securitization is the financial alchemy of taking not easily or nontradable assets pooling them together and selling tradeable shares in that pool to investors broadly securitization could be taking any assets as with bitcoin or ether for crypto exchange traded funds or properties and related assets for real estate investment trusts and selling securities related to them 
however we focus here on its primary meaning for investors and regulators when an issuer designs a marketable financial instrument by merging financial assets normally mortgage loans and consumer or commercial debt 1 investors who buy these securities receive the principal and interest payments for the underlying assets 2we ll take up the nuts and bolts of how securitization works exploring its mechanics through a step by step example we ll examine the potential benefits securitization offers to both lenders and investors such as improved liquidity risk diversification and more efficient capital allocation meanwhile we ll grapple with the significant risks and downsides of securitization including reduced transparency misaligned incentives and the potential for systemic instability investopedia xiaojie liu