Paying Agent Fees: €2,000 to €20,000
Reporting & Compliance Costs : €10,000 and €100,000 per year
Investor Relations fees: €15,000 to €50,000 annually
How Tokenization Solves The Problem of the Bond Market?
Programmable Record Keeping
Through tokenization, it is possible to abstract dependency because you wouldn’t need an intermediary for issuance. This will happen because you will be using a shared programming ledger which shall link every account holder on a peer-to-peer basis using blockchains. In this way, the need for registrars will be resolved. Thereby, making bond issuance programmable and reducing the cost using smart-contracts.
Seamless Trade Execution
When smart contracts are in action, they can quickly match the orders because there will be a unified marketplace to match demand and supply. Unlike with the registrars, where they manually try to match buyers and sellers and charge fees for the same to settle the risks of executing the trade, the smart contracts will be doing that automatically.
Automating Settlements
Lastly, the most important aspect is settlement, where you might have to settle for payments for like 3 to 5 days. But when bonds are tokenized using blockchains, they can be done almost in an atomic way. For example, as shown in the tweet below, the US T-bills were tokenized using the Algorand blockchain, where the not just fractionalized the T-bills for a very low ticket participation but at the same time, settling the same on a T-0 basis with fees as low as $0.0005.
This was simply unprecedented to handle all the problems that the bond market faces right at this juncture using traditional means. At the moment, tokenized private credit like bonds have only touched $13 B and they have huge potential in the future after seeing a flurry of development going on right at this juncture.
Top Projects Developing Tokenized Bonds On Top Of Blockchains
DAEM / DUSK Network
DAEM Network is using a purpose-built blockchain to tokenize shares for thousands of small and medium scale enterprises in the Netherlands and the Benelux region. They have partnered with Firm24, the largest registers in the EU region to tokenize bonds.
Polymath
Polymath is another project which is tokenizing the security market on the Ethereum blockchain. The platform takes into cognizance regulatory compliances while issuing the security tokens and so far more than 200 security tokens have been issued using the Polymath ecosystem.
Finteum
Finteum is addressing one of the key pain points of banks by addressing their intraday liquidity management using blockchains as an underlying technology. Due to this trade off, now banks are not compelled to hold excessive reserves with them, rather, they can use the same to advance more loans and do business in real time. So far, as per a report, more than 14 major banks with the likes of Barclays, BNY Mellon, Citi, NatWest, UBS, CIBC have partnered with Finteum to collectively bring $19.8 trillion onchain.
So, if you are also planning to build a market for bonds onchain using asset tokenization, having an expert can simplify your launch. In this regard, Prolitus can help you.
Build Your Tokenized Bond Market with Prolitus
Prolitus has a proven track record in developing smart-contract and blockchain solutions that you can use to launch your own tokenized bond marketplace using blockchains. By using the experience and expertise at Prolitus, you can easily launch your tokenized bond marketplace keeping in mind all the regulations and other stuff.
So far, we have been serving clients of all shapes and sizes scattered across various geographical locations. Using our seasoned professionals with years of experience, we have provided the best outcomes to clients. If you are looking for expertise, innovation, and comprehensive support to streamline a smooth digital transformation, we are always eager to help. For queries about how we can streamline the process and help you with developing the Telegram miniapp for your specific business goals, we are just a call away from you.
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