By Paul Fullam, Chair, ISITC
Walk into any conference on tokenized assets this year and you’ll hear the same pitch: programmable corporate actions, atomic settlement, dividends that pay themselves the moment a smart contract fires. It’s a compelling vision, and it’s also getting ahead of itself. The industry has spent years perfecting the on-chain story while leaving the plumbing that has to carry it largely untouched. As chair of ISITC, the trade association that works on messaging and operational standards for the securities industry, I spend most of my time in that plumbing. From where I sit, the data and standards layer, not the blockchain, is what will determine whether any of this becomes a real workflow instead of a slide in a pitch deck.
The Decimal Problem
Start with something simple: fractional investing. Firms like Robinhood and Acorn round up a $9.98 coffee purchase to $10.00 and invest the two cents in a stock or in Bitcoin. It’s a clever product, and it works today because those two cents get bundled with everyone else’s fractions into one bulk purchase at the end of the day. But push that idea toward tokenized assets generally, where you might own a genuinely fractional slice of a token representing anything from real estate to a basket of commodities, and the question of how far you carry the decimal starts to matter a great deal. ISO 20022, the messaging standard the industry has been migrating toward, can technically support up to 35 characters of decimal precision, though in practice most firms use far less today. Even where a message can carry that precision, plenty of the back office systems receiving it can’t store it. A lot of what looks like a modern accounting platform is still a mainframe underneath, built decades before anyone imagined trading two cents of anything.
Right now, this mostly shows up at firms like Robinhood and Acorn, or anyone dealing directly in Bitcoin. Nobody is pounding on the industry’s door demanding a fix, which is exactly why it is worth solving now, while it is still small, rather than later, once it has scaled and firms are patching it under pressure.
The Payout Problem
A harder problem shows up on payout day. Today’s corporate actions messaging does have an event type for payments in kind, meaning a distribution of something other than cash or standard securities. What it does not have is a structured way to describe what that something actually is. Tokenize a bundle of assets, six bars of gold, two pieces of silver, a handful of unrelated equities, and eventually someone has to distribute income or make a payment in kind out of that bundle. A legacy message can tell a custodian that a holder is entitled to cash or to shares. It has no field for a sliver of gold, a fraction of a commodity, or whatever else a creative issuer decides to put inside a token. When that happens today, it goes into free text, and free text means a human has to read it, interpret it and key it in by hand, the opposite of the straight through processing tokenization is supposed to deliver.
There is an odd irony here. A token is, in a lot of ways, more transparent than the cryptocurrency that gets it associated with tokenization in the first place. Nobody can tell you what backs a Bitcoin. A well-structured token is closer to a mutual fund: the issuer discloses exactly what is inside it. What the industry has not built is a standardized way to turn that known composition into a payment message when it is time to distribute. As issuers get more creative about what they bundle into a token, that gap widens, and it drags an unresolved question along with it: how does an in-kind distribution like that even get taxed.
Where the Fix Actually Happens
Neither of these is a blockchain problem, and neither gets solved by better distributed ledger technology. They get solved the way standards always get solved: through the unglamorous work of adding new event types and data elements to the message dictionary, then getting the industry to agree on them and adopt them. Every year, ISITC and its global counterparts submit change requests for the next round of ISO 20022 updates. Right now those requests are mostly aimed at current fires: known asset classes, known event types. Very little of that pipeline is yet aimed at what tokenized assets will need once they move past pilot programs, which is exactly why the work needs to start now rather than later.
None of this is a reason to slow down on tokenization. It’s a reason to be honest about where the actual work is. Blockchain solves the question of how a token moves from one owner to another. It does not solve what happens when that token generates a cash flow, a dividend, or an in-kind distribution that must be announced, processed and reconciled by systems that were never designed for it. That is standards work, and it moves at the speed of industry consensus, not a product launch. The regulatory environment right now is more open to this kind of modernization than it has been in years. That is the moment to do it.
Get the data layer right, and the programmable, self-executing version of tokenization everyone is pitching becomes something operations teams can actually run. Get it wrong, and it stays exactly where most of it is today: a very good slide.
Paul Fullam is Chair of ISITC, the securities industry trade association focused on promoting efficient transaction processing through the development of global standards and best practices.
