On the Ledger | No. 001: What You Actually Own Matters More Than the Token Itself
Highlights from Sandy Kaul’s “Detangling Tokenization of RWAs”
On the Ledger | A New Series
A recurring feature from The RWA Ledger that surfaces external research and commentary shaping RWAs and tokenized markets - with our editorial lens applied
Reading: Detangling Tokenization of RWAs by Sandy Kaul, Franklin Templeton (March 24, 2026)
Why this Piece Matters
Sandy Kaul at Franklin Templeton published one of the clearest institutional breakdowns of RWA tokenization we have seen from a traditional asset management voice.
In Detangling Tokenization of RWAs, she identifies three structurally different tokenization models now emerging in the market: synthetic exposure tokens, digitally native tokenized assets, and digital twin structures. Each carries distinct implications for ownership rights, settlement mechanics, and where the authoritative record of ownership actually resides.
That last point is the one most market commentary glosses over.
Much of the current conversation continues to treat tokenized assets as interchangeable. In practice, these three models introduce materially different risk profiles, operational dependencies, and legal considerations, differences that compound as the market scales and institutional participation deepens. They determine what is actually owned, how transactions settle, and what recourse exists if the underlying structure fails.
What is being described as tokenization today is not a single category. It is a set of structurally different approaches grouped under the same label, where those differences are often obscured at the point of evaluation and become highly visible at the point of failure.
A Structural Lens from Inside TradFi
Earlier in my career, I was part of the core team that led Sales Enablement at First Republic Bank’s Wealth Management division, an institution managing approximately $290 billion in client assets prior to its FDIC seizure and subsequent acquisition by JPMorgan Chase in May 2023.
One of the most persistent operational challenges we faced had nothing to do with markets or client demand; it was data, specifically the challenge of defining and maintaining a clean, consistent record of what constituted a “household.” In wealth management, a household is not simply a family unit; it is a network of individuals, entities, accounts, and trusts, each connected through relationships that legacy systems were never designed to represent cleanly. Duplicate records, inconsistent definitions, and fragmented data across custodians were not edge cases; they were structural, and no amount of technology layered on top could resolve what the underlying architecture was not built to support.
The same structural reality applies directly to tokenization. Tokenization does not fix fragmented systems; it inherits them and, in many cases, amplifies those inconsistencies by introducing new layers of representation without resolving the underlying source of truth. The model you are building on, evaluating, or allocating to is only as good as the infrastructure and intention beneath it, and inflexibility, whether in legacy cores, in how ownership is defined, or in how institutional systems govern the assets being tokenized, remains the most underappreciated constraint in this market.
Granularity matters. Intention matters. And the hardest problems in this space are not technological; they are structural and human.
The Three Models, and What They Actually Mean in Practice
Sandy outlines three distinct approaches, each representing a different answer to a foundational question: where does ownership reside, how does settlement occur, and which system ultimately serves as the authoritative record?
These are not variations on the same theme. They are structurally different choices with different implications for capital efficiency, counterparty exposure, and how value moves through the system, and they are not equally suited to every institutional mandate, integration model, or client base.
Synthetic Exposure Tokens
Synthetic structures, such as those used by platforms like Ondo Finance and Kraken, are currently the fastest-growing segment of the market, largely because they are the most flexible within existing blockchain environments.
In this model, token holders do not own the underlying asset directly; they hold a claim on an intermediary structure, typically a special purpose vehicle, through which economic exposure is passed. This enables tokens to move freely across wallets and DeFi protocols, supporting composability, liquidity, and global distribution.
That flexibility is achieved by shifting risk.
Ownership is indirect, governance rights are typically absent, and investor outcomes depend on the issuing entity’s solvency and operational integrity. Settlement may appear instantaneous on-chain, but the underlying asset still settles through off-chain processes, creating a gap between perceived and actual finality, and introducing exposure to timing mismatches, collateral management constraints, and issuer risk.
Of the three models, this is the one in which utility and investor protection move in opposite directions, and that divergence matters more as capital scales. If you are an allocator evaluating these products, the question to ask is not whether the token works on-chain; it is what your actual claim is if the issuer fails.
Digitally Native Tokenized Assets
Digitally native tokenized assets represent the closest alignment between on-chain representation and underlying ownership.
In this model, ownership, settlement, and recordkeeping are consolidated into a single system, enabling atomic settlement and continuous value transfer. This can reduce idle cash, compress settlement cycles, and improve capital efficiency across portfolios, and it marks tokenization’s move beyond representation and into infrastructure, where assets begin to function as programmable financial primitives capable of serving multiple roles across trading, collateralization, and liquidity management.
These benefits come with real constraints.
Because these assets operate within regulated environments, they are often permissioned, limiting their ability to move freely across open networks. Interoperability is reduced, integration with existing custody and reporting systems becomes more complex, and access may remain gated by regulatory requirements. This model strengthens ownership and settlement integrity, but it trades off flexibility and composability in doing so.
For builders evaluating which model to build on, the critical question is: are you building on genuinely new infrastructure, or are you building a new interface on top of the same monolithic architecture that has constrained financial services for decades? The distinction matters enormously for what you can actually deliver to institutional counterparties.
Digital Twin Structures
Digital twin models, such as those being explored by the DTCC and NYSE, maintain the authoritative ownership record within existing financial infrastructure, with the token functioning as a reference layer rather than a system of record.
In practice, ownership updates, settlement processes, and distributions continue to follow traditional financial rails, including batch settlement cycles and fiat-based payment flows, even as a token exists on-chain. These tokens cannot be transferred between wallets, pay distributions via fiat into traditional accounts on legacy schedules, and depend entirely on the integrity of the off-chain record they mirror.
This approach aligns closely with existing regulatory and operational frameworks, making it more immediately compatible with institutional systems and less disruptive to existing workflows. It also limits the extent to which tokenization can transform market structure.
Because the underlying systems remain unchanged, improvements to settlement speed, capital efficiency, and programmability are constrained by the same infrastructure that governs traditional markets. The legacy cores underneath are not a detail; they are the constraint, and they do not disappear because a token sits on top of them. The token improves the interface, but not the architecture.
This is not simply an infrastructure observation; it has direct implications for how settlement risk is transmitted. As Edwin Mata argued in American Banker earlier this year, tokenization does not eliminate settlement risk; it moves it from delayed counterparty uncertainty into immediacy, funding precision, and system integrity, and when time is removed as the buffer, liquidity becomes the shock absorber. That shift has to be engineered, priced, and governed accordingly — and in a digital twin structure, where the underlying settlement architecture remains unchanged, that engineering has not yet happened.
We examined this dynamic in depth in Atomic Settlement, Tokenized Securities, and the SEC, where we argued that atomic settlement does not add new obligations so much as it alters the constraint set within which existing obligations must be met, compressing compliance, liquidity management, and counterparty exposure into the moment of execution rather than distributing them across post-trade cycles.
Why this Distinction Matters
These models are often grouped under the same narrative of tokenization, but they operate on fundamentally different assumptions about ownership, settlement, and system design. Treating them as interchangeable introduces misalignment at the point of integration, where assumptions about ownership rights, settlement finality, and counterparty exposure begin to diverge from how the underlying structure actually behaves, and that misalignment compounds under stress.
From an institutional perspective, this distinction directly affects where risk sits across the product lifecycle; how token arrangements interact with existing settlement standards, custody obligations, and regulatory frameworks varies materially depending on the model, a distinction that global regulators have begun to treat as central rather than peripheral to systemic stability.
The questions worth asking differ depending on where you sit:
For investors and allocators:
What do I actually own, and what is my legal claim if the issuing entity fails?
How does liquidity in this structure behave under stress, and am I exposed to redemption processes that depend on off-chain systems I do not control?
Does the settlement finality I am assuming actually exist in the model I am evaluating, or is it obscured by on-chain presentation of an off-chain process?
Liquidity in tokenized markets remains uneven and often fragmented across venues, meaning the ability to enter or exit positions without impacting price is limited in many cases. The structure of the token directly determines how exposed an investor is to these risks, particularly in models where secondary markets are thin or where redemption depends on off-chain processes that introduce timing dependencies and counterparty exposure that on-chain settlement does not eliminate.
For institutional operators and product teams:
Is the model we are building on or integrating with actually compatible with our existing operating model, or are we assuming a level of infrastructure maturity that does not yet exist?
Where do compliance, custody, and settlement obligations land in this structure, and can our systems execute them in real time if settlement expectations compress?
What presents as a technology decision here — and is it actually a balance sheet and risk management decision in disguise?
Whether evaluating platforms like Ondo, Kraken, or other specialized providers, the assessment must extend beyond user experience and yield profile to include how ownership is structured, how assets settle, how liquidity is sourced, and where dependencies on off-chain systems persist. Firms with tightly managed liquidity profiles, including banks, wealth platforms, and liability-driven investors, may not be positioned to absorb the variability introduced by fragmented liquidity or non-standard settlement flows.
For founders building toward institutional credibility:
Does the model I am building on actually support the ownership, settlement, and compliance standards my institutional counterparties require, or am I building utility on top of a structure that will not survive their due diligence?
Am I solving for composability and speed at the expense of the legal enforceability and counterparty clarity that institutions need before they can allocate?
Who controls the authoritative record in my model, and what happens to my product if that record and the on-chain representation diverge?
The choice of tokenization model is not a product decision that can be revisited easily once capital is committed and counterparties are integrated. Getting this right at the architecture stage is the difference between building something institutions can adopt and building something they will admire from a distance.
For advisors and wealth managers:
Do I understand which tokenization model underlies the products I am evaluating for clients, and does that structure align with the ownership rights and protections my clients expect?
If a client asks me what they actually own in a tokenized product, can I answer that question with precision rather than in general terms?
How does the settlement and distribution mechanics of this model fit within my existing reporting, compliance, and custody infrastructure?
The same data fragmentation and ownership complexity that made household recordkeeping so difficult in traditional wealth management do not disappear in tokenized markets; they migrate to a new layer of infrastructure, where the gaps between on-chain representation and off-chain legal reality can be harder to see and explain to clients.
Finally, composability introduces a layer of systemic exposure that all four audiences should track. Tokenized assets that move freely across on-chain environments can create interconnected risk when used as collateral across multiple protocols or platforms. The IMF’s 2025 FinTech analysis on tokenization and financial market inefficiencies warned directly that tokenization may amplify shocks if it induces institutions to become more interconnected and hold lower liquidity buffers or higher leverage, a risk that is most acute in synthetic structures where composability is highest and ownership protections are thinnest. As interlinkages between tokenized assets and broader financial systems deepen, the potential for localized failures to propagate increases, reinforcing the need for clarity on underlying structures before capital scales.
On Convergence and Control
Sandy’s broader argument points toward eventual convergence between traditional financial institutions and crypto-native infrastructure, a view captured well by Robinhood CEO Vlad Tenev, whom she cites as saying that tokenization is “like a freight train” that will eventually consume the entire financial system. That framing is useful for capturing momentum, but it tells you nothing about which train you are actually on, or whether the tracks beneath it connect to the destination being assumed.
Directionally, convergence is right, but it understates the weight of institutional relationships, which are not friction to be engineered away; they are load-bearing. Custodians, transfer agents, prime brokers, and advisors are not simply service providers; they are trusted interpreters of ownership, risk, and compliance, and the clients who rely on them are not abandoning those relationships because a more efficient settlement rail exists.
Convergence will not be dictated solely by the most efficient technology. It will be shaped by whoever controls the authoritative record of ownership, and today that still sits largely within traditional financial systems. For founders seeking to build credibility with institutional counterparties, understanding this dynamic is not a concession; it is a strategic advantage.
Where this Leaves the Market
Tokenization is evolving, and what Sandy outlines is not a fixed taxonomy but an early framework describing the first set of structures to reach institutional relevance. These models represent the beginning of a broader continuum that will continue to expand and redefine itself as regulatory clarity, settlement infrastructure, and market participation develop in parallel.
The tradeoffs across ownership, settlement design, liquidity, and integration with existing financial systems are not static. As tokenized markets scale, they will be shaped by how institutions balance efficiency gains against new forms of liquidity demand, counterparty exposure, and operational complexity, considerations that global regulators are already beginning to treat as central to systemic stability rather than peripheral concerns.
The opportunity is not simply to adopt tokenization. It is to engage with it precisely because the question is no longer whether assets can be represented on-chain; it is whether the infrastructure beneath those representations actually supports the assumed outcomes.
These three models are not an endpoint. They are a signal, marking the beginning of a structural shift in how financial assets are issued, settled, and managed, one that will continue to evolve as institutions, infrastructure providers, and regulators collectively shape what comes next. The players who understand where each model sits on that continuum will be far better positioned than those who treat them as interchangeable.
Read the Full Piece
Sandy Kaul’s full article is worth reading: Detangling Tokenization of RWAs
On the Ledger is a recurring feature from The RWA Ledger
Surfacing third-party research and commentary shaping RWAs and tokenized markets, with our editorial lens applied. Credit and full attribution always go to the original authors - our role is to surface the work, add context, and connect it to the infrastructure, institutional, and market-structure questions we cover in depth in our original research.
If the questions raised in this piece resonate, two pieces from The RWA Ledger that go deeper on the infrastructure and definitional arguments are worth reading alongside Sandy’s original:
Atomic Settlement, Tokenized Securities, and the SEC — on how atomic settlement reshapes compliance, liquidity, and modernization strategy
Are We Undervaluing RWAs by Thinking Too Narrowly? — on why the definition of RWAs matters as much as the infrastructure itself
For more analysis on tokenization, financial infrastructure, and institutional adoption, explore The RWA Ledger at substack.com/@therwaledger
All views are those of The RWA Ledger. This publication is for informational purposes only and does not constitute financial, investment, or legal advice.
Interesting points concerning the juxtaposition between her finance acumen and her all too relevant comments on the current art world.
RIP Hilde…😔