> ## Documentation Index
> Fetch the complete documentation index at: https://cts-docs.cosmos.network/llms.txt
> Use this file to discover all available pages before exploring further.
# What Is Tokenization
> A plain explanation of tokenization for banks: what a token represents, how tokenized deposits differ from stablecoins and tokenized securities, why institutions are adopting it, and what it does not change.
Tokenization is the practice of recording an asset claim on a shared,
programmable ledger. The Financial Stability Board defines it as the digital
representation of assets on a distributed ledger.
A token is a technical representation of an asset. The legal entitlement remains
governed by the contracts and regulations that already apply
([FSB, The Financial Stability Implications of Tokenisation](https://www.fsb.org/uploads/P221024-2.pdf)).
The Bank for International Settlements similarly defines tokenization as the
digital representation of claims on programmable ledgers. Tokenization changes
where a claim is recorded and what can happen while it resides there. It does
not create a new kind of asset.
## What a shared ledger provides beyond a database row
Every bank already records deposits, positions, and obligations in a database.
The difference is not that the record is digital.
A shared ledger is a record maintained across participating parties. The
European Central Bank describes the current model plainly: each party separately
updates its own ledger after an asset transfer. The industry then spends effort
proving those ledgers agree.
A tokenized arrangement instead creates one shared record. The ECB calls this
record a single source of truth that reduces reconciliation
([ECB Macroprudential Bulletin, tokenisation and the Eurosystem's policy response](https://www.ecb.europa.eu/press/financial-stability-publications/macroprudential-bulletin/html/ecb.mpbu202604_02.en.html)).
A shared ledger also lets rules travel with the asset. The ECB notes that
tokenised assets can execute payments, enforce compliance rules, or trigger
transactions under predefined conditions. A database row carries no transfer
logic of its own, while a token can.
## The distinctions that matter for a bank
Tokenization covers instruments with very different legal shapes. An IMF note on
payment tokenization groups them into tokenized deposits, stablecoins, tokenized
securities, and other real-world assets
([IMF, The Rise of Tokenization](https://www.imf.org/-/media/files/publications/imf-notes/2026/english/insea2026006.pdf)).
The issuer and the holder's claim separate these instruments.
| Instrument | Who issues it | What the holder has a claim on |
| ----------------------- | ---------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------- |
| Tokenized deposit | A commercial bank | The issuing bank. The Dallas Fed describes deposit tokens as a claim on an issuing bank, ultimately backed by the assets on that bank's balance sheet |
| Stablecoin | A stablecoin issuer, which in most arrangements is not a bank | The issuer, supported by a pool of reserve assets held against the coins in issue |
| Tokenized security | The securities issuer, within the existing issuance and depository structure | Ownership rights in the underlying security, represented using distributed ledger technology |
| Other real-world assets | Varies widely, often a special purpose vehicle or a custodian | Whatever the legal structure creates. The structure has to be read, not the token |
A tokenized deposit is the instrument banks care about most. It remains an
account-based bank liability within the two-tier monetary system, operating on a
programmable platform. Interbank settlement still runs through central bank
accounts
([BIS, Pushing the monetary frontier](https://www.bis.org/speeches/20260828-pushing-monetary-frontier-stablecoins-and-tokenised-deposits)).
The BIS argues that this structure makes tokenized deposits and stablecoins
behave differently as money. Its 2026 annual report says current stablecoin
designs fall short on singleness: different forms of money cannot always be
redeemed exactly at par
([BIS press release, 23 June 2026](https://www.bis.org/press/p260623.htm)).
If a payee accepts only another issuer's coin, the payer needs a secondary market
conversion that may not clear at par.
Regulatory treatment, capital treatment, and deposit insurance vary by
jurisdiction and an institution's regulatory position. The rules are also
moving. Nothing here is legal or regulatory advice. Confirm treatment with your
own compliance and legal functions.
## Why institutions are doing this
Four mechanisms account for most of the case for tokenization.
Atomic settlement is a transaction that either fully completes or fully fails.
The ECB definition requires the asset transfer and payment to occur
simultaneously and inseparably. This closes the window in which one leg has
settled and the other has not.
The BIS Project Agorá prototype found secure atomic settlement achievable across
currencies and jurisdictions
([BIS, Project Agorá press release](https://www.bis.org/press/p260527.htm)).
Programmability is the placement of operational conditions within the transfer
itself. A programmable transfer carries conditions that most arrangements keep in an
operations runbook.
Federal Reserve Governor Lisa Cook cites automated margin calls and collateral
substitution. She also cites reduced settlement times and less manual
intervention
([Cook, Perspectives on Tokenization](https://www.federalreserve.gov/newsevents/speech/cook20260508a.htm)).
Continuous availability is ledger operation without closing periods. It removes
dependency on operating windows, so interbank settlement and intraday treasury
movement can continue. Cross-border payments can also occur outside local hours.
Reduced reconciliation is often the largest mechanism, though it receives less
attention. When both sides read the same record, they do not need to prove that
two records agree.
Settlement speed has one qualifier. The Dallas Fed notes that settlement
typically operates in layers: customer transfers settle quickly on chain, while
the resulting interbank obligations may be netted and settled later. This creates
intraday liquidity and counterparty exposure that institutions must manage
([Dallas Fed, tokenized deposits](https://www.dallasfed.org/research/economics/2026/0714)).
Fast front-end settlement does not mean settlement has occurred everywhere.
## What tokenization does not change
The asset still has an issuer, a legal owner, and a regulatory regime. That
regime does not soften because the record moved.
Project Agorá states the point directly: the contemplated tokenisation does not
alter the legal characterisation or associated obligations of central bank
reserves and commercial bank deposits.
US regulators take the same position on capital. In March 2026, the Federal
Reserve Board, FDIC, and OCC jointly clarified that the capital rule is
technology neutral. An eligible tokenized security should generally receive the
same capital treatment as its non-tokenized form
([OCC news release, Agencies Clarify the Capital Treatment of Tokenized Securities](https://www.occ.gov/news-issuances/news-releases/2026/nr-ia-2026-14.html)).
One test distinguishes the cases: a change in who owes what to whom creates a new
instrument. Without that change, the instrument is the same claim on a different
record.
## What is genuinely hard
Interoperability is the ability of separate ledgers to communicate. Ledgers do
not provide it natively.
The BIS gives a direct example: a coin on Ethereum is not equivalent to a coin
with the same name on Solana. The coins reside on separate ledgers that do not
natively communicate
([BIS Annual Economic Report 2026, Chapter III](https://www.bis.org/publ/arpdf/ar2026e3.htm)).
The ECB adds that transfers between networks generally depend on bridges and
off-ramps, which introduce cost and disruption.
Technical finality is a transaction's irreversibility on a ledger. Legal
finality is the transaction's final status under law. A transaction can have the
first without the second.
Project Agorá found settlement finality achievable across all seven participating
jurisdictions. Further work remains on the technical, operational, and
contractual requirements that best align with each jurisdiction's legal
framework. The two forms of finality must be aligned deliberately.
Compliance at transfer time is the application of controls as value moves. When
value moves continuously and directly, its controls must move with it.
The BIS notes that public blockchains' pseudonymity complicates enforcement of
anti-money laundering rules. Account-based, supervised arrangements make that
enforcement more manageable. The ECB observes that regulated execution still
requires an authorised venue or operator to implement the rules.
Screening, sanctions, and policy checks run at the point of transfer, not in a
nightly batch.
## Where this fits
The Cosmos Tokenization Suite (CTS) implements one part of this model: tokenized
deposits issued against balances that remain on the bank's own core.
The capabilities, solutions, and applications CTS provides.
The asset categories covered, and which are available today.
How a deposit stays a deposit while becoming transferable.