Last week Wells Fargo, the country’s fourth-largest bank with about $2.3 trillion in assets, said it would offer tokenized deposits to corporate and commercial clients this fall. Not long ago, the announcement would have been written off as yet another blockchain trial balloon. Today, it looks more like keeping up with the competition.

JPMorgan and Citigroup already operate similar services. JPMorgan’s Kinexys network processes more than $7 billion a day and has handled over $4 trillion since launch. Both banks along with Wells Fargo, Bank of America and more than a dozen other large lenders are also participating in an initiative operated by The Clearing House, a bank-owned payments company, like Zelle, that is developing a shared system for moving tokenized deposits between institutions.

The market’s plumbing is moving in the same direction. The Depository Trust & Clearing Corporation, which clears and settles some $15 trillion in U.S. securities trades per day, processed its first live transactions using tokenized securities in July and plans to launch the service in October. The world’s largest asset manager, BlackRock, introduced two tokenized money-market products this month.

Citi estimates that tokenized securities could reach approximately $5.5 trillion by 2030, while Boston Consulting Group and digital-securities exchange ADDX put the potential market for tokenized illiquid assets at $16.1 trillion. The figures describe different markets, but they capture the scale of the bet. Tokenization is at last becoming a Wall Street business, not merely a crypto slogan.

So what is tokenization, and why does it actually matter?

Tokenization is a mechanism for representing an asset, or a claim on one, with a digital token on a blockchain, which is an immutable digital ledger. The asset might be a stock, Treasury bill, money-market fund or bank deposit. Sometimes the token is part of the official ownership record; sometimes it is effectively a receipt for an asset held elsewhere.

What tokenization changes is not the asset, but how its ownership is recorded and transferred. In a conventional securities trade, the broker, clearinghouse, custodian and bank may each update a separate system, then check that their versions agree. Blockchain technology, first devised by Bitcoin’s pseudonymous creator Satoshi Nakamoto, can give them a synchronized record of who owns what and who owes whom.

The improvements come from removing steps. If the security and the money used to buy it are recorded on systems that can communicate, they can change hands at the same instant: the buyer receives the asset as the seller receives the cash, and neither is left exposed while the other side settles. The token itself can carry code that pays interest, releases collateral or blocks an ineligible investor from receiving the asset.

24/7 settlement gets much of the attention, though most investors do not need an Nvidia trade to clear on Sunday morning. It matters more to institutions moving money and collateral across time zones. A tokenized money-market fund could be transferred overnight to meet an obligation elsewhere instead of sitting idle until the relevant banks reopen.

None of this is free. Immediate settlement can require more cash. Firms now offset a day’s trades against one another and move only the net difference; settling each trade on its own means funding each one in full. Nor does a shared ledger guarantee one shared market. Exposure to Tesla, for example, can come as an ordinary share, a token authorized by Tesla, a token backed by shares held by a custodian, or a contract that merely tracks Tesla's price. Each can carry different rights and trade in a separate pool of liquidity. More on this later.

Why is tokenization gaining momentum now?

Wall Street has been experimenting with tokenization for years. Overstock.com, an online........

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