Market infrastructure companies caution that tokenized securities may encounter increased expenses and fragmented liquidity due to a lack of interoperability.

The DTCC, Euroclear and Clearstream assert that the principle of “same asset, same rights, same outcome” should be consistent across both distributed ledger technology networks and conventional finance systems.

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Key points:

• The DTCC, Euroclear and Clearstream caution that the scalability of tokenized securities is contingent upon effective interoperability between blockchain networks and traditional market infrastructures.
• They released a white paper on Wednesday asserting that a “network-of-networks” model, rather than relying on a single leading ledger, necessitates shared standards, gateways, and regulated service providers to maintain asset integrity, ownership rights, and legal compliance across different platforms.
• The authors call on regulators and market stakeholders to collaborate on governance, standards, and resilience to ensure that tokenization achieves its potential benefits, such as expedited settlement and enhanced collateral efficiency, without causing liquidity fragmentation or increased operational risks.

The largest operators of market infrastructure globally are warning that tokenized securities will face challenges in scaling unless there is consensus on the connections between blockchain technology and traditional financial systems.

In a collaborative white paper, the Depository Trust and Clearing Corporation (DTCC), Euroclear, and Clearstream, along with Boston Consulting Group, contended that “interoperability is essential for the large-scale adoption of digital asset security (DAS).” They cautioned that without it, assets may become confined to isolated networks, resulting in “high operational costs” and fragmented liquidity as trading volumes increase.

The group refrained from endorsing any particular technology. Instead, it presented the issue as structural. Numerous public and permissioned blockchains are currently hosting pilots and operational products, each with distinct standards, smart contract logic, and settlement frameworks. According to the paper, this variety complicates integration and heightens operational and regulatory risks.

The authors dismissed the notion that a single dominant ledger will arise. They indicated that the operational model is evolving towards a “network-of-networks,” featuring standards, gateways, and regulated service providers that connect digital and traditional systems. Within this framework, assets must be able to transfer between platforms while maintaining what the paper describes as “the asset’s integrity, ownership rights, and lifecycle, with full legal and regulatory compliance.”

They encapsulated their objective in a succinct phrase: “same asset, same rights, same outcome.”

This alert arrives as tokenization is making progress in repo markets and pilot initiatives throughout the U.S. and Europe. Although on-chain securities remain limited in comparison to global equity and FX markets, the paper highlights that significant infrastructure developments are already underway, including over $300 billion in daily repo transactions across major platforms.

Nonetheless, many processes still rely on traditional systems. While tokenized bonds may be traded on-chain, cash often settles via real-time gross settlement systems or banking payment networks. Custodians and central securities depositories continue to maintain record books. The paper anticipates that this coexistence will persist for several years.

The framework also goes beyond mere technical connections. The authors emphasized that interoperability must encompass assets and liabilities, ownership recognition, lifecycle events, ledger finality, and legal enforceability. In the absence of alignment across these dimensions, cross-chain or cross-border transactions might necessitate additional reconciliation steps that undermine expected efficiency enhancements.

The group urged regulators and market participants to form working groups aimed at governance, standards, and resilience. “Collective action today will shape resilient markets tomorrow,” the paper asserts.

This initiative coincides with claims from prominent Wall Street firms that tokenization could transform financial markets by facilitating 24/7 trading, quicker settlement, and more effective collateral utilization. Executives from major banks and asset managers have indicated that blockchain-based infrastructures might ultimately lower back-office expenses and free up capital currently tied in multi-day settlement cycles. Some have characterized tokenized assets as a means to create more integrated global markets, where cash and securities can move in near real-time.

The paper does not contest this vision. Rather, it posits that achieving it hinges less on the launch of new chains and more on harmonizing the governing rules that oversee them.