Asset Tokenization: Moving Capital at Internet Speed

Author: Prathik Desai; Source: TokenDispatch; Compiled by: Shaw, Jinse Finance

Introduction

Asset tokenization is bridging two fundamentally different systems: one is the permissionless, always-on ecosystem of decentralized finance, where prices fluctuate every few seconds; the other is the traditional asset management system, with settlement processes constrained by business hours and restricted to specific compliant, licensed participants.

Coordinating between these two systems is extremely difficult, but those who can implement such a solution will capture immense value. This article will examine who is building the intermediary layer connecting the two systems, and who can capture the benefits of this track.

The total value of tokenized real-world assets (RWA) has exceeded $33 billion, with tokenized U.S. Treasuries accounting for approximately $15 billion. Interestingly, in just one year, the share of Treasury assets in RWA has fallen from 55% to below 45%. Other types of tokenized funds continue to grow, including institutional credit (e.g., Apollo's ACRED product) and private credit (e.g., Henderson's JAAA product).

The maturation of asset tokenization offers corporate treasury managers and CFOs a diversified range of risk profiles to choose from. Those seeking low risk, low yield, and high liquidity can allocate to tokenized Treasury products; those seeking higher yields and greater programmability can opt for higher-risk categories. The security of returns on such products is no longer a past challenge: they are backed by Treasuries and audited by the same auditors that audit similar traditional financial products.

This is the most compelling argument to prove that the tokenization of real-world assets is about to explode among institutional investors.

If someone asks me what the most essential difference between off-chain funds and on-chain funds is, I would answer: composability. Leveraging this feature, the same dollar can generate more value in multiple scenarios, achieving yield compounding. The combination of instant redemption and efficient capital appreciation makes tokenized funds like a powerfully upgraded financial product.

In the traditional financial system, investors can only trade off among yield, liquidity, and capital flexibility; a well-operated tokenized fund can offer all three advantages simultaneously.

But the difficulty lies precisely in the premise of "well-operated." Achieving on-chain composability for fund assets is itself a complex technical engineering challenge.

Bridging Two Fundamentally Different Systems

Blockchain brings the advantages of high-speed transactions, low cost, and fast settlement to tokenized real-world assets. However, a tokenized money market fund is still fundamentally a fund product, not a stablecoin. It must update its net asset value (NAV) once every trading day according to the fund manager's settlement schedule, and it can only be opened to qualified holders who have completed Know Your Customer (KYC) verification. For example, BlackRock's BUIDL product has a minimum investment threshold of $5 million, while Circle's USYC is open only to non-U.S. investors. Such products must also adhere to redemption cut-off times — the underlying U.S. Treasuries are settled through off-chain traditional financial systems, and channels close after 5:00 PM Eastern Time.

These are all non-negotiable compliance and legal attributes of the product: if daily NAV pricing is removed, the product ceases to be a money market fund; if the investor whitelist restriction is lifted, the U.S. Securities and Exchange Commission (SEC) will soon come knocking.

So, how can tokens representing fund shares achieve internet-level high-speed circulation while retaining the fund's original settlement cycle, qualified investor scope, and redemption window? Such funds need a customized underlying infrastructure: one that can account for NAV updates at periodic intervals, support phased settlement, and strictly adhere to compliance and legal red lines when assets are transferred across chains. The technical challenge of coexisting on-chain and off-chain coordination is very difficult.

A recent report jointly released by LayerZero and Centrifuge details their solution.

Resolving Core Conflicts

Whether on-chain and off-chain systems can coexist compatibly depends on whether three key conflicts can be properly resolved. If the intermediary orchestration layer can handle these three issues, tokenized funds can achieve internet-level high-speed circulation without violating compliance or legal boundaries.

First Conflict: Pricing Mechanism

How should tokens be valued between two NAV pricing intervals? Some issuers simply lock the price to the previous day's NAV, at the cost of price lag and distortion. If interest rates fluctuate intraday, a fixed price easily breeds arbitrage opportunities. Using real-time continuous pricing avoids arbitrage gaps but is difficult to match with the fund's actual financial accounting rules.

Second Conflict: Compliance Verification Mechanism

Where should the investor whitelist verification be deployed? If every transfer must be checked against the whitelist, the token cannot connect to the open DeFi ecosystem and can only circulate among approved wallets. Another solution is to embed compliance verification into an asset custody wrapper contract: the custody contract holds the regulated original fund shares and issues freely transferable receipt tokens only to investors who have completed a one-time KYC check. These receipt tokens can be freely composed in the DeFi ecosystem, with compliance constraints uniformly managed by the custody layer, without requiring repeated verification for each transfer. Centrifuge's deRWA framework is a typical example of this model.

Third Conflict: Cross-Chain Asset Transfer

When the same tokenized fund is deployed on nine different blockchains, there must be a single authoritative data source to record asset ownership and real-time valuation. Although on-chain infrastructure supports real-time updates, if data discrepancies occur, accounts must be synchronized and reconciled across all nine chains one by one. The more data synchronization nodes, the higher the probability of errors.

LayerZero and Centrifuge use a hub-and-spoke architecture to solve this pain point: one authoritative main chain centrally manages the fund's NAV, financial accounting, and compliance checks; then, through the cross-chain messaging orchestration layer built by LayerZero, unified data is synchronized to each branch application chain, where tokens are actually used and circulated.

Centrifuge V3 architecture is based on this model: each asset pool selects one central chain as the sole trusted data source, with branch chains serving as distribution terminals for capital deposits while supporting DeFi composability. LayerZero transmits operational data between the central chain and branch chains, ensuring fund NAV updates, compliance instructions, and cross-chain asset balance status synchronization.

This is the aforementioned highly difficult cross-system coordination orchestration, and those who can deploy this infrastructure will continuously accumulate industry value. Any service provider that operates this infrastructure and ensures the fund's authoritative data remains uniform across all blockchains has extremely high non-substitutability. Fund managers still control traditional financial settlement schedules, blockchain provides composability, and the intermediary service provider must support the normal operation of both systems.

The weakest link in the cross-chain asset flow process is the accounting of assets in transit.

When assets move between different blockchains, they temporarily leave the fund's real-time balance sheet. Centrifuge V3 issues tokenized confirmation certificates for in-transit assets, ensuring that even when the underlying token is in transit across chains, the fund's balance sheet data remains complete and continuous. This mechanism is equivalent to an on-chain version of trade-date accounting. Though seemingly simple, it is an essential core design.

Given the various system conflicts mentioned above, why would institutional investors still allocate to tokenized funds?

One of the most critical optimization methods to activate idle capital through asset tokenization is the carry trade loop. Corporate treasurers can buy tokenized Treasury funds, then stake them as collateral to borrow stablecoins. If the borrowing rate is lower than the fund's yield, holding this combined position generates positive net returns. Investors can then deploy the borrowed stablecoins into another yield channel and repeat the cycle.

For the entire carry trade mechanism to function smoothly, the various system conflicts mentioned earlier must first be resolved. This is the next challenge for tokenization infrastructure builders. In the past, the market has already exploited these conflict loopholes for arbitrage. For example, the on-chain NAV of some small tokenized products lags behind the underlying asset price by 2 to 4 hours, creating arbitrage opportunities before the next NAV pricing.

When the off-chain NAV mechanism triggers a liquidity redemption cap, and a separately running on-chain smart contract attempts to process token redemptions instantly, a redemption channel conflict arises. The smart contract accumulates a large number of "orphaned" unexecuted token transactions that continuously send redemption requests but cannot be settled due to the off-chain redemption cap.

Large private credit funds and Business Development Companies (BDCs) are currently facing such risks. Two weeks ago, Apollo's $26 billion private credit fund, Apollo Debt Solutions Fund (ADS), faced large-scale redemptions, with investors applying to redeem approximately 16.8% of the fund's total assets. The fund had to limit redemptions to 5% of total shares. If similar funds simultaneously issue tokenized shares and trade them on-chain, the risk of redemption channel conflicts during a concentrated redemption event should not be underestimated. In the second quarter, total investor redemption requests received by major private credit funds reached $15.6 billion, up from approximately $13.9 billion in the previous quarter.

Cross-chain message transmission may also be interrupted, leading to an asset semi-settlement state. Only by establishing monitoring mechanisms for each type of failure scenario and having licensed institutions bear corresponding responsibilities can institutional allocators gain trust.

If the asset tokenization track wants to unleash its full potential, the above issues must be resolved one by one. Tokenization is certainly not just about putting U.S. Treasuries on-chain or creating new asset classes. Infrastructure builders need to break the outdated rules of traditional finance — no longer forcing investors to trade off among yield, liquidity, and capital flexibility. If tokenization can enable one dollar to simultaneously engage in multiple businesses without weakening the credit endorsement from the compliance and risk control system, then institutions holding hundreds of billions in cash will definitely deploy heavily.

I wrote last week: today, SWIFT, as the cross-institution orchestration middle layer, has value and influence far exceeding the various participating institutions on either side of the network; Visa's overall value is also higher than most of its partner banks globally, with only JPMorgan as an exception.

This is the core opportunity of seizing the cross-system orchestration middle layer in the evolving financial system. Mastering this layer of infrastructure allows enterprises to occupy a central position in the development landscape of capital markets over the next decade. Centrifuge is defining the standard form of the fund side in this system, while LayerZero is building the interconnection transport layer between blockchains.