Financial institutions are stepping up efforts to tokenize real-world assets (RWAs), moving beyond pilots toward production-scale offerings. In a new analysis, Franklin Templeton’s Chetan Karkhanis reviews how the market has evolved, the structural barriers that still limit scale, and the developments most likely to bring blockchain-based investments into broader portfolio use.
Tokenization Moves From Pilots to Production
Issuance of tokenized funds, securities, and cash instruments has progressed from technical demonstrations to live products aimed at institutional investors. Asset managers, banks, and market infrastructure providers are experimenting with on-chain representations of treasuries, money-market exposures, private credit, and other RWAs to improve settlement efficiency, transparency, and programmability.
Early deployments suggest tokenization can compress operational timelines and enable near-instant transfer of ownership under defined compliance rules. However, scaling these benefits across markets and jurisdictions remains a work in progress.
Fragmented Standards Restrict Scale
According to Karkhanis, differences across base blockchains (Layer 1 networks), interoperability frameworks, and token standards are constraining growth. Varying approaches to identity, permissioning, and compliance controls create frictions for institutions that must satisfy strict regulatory and operational requirements across multiple venues.
- Layer 1 divergence: Distinct consensus mechanisms, finality guarantees, fee structures, and performance profiles complicate cross-chain issuance and transfer.
- Interoperability risks: Bridges and messaging systems introduce security and operational risks, while inconsistent standards hinder composability.
- Compliance fragmentation: KYC/AML, transfer restrictions, and whitelisting work differently across networks, challenging uniform policy enforcement.
- Custody and controls: Varying wallet models and key management approaches impact how institutions implement segregation, approvals, and audit trails.
Compliance, Settlement, and Interoperability Are Key Gaps
Institutional adoption hinges on robust, consistent frameworks that allow assets to move across chains without sacrificing compliance or control. Karkhanis highlights the need for standardized identity and permissioning that travel with the asset, enabling issuers and transfer agents to enforce rules at the token level regardless of venue.
Reliable on-chain settlement rails are also critical. Tokenized cash, stablecoins, or tokenized bank deposits can support atomic delivery-versus-payment, reduce counterparty risk, and enable intraday liquidity management. At the same time, interoperability solutions must prioritize security, auditability, and clear liability models to meet institutional risk thresholds.
What Could Unlock Wider Portfolio Use
Several developments could help bring tokenized instruments into mainstream portfolio construction and operations:
- Common standards for identity, permissioning, and transfer restrictions that work across public and permissioned networks.
- Institutional-grade interoperability with strong security assurances and clear operational playbooks.
- Broad availability of on-chain cash and real-time settlement to reduce friction and improve liquidity.
- Deeper integration with existing market infrastructure, including custodians, fund administrators, transfer agents, and trading venues.
- Enhanced tooling for valuation, accounting, tax, and audit that aligns on-chain data with regulatory reporting requirements.
- Clearer, harmonized regulatory guidance across jurisdictions to lower compliance uncertainty.
As tokenized RWAs mature, standardization and interoperability are emerging as the decisive catalysts for scale. Karkhanis’s assessment suggests that aligning technology with compliance and market plumbing will determine how quickly blockchain-based instruments transition from niche deployments to routine components of institutional portfolios.