Hidden Trio: Why Custody, Compliance & Interoperability Are Make-or-Break
In the dynamic world of Asset Tokenization, technology tends to receive most of the focus (blockchain infrastructure, smart contracts and token standards). The institutional layers that surround the technology (custody, compliance and interoperability), key to real world adoption tends to be ignored.
As discussed in my previous articles titled Tokenization in Practice: Part I & II, major institutional pilots (by JPMorgan, SocGen, UBS and Siemens) highlight how tokenization is no longer hypothetical.
The journey from pilot to production though, relies heavily on infrastructure enablers that ensure security, trust, and operational viability at scale. Hence Custody, Compliance & Interoperability will decide the winners in the tokenization space.
Custodians: Still Central in a Tokenized World
In traditional finance, custodians safeguard physical and digital assets, manage settlements, and ensure record-keeping integrity.
In the tokenized world, custodians are increasingly expected to:
- Secure private keys and digital wallets
- Validate and reconcile on-chain and off-chain asset data
- Offer token-native custody solutions for institutional clients
This is important mainly for tokenized real-world assets (RWAs), where the physical or off-chain asset must be securely linked to the digital or on-chain twin.
Why it matters: Without robust, regulated custodians offering secure token services, institutional investors will hesitate to engage — particularly for large-scale adoption of tokenized funds, securities, or alternative assets.
Example: BNY Mellon, State Street, and Zodia Custody (Standard Chartered) are investing in digital custody infrastructure to meet demand from asset managers and token issuers alike.
II Compliance: Code Must Obey the Law
A successful tokenization platform will automate compliance (across jurisdictions) in addition to automating asset movement. This is one of the biggest challenges currently facing institutional adoption.
Key considerations include:
- KYC/AML procedures must be embedded in permissioned environments
- Investor eligibility and transfer restrictions must be enforced via smart contracts
- Taxation, reporting, and sanctions screening need to be automated or supported
Why it matters: Tokenization may be borderless, but capital is not. If compliance is not programmable, scalable, and regulator-friendly, it’s just another sandbox experiment.
Example: SocGen’s Forge platform includes regulatory safeguards like whitelisting investor wallets and embedding compliance logic directly into asset flows.
Interoperability: Bridging Chains, Systems & Markets
Interoperability is another key challenge of the tokenization ecosystem. Institutions operate across multiple platforms, jurisdictions, and asset classes. Fragmentation leads to friction, duplication, and risk.
Interoperability challenges show up in three areas:
- Cross-chain interoperability: Tokens issued on one blockchain must be readable and transferable across others
- System integration: Tokenized assets must link with legacy systems (e.g., core banking, custody, fund admin)
- Standardization: Without common data, legal, and technical standards, secondary market liquidity and settlement become nearly impossible
Why it matters: No single institution or blockchain can support the entire ecosystem. For tokenization to scale, ecosystems must talk to each other — securely, seamlessly, and in real time.
Example: JPMorgan’s Tokenized Collateral Network (TCN) is interoperable with multiple custodians and platforms, enabling seamless movement of collateral tokens between counterparties.
Key Lessons for Institutions Considering Tokenization
As explored in Part I & II of this series, real-world tokenization pilots are gaining traction, however they are not without operational complexity.
Here are four key takeaways for institutions navigating this space:
- Don’t underestimate the role of custody: Even in DeFi (decentralized finance) secure safekeeping is non-negotiable.
- Build compliance into the code: Regulators are monitoring the space, and investors need assurance.
- Prioritize interoperability early: Isolated platforms lack scalability. Think of the ecosystem, not just products.
- Partnerships will drive momentum: Custodians, compliance vendors, and protocol developers must align for tokenization to work at scale.
Tokenization is a tech upgrade that requires operational transformation. And the institutions that get the custody, compliance and interoperability aspects right are expected to be the ones leading the next era of capital markets.
Explore the full series on ‘Tokenization in Practice’:
- Tokenization in Practice — Part I: 4 Real-World Institutional Pilots
- Tokenization in Practice — Part II: Why Some Pilots Succeed While Others Stall
References
- https://www.chainup.com/blog/rwa-tokenization-custody-first-step/#:~:text=In%20short%2C%20custody%20is%20the,or%20traded%E2%80%94at%20institutional%20scale
- https://www.debutinfotech.com/blog/tokenization-legal-considerations-asset-regulation
- https://tokeny.com/streamline-on-chain-compliance-configure-and-customize-anytime/
- https://iongroup.com/blog/markets/how-interoperability-can-drive-asset-tokenization-across-private-markets/
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Artist Bio
Gaya Chandrasekaran is a London-based contemporary artist. Born in the coastal city of Chennai, India, her artistic practice is deeply influenced by the vivid colors and rich cultural heritage of her upbringing. Working primarily with acrylics, palette knives, and gilded gold leaf, she creates layered, emotive landscapes that invite quiet introspection and a sense of transcendence.
Gaya has trained in India and at the Slade School of Fine Art in London. Her artworks have been exhibited widely across the UK, US and Europe, with features in prominent art publications such as Contemporary Art Curator, Artist Talk, and ArtistCloseUp magazines.
Her paintings have been reviewed by Tabish Khan, a renowned London art critic, and are held in private collections across the US, UK, Spain, Italy, Brazil, and India — including a permanent display at the London Business School.
Through her abstract landscapes, Gaya explores themes of shared human experience — the search for meaning (Quest), the inner voice of contemplation (Soliloquy), cycles of transformation (Rebirth), and the pursuit of spiritual growth (Nirvana). Her paintings serve as a visual meditation on nature and the profound emotional terrain of life itself.
