Joash Lee is a General Partner at Iron Key. He actively invests in emerging technologies like AI, Web3 and ClimateTech.
Over the past few decades, the internet has evolved through three distinct eras: Web1 offered us a static, read-only platform without much interaction. Web2 ushered in the age of social media, enabling users to consume and create content, though often ceding control to centralized platforms. As we enter the Web3 phase, we’re promised a new paradigm: one where we can not just read and write, but also validate information.
Defining Tokenization
A common use case of blockchain, the underlying infrastructure behind Web3, is tokenization, a tool redefining ownership by enabling fractional access to assets. The digital representation of traditional data has made us rethink the traditional finance (TradFi) ecosystem. As BlackRock’s Larry Fink alludes to in his 2025 Annual Chairman’s Letter to Investors, “Every stock, every bond, every fund—every asset—can be tokenized.”
Stablecoins are a practical example of tokenization, where fiat currencies are brought on-chain to enable faster and cheaper settlements. Meanwhile, a 2023 BIS survey revealed that 94% of central banks are considering a Central Bank Digital Currency (CBDC)—a digital form of a country’s money issued and backed by its central bank—a clear signal of mainstream momentum toward a tokenized economy.
The acceptance of blockchain is clear, but its impacts have yet to be fully realized. If tokenization can democratize financial assets, it can also be used in other contexts, such as real estate and commodities, or even to drive social impact.
Carbon Credits: Use Case Of Tokenization
Tokenizing carbon credits could make opaque and fragmented carbon markets more transparent, efficient and accessible to a wider range of participants. However, we must remember its core principles: to ensure traceable and transparent ownership.
For instance, KlimaDAO attempted to democratize carbon credits by bringing them on-chain and initially generated significant enthusiasm, with its token peaking above $3,700. But it wasn’t long before it came crashing down. This was due to a confluence of factors, including unsustainable tokenomics, but the company is now attempting to launch Klima 2.0, learning from its first attempt to tokenize carbon credits.
Another project, Open Forest Protocol, takes a different approach to transparency, with incentives that align the goals of various stakeholders. Notably, it rewards third-party verifiers only for accurate reports and offers higher rewards for identifying non-compliant or fraudulent projects, rather than purely rewarding for the volume of verifications made, thus incentivizing good behavior and upholding the integrity of the quality of projects. Aligning incentives is key to a sustainable model.
Other Use Cases Of Tokenization: Digital Rights And Peace Credits
Beyond finance and carbon credits, tokenization has several other applications. For example, one of my portfolio companies leverages tokenization by allowing content creators and musicians to tokenize their intellectual properties under a revenue-sharing model while maintaining ownership.
I’ve also worked with Professor Tim Fort, a Nobel Peace Prize nominee, to develop a novel mechanism that aims to foster peace and abate emissions by curbing the explosion of munitions. The framework allots countries with a set number of “Peace Credits,” while excess munitions are converted to Certificates of Reduction (COREs). Each CORE represents a unit of retired munitions. Peace Credits and COREs closely parallel the voluntary and compliance carbon markets, respectively, and could create quantifiable peace outcomes. We believe that blockchain could serve as an enabler to unlock a sea of benefits, not unlike how carbon credits can be tokenized.
Why We Shouldn’t Tokenize Everything
Though tokenization presents a unique set of opportunities, we must keep some guiding principles in mind to avoid falling into the trap of being a “technical novelty.”
For a start, tokenization won’t revive a dying asset, and projects must follow genuine market demand. I believe tokenized U.S. Treasuries and equities are gaining traction because they can offer clear yields and intuitive uses. Private credit in emerging markets also holds promise but requires delicate risk management.
In addition, tokenization must solve real needs, not just technical puzzles. While tokenizing real estate or intellectual property (IP) is impressive, projects risk becoming noise if they fail to address demand, liquidity and user-friendly design.
Finally, projects must build trust by making regulations transparent and having clear legal frameworks. For example, embedding on-chain metrics such as tonnes of carbon dioxide sequestered, demined hectares or royalties paid helps ensure that the impact is visible and verifiable. Retail investors shouldn’t be seen as hurdles, but rather as opportunities for widespread adoption, and must be educated for sustainable innovation.
As we enter the era of Real-World Assets (RWA), I believe tokenization will reshape how we tackle global challenges. The same decentralized architecture that transformed finance is now creating models for sustainable impact, and founders who dare to explore uncharted territories are poised to play a pivotal role in the future of how we transact.
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