Tokenization Economics - Does the Math Work?

TRADITIONAL FUND COST STRUCTURE:

- Management fee: 0.03-1.00% annually
- Administration: 0.05-0.15% annually
- Custody: 0.02-0.10% annually
- Audit: 0.02-0.05% annually
- Legal/compliance: 0.05-0.15% annually
- Transfer agent: 0.05-0.15% annually

TOTAL ONGOING: 0.20-1.60% annually

- Purchase: 0-0.50% (load fees, if any)
- Redemption: 0-0.50% (redemption fees)
- Trading: Brokerage commissions

- Expense ratio: 0.15%
- No load/redemption fees
- Brokerage: ~$0 at most brokers
- Net cost: ~0.15% annually

TOKENIZED FUND COST STRUCTURE:

- Management fee: 0.15-0.50% annually
- Platform fee: 0.10-0.25% annually
- Custody: 0.02-0.10% annually
- Compliance: 0.05-0.15% annually

TOTAL ONGOING: 0.30-1.00% annually

- Blockchain fees: ~$0.0002 (XRPL)
- Subscription/redemption: 0-0.25%
- Trading: DEX spread (variable)

- Management: 0.15%
- Platform: 0.15%
- Other: 0.10%
- Total: ~0.40% annually

HEAD-TO-HEAD COMPARISON:

TOKENIZED TREASURY vs. TREASURY ETF:

Tokenized Traditional ETF
Management 0.15% 0.15%
Platform/Admin 0.25% 0.00%
Other 0.10% 0.00%
Total Annual Cost 0.50% 0.15%
Difference +0.35% higher

• 24/7 availability

• DeFi composability

• On-chain settlement

• No broker required

• Depends on user needs

• Some worth paying for

• Others irrelevant

TOKENIZATION COST ADVANTAGE:

1. Traditional structure is expensive:

1. Scale is achieved:

1. Specific features needed:

- Competing with cheap ETFs
- Small scale (fees not amortized)
- Features not valuable to investor

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YIELD DECOMPOSITION:

TOKENIZED TREASURY EXAMPLE:

• Management Fee: (0.15%)
• Platform Fee: (0.25%)
• Other Costs: (0.10%)

TRADITIONAL ETF COMPARISON:

• Expense Ratio: (0.15%)

DIFFERENCE: 0.35% lower for tokenized

• Tokenized: $4,500 return
• Traditional: $4,850 return
• Cost of tokenization: $350

PRIVATE CREDIT ECONOMICS:

- Gross yield: 12.00%
- Management fee: (1.50%)
- Performance fee: (1.00%)
- Admin/other: (0.50%)
- Net yield: 9.00%

- Gross yield: 12.00%
- Management fee: (0.75%)
- Platform fee: (0.25%)
- Other: (0.25%)
- Net yield: 10.75%

DIFFERENCE: +1.75% for tokenized

HERE TOKENIZATION WINS:
Traditional structure was expensive
Efficiency gains pass to investors
Net returns improved

CURRENT MARKET YIELDS (December 2025):

- BlackRock BUIDL: ~4.50% net
- OpenEden TBILL: ~4.40% net
- Franklin BENJI: ~4.70% net

- SGOV (Treasury ETF): ~4.80% net
- Direct T-bills: ~5.00% gross

OBSERVATION:
Tokenized treasuries currently yield LESS
Than simple Treasury ETF alternatives
Premium paid for blockchain features

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TRADITIONAL LIQUIDITY PREMIUMS:

- Private equity: 15-30% discount
- Private real estate: 10-25% discount
- Private credit: 5-15% discount
- Restricted stock: 10-35% discount

- Fractional ownership
- 24/7 secondary trading
- Global investor access
- Should reduce illiquidity premium

THEORETICAL VALUE:
If tokenization reduces illiquidity premium by 5%
On a 10% yielding asset
That's 0.5% additional return
Potentially meaningful

LIQUIDITY REALITY CHECK:

- Generally good (can redeem)
- Redemption windows (not instant)
- Secondary markets thin
- Large trades may have slippage

- Very limited secondary market
- Fractional doesn't mean liquid
- Buyers must be found
- Illiquidity premium partially remains

- Even less liquid
- Secondary markets nascent
- Still significant illiquidity

HONEST ASSESSMENT:
Liquidity improved for some assets
But not eliminated
Premium compression partial at best

LIQUIDITY VALUE ANALYSIS:

QUESTION: Is tokenized liquidity worth the premium?

1. Your actual liquidity need
2. Realistic secondary market depth
3. Cost of tokenized structure
4. Alternative liquidity sources

EXAMPLE CALCULATION:

• Yield: 10%

• Lock-up: 3 years

• No liquidity

• Yield: 9% (higher fees)

• "Liquid" but thin market

• Reality: 1 month to exit

VALUE OF LIQUIDITY:
If you definitely need 3-year lock-up → Traditional
If liquidity might matter → Tokenized (pay 1% premium)
But verify actual liquidity exists

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TOKENIZATION VALUE CHAIN:

UNDERLYING ASSET: Yield/return
  ↓
ISSUER: Management fees (0.15-0.50%)
  ↓
PLATFORM: Platform fees (0.10-0.25%)
  ↓
CUSTODY: Custody fees (0.02-0.10%)
  ↓
BLOCKCHAIN: Transaction fees (~0%)
  ↓
INVESTOR: Net return (what's left)

1. Issuers capture most value (management fees)
2. Platforms capture growing share
3. Blockchain captures almost nothing
4. Investors get remainder

XRP IMPLICATION:
Tokenization success ≠ XRP value capture
Ecosystem health benefits XRP indirectly
But fee revenue to XRP is negligible

WHO BENEFITS FROM TOKENIZATION?

ISSUERS:

• New distribution channel
• Global investor access
• Operational efficiency
• New fee opportunities
  = Clear benefit

PLATFORMS:

• Platform fees
• Growing market
• Strategic positioning
  = Clear benefit

INVESTORS:
? Lower costs (sometimes)
? Better liquidity (sometimes)
? New access (sometimes)
? Higher net returns (sometimes)
= Conditional benefit

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TOKENIZATION VALUE CHECKLIST:

STRONG CASE FOR TOKENIZATION:
□ Traditional structure is expensive (>1% fees)
□ Fractional access is valuable
□ 24/7/global availability matters
□ DeFi integration is needed
□ On-chain settlement is important
□ Traditional access is limited

WEAK CASE FOR TOKENIZATION:
□ Cheap alternatives exist (low-cost ETFs)
□ Don't need special features
□ Liquidity claims not verified
□ Fees higher than traditional
□ Technology complexity unwanted
□ Regulatory uncertainty concerns

ECONOMIC ATTRACTIVENESS BY ASSET:

TREASURIES:
Traditional alternative: Very cheap (0.15% ETF)
Tokenized premium: ~0.25-0.35%
Economic case: WEAK (paying for features)
Conclusion: Use only if features valuable

PRIVATE CREDIT:
Traditional alternative: Expensive (2-3%)
Tokenized premium: -1% (savings)
Economic case: STRONG (real savings)
Conclusion: Consider if access available

REAL ESTATE:
Traditional alternative: Moderate (1-2%)
Tokenized premium: ?
Economic case: MODERATE (liquidity value unclear)
Conclusion: Case-by-case

COMMODITIES:
Traditional alternative: ETFs cheap (0.25%)
Tokenized premium: Small
Economic case: WEAK-MODERATE
Conclusion: Depends on specific structure

TOKENIZATION ECONOMICS WORKSHEET:

Step 1: Traditional Option
Gross yield: ____%
Total fees: ____%
Net yield: ____%

Step 2: Tokenized Option
Gross yield: ____%
Total fees: ____%
Net yield: ____%

Step 3: Feature Value
24/7 access worth: ____%
Fractional worth: ____%
DeFi integration: ____%
Other features: ____%
Total feature value: ____%

Step 4: Decision
Net yield difference: ____%
Feature value: ____%
Net benefit: ____%

IF Net benefit > 0 → Tokenization makes sense
IF Net benefit < 0 → Traditional is better

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Tokenization economics are asset-specific and investor-specific. For expensive traditional structures (private credit, private equity), tokenization can create real savings. For cheap structures (Treasury ETFs), tokenization often costs more. Evaluate based on actual fees, realistic liquidity, and whether blockchain features have personal value.

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Build comparison model for 3 tokenized assets vs. traditional alternatives, calculating net yields, feature value, and investment recommendation.

Time investment: 3 hours

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1. How do tokenized treasury yields compare to Treasury ETFs currently?
Answer: B - Tokenized yields are typically 0.20-0.40% lower due to additional platform fees

2. Where does most value accrue in tokenization?
Answer: C - Issuers and platforms capture most value; blockchain captures negligible fees

3. When is tokenization's economic case strongest?
Answer: B - When traditional structure is expensive (private funds with 2%+ fees)

4. What's the reality of tokenized liquidity?
Answer: C - Improved for some assets but not eliminated; verify actual secondary market depth

5. How should investors decide between tokenized and traditional?
Answer: D - Compare net yields after all fees, assess feature value, choose based on actual economics

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End of Lesson 14