When teams talk about “tokenizing real-world assets,” the discussion often jumps straight to blockchain infrastructure, custody, or secondary markets. In practice, however, the most important decision comes much earlier:
What legal and financial instrument are you tokenizing?
Most RWA tokenization projects ultimately fall into one of three buckets:
- tokenized fund units
- tokenized equity
- tokenized debt notes
Each instrument implies a different regulatory perimeter, investor relationship, governance model, and operational burden. Treating them as interchangeable wrappers is one of the most common reasons RWA projects stall or require costly restructuring.
Below is a deeper look at each option, how it works, and when it makes sense.
1. Tokenized Fund Units
What this actually represents
In a fund-based structure, investors acquire units or shares in a collective investment vehicle. The fund (or fund-like SPV) holds the underlying assets, manages them according to a defined strategy, and distributes returns to investors.
The token is a digital representation of fund units, not of the individual assets themselves. Investors gain exposure to a portfolio, not direct control or ownership of specific assets.
Why this model is attractive
Fund units are familiar to regulators, institutional investors, and asset managers. From a legal standpoint, tokenization does not change the nature of the product — it changes the format of issuance and record-keeping.
This model works well when:
- assets are pooled or rotated over time
- asset management is involved
- reinvestment and portfolio optimisation are expected
- institutional or professional investors are targeted
It also aligns naturally with private credit strategies, infrastructure portfolios, and diversified real estate products.
Regulatory and operational implications
Tokenized fund units almost always trigger fund regulation or collective investment scheme rules. This can mean:
- licensing or registration requirements
- fund governance obligations
- valuation, reporting, and audit standards
- restrictions on retail distribution
- professional fund management needs to be involved (fund management entity needs its own license)
The setup is typically heavier and more expensive, but also more defensible when dealing with regulators and institutional counterparties.
Best suited for: asset managers, institutional strategies, portfolio-based RWA products, regulated distribution environments.
2. Tokenized Equity
What this actually represents
In an equity-based model, the token represents ownership or ownership-like rights in a company or SPV that holds the asset. Investors are not just financing the asset — they are entering into a corporate relationship.
Depending on the structure, this can include:
- voting or governance rights
- dividend or profit participation
- residual value on exit
- shareholder protections under corporate law
The token is effectively a digitised equity interest, even if it is technically issued as a token rather than a traditional share certificate.
Why teams choose this model
Tokenized equity is often appealing for:
- long-term ownership strategies
- single-asset SPVs
- projects where governance participation matters
- founders seeking alignment rather than fixed repayment
It can also feel conceptually intuitive: “own a piece of the asset or company.”
Regulatory and practical challenges
Equity tokens are almost always classified as securities, regardless of jurisdiction. This brings:
- higher disclosure standards
- stricter transfer restrictions
- cap table and shareholder management complexity
- governance alignment between on-chain and off-chain layers
Secondary trading is usually more constrained, and investor onboarding requires careful handling to avoid public offering or retail solicitation issues.
Best suited for: long-term ownership, strategic investors, operating companies, projects comfortable with governance and compliance complexity.
3. Tokenized Debt Notes
What this actually represents
In a debt-based structure, the token represents a contractual claim, not ownership. Investors lend money to an issuer and receive:
- principal repayment
- interest or yield
- defined maturity and repayment terms
The issuer (often an SPV) uses the capital to finance or acquire the underlying asset, and cash flows from the asset service the debt.
Yield structures: fixed vs variable
Debt notes can have:
- fixed yield (e.g. 8% per annum)
- floating yield (e.g. benchmark + margin)
- performance-linked or variable yield, where returns depend on asset performance, revenue, or cash flows
Importantly, variable yield does not automatically turn debt into equity, as long as:
- there are no governance or ownership rights
- repayment mechanics remain contractual
- the instrument does not give residual upside beyond defined terms
This flexibility is one reason debt notes are widely used in private credit and RWA tokenization.
Why this model dominates early RWA projects
Tokenized debt is often the cleanest entry point into RWA tokenization:
- simpler investor relationship
- predictable economics
- limited governance obligations
- easier alignment with private placement regimes
From a product perspective, debt tokens are easier to explain, easier to model, and easier to service.
Best suited for: private credit, real estate financing, receivables tokenization, early-stage RWA platforms, projects prioritising speed and clarity.
How to choose the right instrument
The right instrument is not about trends — it’s about fit. Key questions include:
- Are investors seeking yield or ownership?
- Is the asset operational or purely financial?
- Do you need governance participation or simplicity?
- Are you targeting retail, accredited, or institutional investors?
- How important is secondary liquidity versus regulatory certainty?
Many successful RWA platforms follow a phased approach: starting with debt notes, moving to fund structures as portfolios grow, and only introducing equity where governance and long-term ownership justify it.
Final thought
Tokenization does not eliminate legal and financial realities — it exposes them. Fund units, equity, and debt notes are fundamentally different instruments with different consequences.
The strongest RWA projects are those that align instrument choice, regulatory strategy, and product architecture from the very beginning — before anything is deployed on-chain.
