Written by Ralph Sun
Putting an asset on-chain may improve distribution, settlement, and recordkeeping, but it does not abolish the legal, custodial, and institutional trust that determines whether ownership survives contact with reality.
The sales pitch for tokenized real-world assets is always aesthetically pleasing and conceptually thin. Put the asset on-chain, we are told, and friction falls away. Ownership becomes programmable. Intermediaries shrink. Trust is replaced by code. This is elegant marketing, but markets are not transformed by elegance alone. Tokenization does not eliminate trust. It relocates, repackages, and occasionally obscures it.
To see why, begin with the obvious distinction that much of the industry prefers to rush past: a token is not the asset. At best, it is a digital representation of rights, claims, or interests connected to an asset through legal and operational arrangements. BIS work on tokenisation makes precisely this conceptual move, distinguishing the tokenized representation from the broader institutional environment in which money, assets, and settlement actually function. Once you absorb that, the utopian rhetoric starts to look juvenile. The chain may record a claim with admirable precision. It does not, by itself, guarantee that the claim will be recognized, enforceable, or recoverable when a dispute emerges. [1]
This is not a minor caveat. It is the center of the matter. Ownership of tokenized securities, funds, property interests, or credit products still depends on issuance terms, custody design, bankruptcy treatment, transfer restrictions, governing law, and the institutions that adjudicate conflict. IOSCO’s work on tokenization of financial assets is clear that questions of settlement, custody, ownership recording, and market integrity remain central even when digital bonds or other instruments move onto distributed ledgers. The technology may improve certain processes. It does not perform metaphysical surgery on legal reality. [2]
The same lesson appears in official market oversight. In January 2026, the U.S. Securities and Exchange Commission stated plainly that tokenized securities remain securities subject to the same federal securities laws as their traditional counterparts. That statement should have ended a great deal of unserious conversation. Tokenization changes format and recordkeeping architecture; it does not magic an instrument out of disclosure duties, transfer rules, investor-protection obligations, or enforcement regimes. If anything, the need for legal clarity becomes more intense once the marketing language grows more futuristic. [3]
Industry advocates often respond that no serious participant claims otherwise, that tokenization is merely better plumbing. Very well. But if it is plumbing, then we should evaluate it like adults. The World Economic Forum’s 2025 report on asset tokenization is more candid than much crypto promotion, acknowledging that scaling tokenized markets requires legal certainty, interoperable infrastructure, risk controls, and institutional coordination. DTCC makes a similar point from the perspective of market infrastructure: tokenization extends trusted financial-market systems into new digital formats rather than abolishing the need for trusted systems altogether. Those are not anti-tokenization conclusions. They are anti-fantasy conclusions. [4] [5]
And fantasy is abundant in this sector because the word “trustless” still exerts a childish glamour. In practice, tokenized assets remain saturated with trust assumptions. You trust the issuer to have valid title. You trust the custodian or transfer mechanism to maintain the link between token and asset. You trust the smart contract not to malfunction. You trust the oracle or data feed if off-chain events matter. You trust a court, regulator, or administrator to determine what the token legally means under stress. You trust that insolvency, fraud, sanctions, operational failure, or mistaken transfer will be resolved in a way that preserves your claim. None of that disappears because a ledger entry is cryptographically neat.
BIS work on leveraging tokenisation for payments and financial transactions underscores the point from another angle: adoption depends heavily on user trust, governance, and attention to custody and operational risk. That is exactly right. Code can reduce certain forms of manual reconciliation. It can improve programmability. It can even shorten settlement cycles under the right conditions. But trust in financial markets is not a single switch called “intermediary.” It is a layered structure of enforceable promises, recognized records, institutional accountability, and procedures for when the clean diagram breaks. [6] [1] [2]
This is why tokenization will probably matter more in incremental domains than in revolutionary ones. It may improve collateral mobility, streamline fund administration, expand distribution, or enable more granular market access where legal frameworks are clear and infrastructure is mature. Those are meaningful gains. But they depend on surrounding institutions strong enough to make the token’s claim credible. When those institutions are weak, tokenization does not solve the problem. It decorates it. An unreliable promise does not become reliable because it acquired a wallet address. [4] [5]
The sector would benefit from abandoning its adolescent metaphysics. Trust is not a bug in finance. It is the substrate. Markets do not function because trust disappears; they function because trust is organized, priced, supervised, and, when necessary, enforced with ugly institutional machinery. Tokenization can improve the interface to that machinery. It cannot abolish the machinery itself. Indeed, the more valuable the asset, the more the old machinery tends to reappear: custodians, registrars, administrators, courts, regulators, and contractual wrappers standing quietly behind the supposedly frictionless token. [7]
There is nothing shameful about this. On the contrary, serious tokenization should admit it. The mature case for tokenized assets is not that they eliminate trust, but that they may allow trustworthy institutions to operate with better rails, richer programmability, and cleaner coordination. That is ambitious enough. The moment the industry starts promising more than that, it usually means the legal layer is thin, the economic substance is weak, or the marketing department has again mistaken costume for transformation. The chain can record many things. It cannot, on its own, make people keep their promises.
