Glossary

The tokenization cheatsheet.

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Every term, in plain English. Start typing to find any of them instantly.

A

AML (Anti-Money Laundering): The set of laws and procedures that require financial service providers to detect and report suspicious transactions. Tokenization platforms that handle fiat currency or regulated tokens must comply with AML rules, which typically include customer identity verification and transaction monitoring.
AMM (Automated Market Maker): A type of decentralized exchange that executes trades against a shared liquidity pool rather than a traditional order book. Prices are set by a mathematical formula based on the ratio of assets in the pool. Uniswap is the most widely known example.

B

Block: A batch of validated transactions added to the blockchain at a regular interval (block time). Each block is cryptographically linked to the one before it, forming the chain.
Block time: The average time between successive blocks being added to a chain. Ethereum's block time is approximately 12 seconds; Bitcoin's is approximately 10 minutes. Lower block time means faster transaction confirmation.
Blockchain: A database whose records are grouped into blocks, linked together cryptographically, and replicated across thousands of independent computers. No single party controls it. Once a record is confirmed and buried under subsequent blocks, altering it becomes economically infeasible.

C

CASP (Crypto Asset Service Provider): A company licensed under the EU's MiCA regulation to offer crypto-related services (trading, custody, exchange, advice). MiCA's CASP authorization deadline for EU operators was July 1, 2026. Platforms operating without authorization after that date are non-compliant.
CEX (Centralized Exchange): A trading platform operated by a company that acts as custodian and counterparty. Users create accounts, complete KYC, and deposit funds. The platform holds assets on the user's behalf. Examples: Coinbase, Kraken, Bitstamp.
Cold wallet: A wallet whose private key is stored offline, on a hardware device or on paper, and never exposed to the internet. Cold storage is the most secure way to hold tokens long-term, at the cost of convenience.

D

DAC8: An EU directive requiring crypto asset service providers to automatically report client transaction data to national tax authorities. Reporting for Romanian clients goes to ANAF by 15 March 2027; for Hungarian clients to NAV by 31 March 2027.
DAO (Decentralized Autonomous Organization): An organization governed by smart contracts and token-weighted voting rather than by a board or management team. Decisions are executed automatically when a proposal reaches the required vote threshold.
DeFi (Decentralized Finance): Financial services (lending, borrowing, trading, yield generation) delivered through smart contracts on public blockchains, without banks or brokers as intermediaries.
DEX (Decentralized Exchange): A trading platform that operates via smart contracts. Users connect their own wallets and trade directly against a liquidity pool or peer. No account, no KYC, no custodial risk, but no account recovery either.

E

ERC-1155: A multi-token standard that allows a single smart contract to manage both fungible and non-fungible token types simultaneously. More gas-efficient than deploying separate ERC-20 and ERC-721 contracts for a mixed portfolio.
ERC-20: The dominant token standard for fungible tokens on Ethereum and EVM-compatible chains. Every ERC-20 token of the same type is identical and interchangeable. Used for revenue-share pools, royalty streams, and fractional equity offerings.
ERC-2981: A royalty standard that encodes secondary-sale royalty instructions directly in the token. When a token is resold on a compatible marketplace, the contract automatically routes a specified percentage to the original creator.
ERC-3643 (T-REX): A token standard designed for regulated, compliant token offerings. Transfer restrictions are enforced at the contract level: a token can only move to a wallet registered in an approved on-chain identity registry. Used for regulated securities, institutional real estate tokenization, and any offering subject to KYC or investor-accreditation requirements.
ERC-721: The standard for non-fungible tokens (NFTs). Each ERC-721 token has a unique identifier and cannot be split. Used where the asset's specific identity is the value: individual artworks, property deeds, IP registrations.
EVM (Ethereum Virtual Machine): The computing environment in which Ethereum smart contracts execute. Many other blockchains are EVM-compatible, meaning contracts written for Ethereum can be deployed on them with minimal changes. Polygon, Base, and Avalanche are examples.

F

Fractional ownership: The division of a single asset into many equal units (tokens), each carrying proportional rights. A €2 million property tokenized into 200,000 tokens at €10 each allows many investors to participate without any single buyer needing the full capital.
Fungible token: A token where every unit is identical and interchangeable with every other unit of the same type. One ERC-20 token of a given type is worth exactly the same as another. Contrast with non-fungible token.

G

Gas fee: The cost paid to the network for processing a transaction or executing a smart contract. Gas is denominated in the blockchain's native currency (ETH on Ethereum). Fees vary with network congestion. High gas costs can make small-lot fractional ownership economically unviable on Ethereum mainnet, which is why most tokenization platforms use Layer 2 networks.

H

Hash: A fixed-length string produced by running data through a cryptographic function. Any change to the input data produces a completely different hash. Blockchains use hashes to link blocks: each block contains the hash of the previous block, making the chain tamper-evident.
Hot wallet: A wallet whose private key is stored on an internet-connected device. Convenient for frequent transactions; more exposed to hacking risk than cold storage.

I

Immutability: The property of blockchain data that makes confirmed records practically impossible to alter. After a transaction is buried under enough subsequent blocks, rewriting it would require redoing all the computational work for every block that follows, economically infeasible on major chains.

K

KYC (Know Your Customer): The identity verification process that regulated financial platforms require before allowing users to trade or invest. Typically involves government-issued ID and proof of address. Required by AML law and by MiCA for CASPs.

L

Layer 1 (L1): The base blockchain: Ethereum, Bitcoin, Solana. Layer 1 provides security and finality but has limited throughput and often high gas costs.
Layer 2 (L2): A network built on top of a Layer 1 that processes transactions off the main chain and periodically settles the results back to it. L2s offer dramatically lower gas fees and higher throughput while inheriting L1 security. Examples: Polygon, Base, Arbitrum, Optimism.
Liquidity: How easily a token can be bought or sold at a fair price without significantly moving the market. High liquidity means many willing buyers and sellers at any time. Tokenized assets often have limited liquidity, especially on secondary markets in early stages.

M

MiCA (Markets in Crypto-Assets Regulation): EU Regulation 2023/1114, fully applicable from December 30, 2024. The primary legal framework governing crypto asset issuers and service providers across EU member states. Introduces licensing (CASP), disclosure, and consumer protection requirements.
MiFID II: The EU's Markets in Financial Instruments Directive II. Applies to tokenized assets that qualify as financial instruments (securities, fund units). Where MiCA and MiFID II overlap, MiFID II takes precedence for financial instruments.
Multisig (Multi-signature wallet): A wallet that requires approval from multiple private keys before a transaction can be executed. Used by organizations and projects to prevent a single point of failure or theft.

N

NFT (Non-Fungible Token): A token with a unique identifier, no two NFTs are the same, even within the same contract. Represents ownership of a specific item. The most common standard is ERC-721. NFTs can represent art, music rights, property deeds, or any asset where uniqueness matters.

O

Off-chain: Data or processes that exist outside the blockchain, in a company's database, a legal document, or a traditional system. Most real-world asset details (property records, royalty agreements) start off-chain and are linked to on-chain tokens.
On-chain: Data or logic that exists and executes directly on the blockchain: transparent, auditable, and permanent. Transfer rules, royalty distributions, and compliance restrictions in tokenized assets are on-chain when encoded in the smart contract.

P

Private key: A long string of characters that proves ownership of a wallet and authorizes transactions. Anyone who has your private key controls your wallet entirely. It must never be shared with anyone or stored online.
Proof of Stake (PoS): A consensus mechanism where validators are selected to add new blocks based on the amount of the network's currency they have staked as collateral. Far more energy-efficient than Proof of Work. Ethereum moved to PoS in September 2022.
Proof of Work (PoW): A consensus mechanism where computers compete to solve a computationally intensive puzzle. The winner adds the next block. Highly energy-intensive by design, it makes rewriting history expensive. Bitcoin uses PoW; most tokenization platforms do not.
Public key / Wallet address: The identifier you share publicly so others can send tokens to you. Derived mathematically from your private key. Knowing your wallet address gives no control over your assets, only the private key does.

R

Royalty: A periodic payment made to a rights-holder based on the use or sale of their asset. In tokenized music or art, royalties can be distributed on-chain automatically to token holders proportional to their holdings.
RWA (Real-World Asset): A physical or financial asset (property, royalties, debt, commodities) whose ownership or cash flow rights are represented on a blockchain via tokens.

S

Secondary market: A marketplace where tokens are traded between investors after their initial issuance. Liquidity on secondary markets determines how easily a token holder can exit their position.
Security token: A token that represents a financial instrument (equity, debt, revenue share, or fund unit) and falls under securities law. Security tokens require regulatory compliance (typically MiCA or national securities law) and cannot be freely traded without investor verification.
Seed phrase (Recovery phrase): A sequence of 12 or 24 words that encodes your private key. Used to restore wallet access if you lose your device. Anyone with your seed phrase has full access to your wallet. Store it offline and share it with no one, ever.
Self-custody: Holding tokens in a wallet where you control the private key, not a platform or exchange. Full control means full responsibility: losing the private key or seed phrase means permanent loss of access.
Slippage: The difference between the expected price of a trade and the price at which it actually executes. Common in DEX trading with low-liquidity pools. High slippage means the trade is less favorable than anticipated.
Smart contract: A program stored on a blockchain that executes automatically when its conditions are met. Smart contracts enforce token transfer rules, distribute royalties, manage investor registries, and handle governance, without human intermediaries.
SPV (Special Purpose Vehicle): A separate legal entity created solely to hold a specific asset. In real estate tokenization, an SPV typically holds the property; tokens represent shares in the SPV, not direct ownership of the asset. Allows fractional investment while maintaining a clean legal structure.
Staking: Locking tokens in a network or protocol to support operations (validation, liquidity provision) in exchange for rewards. In a Proof of Stake network, validators stake the network's native currency as collateral.

T

T-REX: The open-source implementation of the ERC-3643 compliant token standard. Used by institutional tokenization platforms that need on-chain KYC enforcement and transfer restrictions for regulated offerings.
Token: A digital unit of value or rights recorded on a blockchain. A token can represent a fraction of an asset, a membership right, a vote, or a claim to future income. The specific rights a token confers depend on how its smart contract is written and what legal agreements back it.
Tokenization: The process of converting rights to a real-world asset into digital tokens on a blockchain. The token does not replace the underlying legal ownership. It represents it, and must be backed by legal agreements to be enforceable.
Transfer restriction: A rule, encoded in a smart contract, that limits who can receive a token. ERC-3643 tokens enforce transfer restrictions on-chain: a transfer to a non-verified wallet is blocked automatically, regardless of what secondary marketplaces might allow.

V

Validator: A computer (node) that verifies transactions and adds new blocks to a Proof of Stake blockchain. Validators must stake collateral; dishonest behavior results in losing some or all of that stake (slashing).

W

Wallet: Software or hardware that stores your private key and lets you interact with a blockchain. A wallet does not hold tokens. The blockchain holds them. The wallet holds the key that proves you own them.

Y

Yield: The return generated by holding a token, typically from income distributions (rent, royalties, interest). Yield figures are not guaranteed. They depend on the underlying asset's performance and the platform's distribution mechanics.

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