Tokenisation is moving into financial infrastructure: The hard part is making it accountable

By Manhar Garegrat, Country Head – India, Liminal Custody

India is approaching its first tokenised corporate bond, and the timing is interesting. By the time REC issues its expected pilot of under ₹500 crore in September, using wholesale CBDC for payment and a new digital securities wallet to hold the securities, the question of whether a financial asset can be placed on a blockchain will have been largely settled elsewhere. BlackRock, JPMorgan and DTCC have already answered it, at scale, in production environments, with real institutional capital behind them. What none of them have fully resolved, and what India would be wise to think carefully about before its own market grows beyond the pilot stage, is what needs to sit around the token once real money, real investors and genuine regulatory obligations are involved.

From Tokenised Products to Tokenised Infrastructure
BlackRock’s tokenised Treasury fund is now the world’s largest of its kind, and the firm added two further blockchain-based money-market products in August. The significance of this is not that BlackRock has embraced blockchain technology. It is that the firm has taken products which already carry redemption obligations, NAV reporting requirements and investor protections, and extended them onto a digital infrastructure without dismantling any of those obligations in the process. The regulatory and fiduciary architecture stayed intact. The representation of the asset changed.

JPMorgan’s Kinexys platform takes a different route to a similar destination. Rather than digitising individual assets, it connects institutional counterparties through programmable payment and settlement systems, so that agreed transactions execute automatically when specified conditions are satisfied. What this eliminates, in practical terms, is the dependence on multiple disconnected systems and the manual reconciliation that currently sits between them. Tokenisation, in the Kinexys model, is not about the asset itself. It is about the workflow around it, which is where the more durable efficiency gains will ultimately be found.

The most instructive example, however, is DTCC. The Depository Trust and Clearing Corporation safeguards more than $114 trillion in securities and sits at the operational centre of the US securities market. In July, it processed transactions involving tokenised securities across US Treasury repo, delivery-versus-payment trades, securities lending, collateral pledges and equity transactions, in a production environment rather than a controlled demonstration. Its planned tokenisation service is designed to carry forward the same ownership rights, investor protections and entitlements that apply to traditional securities. More than 50 institutions, including BlackRock, Goldman Sachs, JPMorgan and major custodians, are part of the working group behind it.

What DTCC is doing, in effect, is refusing to treat tokenisation as a reason to start over. The safeguards that have supported the securities market for decades are being carried forward, not set aside. Tokenisation changes how an asset is represented and transferred. It does not change the underlying question of who is responsible for it.

Putting an Asset On-Chain Does Not Transfer Its Accountability
The counterargument is worth taking seriously. Blockchain proponents reasonably point out that a distributed ledger, with its permanent record of transactions and traceable wallet activity, is itself an accountability mechanism. Every movement of an asset leaves a record. There is no single point of failure, no back-office team that can quietly amend a ledger entry. These are genuine advantages.

They are also insufficient on their own. A blockchain can establish that a particular wallet held a token at a specific moment. It cannot determine whether that token represents a valid legal claim over the underlying asset, whether the person initiating the transfer had the authority to do so, whether the transaction satisfied applicable regulatory requirements, or what the correct course of action is when a private key is lost or stolen. These are not hypothetical failure modes. They are the conditions that financial institutions negotiate every day, through legal agreements, compliance processes, custody arrangements and governance frameworks that exist entirely outside the chain.

A tokenised bond still carries the credit risk of its issuer. A tokenised fund still requires someone to manage its valuation, administration and redemptions. The technology can reduce friction in certain parts of the process. It does not dissolve the legal and operational responsibilities that sit behind the asset.

The Real Problem Sits Off The Blockchain
Institutional tokenisation, as it is actually being built today, tends to be a hybrid. The blockchain records the asset, handles transfers and automates certain transaction logic. Legal ownership, identity verification, compliance obligations and custody arrangements continue to operate alongside it, off-chain, and the two sides must be kept in continuous alignment. That alignment is not automatic, and maintaining it is where much of the genuine operational complexity lives.

It also reshapes what custody means in practice. Traditionally, custody has been understood as holding and protecting an asset. In a tokenised environment it increasingly means controlling how that asset can move. A custodian operating in this space must protect cryptographic keys, determine and enforce who has authority to initiate or approve a transaction, keep assets properly segregated, reconcile blockchain records against positions held elsewhere and maintain an auditable history of every action taken. When something goes wrong, and in financial markets it eventually always does, the institution must also have a defined process for recovery, containment and resolution.

A disputed transaction, a compromised key, a counterparty default, a regulatory intervention: in each of these situations, the integrity of the blockchain record is not the primary concern. What matters is whether there is a clearly identified institution with the authority, the information and the contractual obligation to act. DTCC’s approach is notable precisely because it is built around that question. It is not designing a blockchain that operates independently of existing securities market responsibilities. It is working out how those responsibilities function when the underlying asset is digital.

What India Needs to Build
The distance between where global institutions stand today and where India’s REC pilot begins is not a disadvantage. It is a window. Markets that arrive early to a new form of infrastructure have the option of building accountability into the architecture from the outset, rather than attempting to retrofit it once adoption has scaled and the cost of change has become prohibitive.

The reported structure of the REC pilot already illustrates how much surrounds a tokenised security even at this stage. Investors are expected to use both a wholesale CBDC wallet and a separate digital securities wallet. A three-month lock-in is anticipated, with secondary market access initially confined to participants with compatible infrastructure. These are not minor implementation details. They point directly to the questions that will define the reliability of the market as it grows: who controls the digital asset, how ownership is verified, who has authority to approve a transfer, what the recovery process is when a key is compromised, and which institution carries responsibility when a transaction is disputed.

These questions are considerably easier to answer at the pilot stage than after billions of rupees of assets and thousands of investors have been committed to a system whose governance was never fully designed.

The Next Race Is Over Control, Not Just Tokenisation
BlackRock, JPMorgan and DTCC are approaching tokenisation from different positions and with different immediate objectives. The thread connecting them is that none of them is treating digital infrastructure as a reason to reduce the standards of ownership, protection and accountability that institutional investors already expect. They are extending those standards into a new environment, not exchanging them for the novelty of the technology.

That is the more important lesson for India as its own tokenised market takes its first steps. The capability to place an asset on a blockchain is no longer the differentiating question. Whether investors, regulators and counterparties can trust what happens to that asset after it is on-chain, who governs it, how it is protected, and who answers when something does not go as intended, is the question that will determine whether India’s tokenised financial markets earn the confidence they will need to grow.