Asset tokenization is one of the most significant transformations in capital markets in the last century. But not all tokenization opportunities are equal - the upside depends on what you tokenize.

A good way to look at the landscape is to separate tokenization outcomes into three buckets:

Efficiency → Acceleration → Market Creation

Tokenization can (1) optimize an existing market, (2) speed up a market that already exists but is illiquid, or (3) create a market that structurally hasn’t existed at scale. The third category - market creation - is where tokenization stops being incremental and becomes genuinely transformative.

Public equities - think Amazon (AMZN) or Google (GOOG) - operate within well-established securities, disclosure, and market-structure regimes, with deep, liquid secondary markets.

Tokenizing public equities can meaningfully improve compliance workflows, transfer permissions and monitoring, settlement speed, and intermediary costs. 

These are real advantages. But it’s still an optimization of a market that already exists at a massive scale.

Private equities - think OpenAI or SpaceX - are issued under private-offering frameworks that vary by jurisdiction. In the U.S., many offerings rely on exemptions like Regulation D (and, in some cases, Regulation A+ or crowdfunding frameworks depending on issuer profile).

While comparatively illiquid, private equity does have functioning secondary markets and transfer frameworks. Marketplaces exist off-chain (e.g. Carta) and increasingly onchain via token-native issuance and transfer tooling (e.g. Fairmint), with platforms like Securitize pushing the ecosystem forward.

Tokenization mainly reduces friction and accelerates transferability. It speeds up market formation but doesn’t create the market from scratch

(And yes, private equity can offer early-stage entry into companies that may grow significantly over time. But structurally, it remains equity ownership - rights, governance, transfer restrictions, and shareholder complexity included).

Private credit is structurally different.

Tokenizing private credit doesn’t just improve an existing market - it can create one by turning bilateral, bespoke credit lines into standardized instruments with consistent issuance, servicing, and transfer rails.

However, traditional (‘offchain’) private credit has historically been fragmented: bespoke terms and documentation, uneven reporting norms, and operational complexity that makes it hard to access, service, and rotate capital efficiently. Unlike private equity, it lacks the same degree of standardization that makes market formation and transferability easier.

As a result, capital formation around private credit has often been slower and less mature - not because demand is missing, but because the infrastructure for market formation hasn’t existed at scale. 

This is where tokenization becomes transformative rather than iterative.

Credit instruments have features that translate unusually well to onchain representation:

• Defined cashflows (interest + principal)

• Clear seniority and repayment logic

• Contractual terms governed by loan documentation (often via Master Loan Agreements)

That’s a big reason private credit has one of the largest addressable markets (TAMs) across tokenized RWAs: it’s a huge asset class, and its core building blocks are inherently standardizable once you have the right framework.

When structured properly (for example, via SPVs or similar wrappers), these instruments can -  in some cases and jurisdictions - resemble private lending exposures rather than collective investment fund shares. That may reduce operational and regulatory complexity versus tokenized fund products and avoids much of the shareholder-rights complexity associated with equity tokenization.

For allocators, this matters operationally - these exposures are commonly treated like debt investments (e.g., under IFRS 9 / ASC 310), so they can slot into existing booking, audit, and risk frameworks more cleanly than fund tokens.

Private credit was often illiquid because origination was manual, servicing was expensive, distribution was narrow, and secondary rotation was painful. 

That’s an infrastructure problem, not a demand problem.

Bringing lending onchain changes the constraint. Instead of multi-year lockups, tokenized credit lines can support predefined redemption windows.

On platforms like Pareto, those cycles are often on the order of 7 to 30 days, turning what used to be a long-duration hold into something closer to weekly/monthly liquidity.

Tokenized funds (e.g., BlackRock’s BUIDL and Franklin Templeton’s FOBXX) are a powerful category. They offer 24/7 settlement, programmable redemptions, and integration with DeFi as collateral or settlement rails.

But they can inherit structural limits: fund regulation requirements (registration/licensing, prospectus requirements, ongoing NAV reporting) under regimes such as AIFMD/MiFID II in Europe or the Investment Company Act in the U.S., as well as layered costs/fees and - depending on structure and investor jurisdiction - additional tax/withholding complexity. They’re also constrained by what the pooled vehicle can hold.

Today, many current tokenized fund offerings skew toward near-risk-free Treasury/MMF-style exposure. They digitize what exists; they rarely unlock new higher-yield private credit markets.

Pareto connects lenders to curated institutional borrowers through onchain Credit Vaults, offering loan-level exposure (not fund shares), standardized and enforceable legal agreements, and weekly or monthly redemption cycles across strategies like prime brokerage, basis trading, derivatives trading, and more.

Tokenization also helps address two classic objections:

• Illiquidity can be improved through programmable redemption windows and faster capital rotation

• Opacity / counterparty risk can be mitigated (but not eliminated) by onchain controls: smart contracts can constrain how capital moves, flows become traceable, lenders retain the right to withdraw according to predefined terms, and compliance logic can be enforced at the protocol level

Pareto’s USP synthetic dollar extends this further by making private credit exposure composable across DeFi, without necessarily turning it into a fund product.

To sum up:

• Equity tokenization optimizes markets

• Fund tokenization modernizes wrappers

• Private credit tokenization builds new market infrastructure

This article was created in collaboration with RWA World

Pareto is a private credit marketplace that connects institutional lenders and borrowers, providing scalable, yield-generating opportunities and bridging institutional capital onchain.

Tailored for asset managers, digital asset funds, and other professional investors, Pareto offers seamless access to regulatory-compliant alternative credit products. Its infrastructure emphasizes transparency, automation, and flexibility. Credit Vaults are the core primitive: they eliminate utilization-based inefficiencies, reduce operational overhead, and improve capital efficiency for both lenders and borrowers.

As the financial landscape evolves, Pareto aims to set a new standard for institutional credit with fully automated, data-driven lending solutions.

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