TL;DR
For tokenized securities to become true digital assets, even basic financial functions like dividends, coupons, and maturity must be automated, yet most current solutions still rely on manual processing. Polymesh focuses solely on regulatory compliance, remaining disconnected from DeFi, Securitize lacks post-issuance operational automation, and Ondo Finance amounts to simple yield products. The time-based event processing, rights exercise mechanisms, and complex payment structures required for each security type cannot be implemented with simple smart contracts, demanding a new architecture capable of real-time state reflection and automatic execution – essentially requiring bidirectional state synchronization between on-chain and off-chain systems.
Living Securities: Bringing Liveness to Tokenized Assets
Security tokens, or tokenized securities, are the most discussed RWA type in the blockchain industry. BlackRock’s BUIDL fund has surpassed $500 million, Franklin Templeton’s FOBXX exceeded $400 million, and the market is growing rapidly. But behind these numbers lies an uncomfortable truth.
Are tokenized securities really ‘securities’? Do dividends pay automatically? Does principal get automatically repaid at maturity? How are voting rights exercised? Current solutions provide no clear answers to these most fundamental questions.
In this research, we analyze the essential requirements for bonds, equities, and structured products – three major security types – and examine where current solutions fail. We’ll explore why these requirements demand a completely new approach beyond simple tokenization, one that can maintain continuous synchronization between real-world financial states and their on-chain representations.
Bonds: Encoding the Promise of Time
Core Requirements for Bonds
Bonds are fundamentally time-based financial contracts. They represent an issuer’s promise to pay regular interest (coupons) to investors and repay principal at maturity. Tokenizing them requires the following essential elements:
Coupon payment automation is the most basic requirement. Quarterly, semi-annual, or annual coupon payments must execute automatically on specified dates. This includes payment date calculation, record date management, and actual payment execution.
Maturity processing mechanisms are also essential. A 10-year Treasury bond must automatically repay principal and extinguish tokens exactly 10 years later. This means not just checking dates, but complete fulfillment of legal obligations.
Credit rating change reflection is particularly important for corporate bonds. Changes in Moody’s or S&P ratings must be reflected in tokens in real-time, directly impacting collateral valuation.
Early redemption options (Call Options) must also be considered. When issuers exercise their right to redeem bonds early under specific conditions, this must be processed automatically.
Current Solution Limitations
Looking at the most prominent bond tokenization platforms in the current market reveals serious limitations in each.
Ondo Finance has gained attention with OUSG, tokenized U.S. Treasuries, but it’s really just a yield wrapper. Actual Treasury coupon payments and maturity processing happen through traditional methods, with token holders only experiencing NAV-based appreciation.
“Tokenized treasuries are still largely manual operations wrapped in blockchain technology. The automation promise remains unfulfilled.”
CoinDesk Research, 2024
Securitize excels as a token issuance platform, but post-issuance operations remain manual. Managers must manually execute transactions for coupon payments, and maturity processing is the same. This is far from 24/7 automation.
Polymesh specializes in regulatory compliance but has zero DeFi interoperability. Bond tokens trapped on the POLY chain cannot be used as collateral on Compound or Aave, severely limiting capital efficiency.
Equities: Complexity of Rights
Core Requirements for Equities
Equities are not simple ownership stakes but complex bundles of rights. For tokenized equities to be true equities, the following functions are essential:
Dividend payment automation includes both cash and stock dividends. Stock dividends particularly require automatic issuance and proportional distribution of new tokens. The complex timeline of ex-dividend date, record date, and payment date must be managed automatically.
Voting rights mechanisms are even more complex. Voting rights for shareholder meeting agendas must be automatically granted proportional to token holdings and exercisable directly on-chain. Proxy voting must also be supported.
Stock splits and mergers must also be automated. In a 2:1 stock split, all token holders’ holdings should automatically double, with the reverse applying for reverse splits.
Distinction between preferred and common shares is also important. For preferred shares, preferential dividend rights and liquidation preferences must be implemented in code.
Reality of Equity Tokenization
Looking at platforms attempting equity tokenization shows almost none properly fulfill these requirements.
tZERO is one of the oldest security token exchanges, but actual rights exercise happens off-chain. Tokens merely serve as ownership certificates, with dividends and voting rights processed traditionally.
Carta’s blockchain initiative focuses on private equity but remains at the cap table management level. There’s no automation of actual rights exercise or corporate actions.
DBS Digital Exchange is operated by Singapore’s major bank but is closer to a digital replica of traditional securities systems. It focuses on efficiency improvements of existing processes rather than blockchain’s transformative potential.
“Current security token platforms are essentially digital wrappers around traditional securities infrastructure, failing to leverage blockchain’s transformative potential.”
Boston Consulting Group, Digital Assets Report 2024
Structured Products: Peak Complexity
Unique Aspects of Structured Products
Structured products are complex financial instruments that combine and restructure multiple assets. Products like CDOs (Collateralized Debt Obligations) and MBS (Mortgage-Backed Securities) have the following unique requirements:
Tranching structure is key. Senior, Mezzanine, and Junior tranches each have different risk and return profiles, with losses absorbed sequentially starting from Junior. This complex structure must be perfectly implemented in smart contracts.
Waterfall payment structure is also essential. The process of distributing cash flows from underlying assets to each tranche according to predetermined priorities must be automated. This includes complex conditional logic, not simple proportional distribution.
Underlying asset pool management requires continuous monitoring. For MBS, thousands of mortgage loans become underlying assets, each requiring real-time tracking of repayments, delinquencies, and prepayments.
Credit enhancement mechanisms must also be implemented. Overcollateralization, reserve accounts, and guarantees must operate automatically.
Limitations of Structured Product Tokenization
Structured product tokenization is still in early stages, mostly remaining at experimental levels.
Centrifuge pioneers tokenizing real asset-backed loans but remains at the simple loan pool level. It cannot implement the complex tranching or waterfall structures of true structured products. The Tinlake protocol only supports two tiers: Senior/Junior.
Maple Finance operates institutional loan pools but remains in static structures. It doesn’t support dynamic restructuring based on underlying asset changes or complex credit enhancement mechanisms.
Figure Technologies attempts to bring HELOCs (Home Equity Line of Credit) on-chain but still has high off-chain dependency. Actual loan servicing and collection are processed traditionally.
Common Point of Failure: Time and State
Absence of Time-Based Events
The common problem across all security types is the absence of time-based event processing. Current blockchain platforms mostly process event triggers manually.
When bond coupon payment dates arrive, someone must manually execute transactions. Rights don’t automatically vest after ex-dividend dates pass. Managers must intervene on structured products’ monthly payment dates. This reality is far from 24/7 automation.
Unreflected State Changes
The more serious problem is that real-time state changes are not reflected. Tokens remain unchanged even when bond credit ratings change, equity voting rights arise, or structured products’ underlying assets fluctuate.
This means tokens remain mere static ownership certificates. To become true digital securities, they must become living financial contracts that respond to real-world changes in real-time – requiring the complete state to flow bidirectionally between systems.
Separation of Regulation and Operations
Current solutions view regulatory compliance and operational automation as separate. Focusing only on regulation like Polymesh disconnects from DeFi, while focusing on DeFi like Centrifuge fails to meet regulatory requirements.
The true solution is automation with embedded regulatory compliance. Regulatory requirements must be implementable at the code level while enabling complete automation.
What’s Needed: Complete State Representation
The Concept of Living Securities
For tokenized securities to become true securities, they must become Living Securities. In computer science, liveness is a fundamental property guaranteeing that “something good eventually happens” – that systems make progress without deadlock. Living Securities apply this concept to financial instruments, ensuring all time-based events eventually execute and all state changes eventually synchronize.
This means:
Continuous state updates: All state changes including credit rating changes, underlying asset fluctuations, and regulatory changes must be reflected in real-time. Tokens must always represent the latest state.
Automatic execution mechanisms: Mechanisms that automatically execute when time-based events occur or conditions are met are necessary. Automatic redemption at maturity, automatic rights vesting after ex-dividend dates, and automatic waterfall application upon losses must occur.
Bidirectional interaction: Bidirectional synchronization where on-chain events affect off-chain and off-chain changes reflect on-chain is essential. For example, on-chain voting must be reflected in actual shareholder meetings. This level of integration can only be achieved through systems designed from the ground up for complete state synchronization.
Technical Requirements
Realizing this requires the following technical elements:
Time Oracle: Since blockchain itself has no concept of time, trustworthy time information oracles are needed. They must support not just current time but complex schedule management as well.
State Machine Architecture: A state machine that can completely model securities’ lifecycle is needed. The entire process of issuance-trading-rights exercise-maturity/extinction must be codified. More importantly, this state machine must be bidirectional – capable of both receiving state changes from the real world and pushing state changes back to it.
Cross-Domain Execution: An execution environment spanning regulatory, operational, and DeFi domains is needed. It must meet each domain’s requirements while enabling interoperability. This is where traditional unidirectional oracles fail – they can bring data in but cannot push regulatory actions or state changes back out.
“The future of security tokenization lies not in digitizing paper certificates, but in creating programmable, self-executing financial instruments that maintain continuous synchronization with real-world states.”
MIT Digital Currency Initiative, 2024
Implications: Beyond Simple Tokenization
Fundamental Limitations of Current Approaches
As we’ve seen, current security tokenization is merely digital wrapping. It fails to properly implement the complex rights and obligations, temporal attributes, and conditional logic that real securities possess.
This isn’t simply technical immaturity. It’s a paradigm problem. The approach of viewing securities as simple data to tokenize is fundamentally flawed. Securities are living contracts, and new architecture capable of fully expressing them is needed – architecture that enables bidirectional state flow, not just unidirectional data feeds.
Conditions for True Innovation
For security tokenization to become true innovation:
First, complete automation must be realized. All rights exercises and obligation fulfillments must be processed automatically without manual intervention.
Second, real-time state synchronization must be possible. Off-chain changes must immediately reflect on-chain, and vice versa. This requires more than traditional oracles – it requires a complete oracle state machine capable of maintaining synchronized state across domains.
Third, regulatory compliance must be embedded. Regulatory requirements should be inherent in core architecture, not a separate layer.
Fourth, complete interoperability must be guaranteed. DeFi protocols need reliability to confidently accept these as collateral.
Conclusion
Bonds, equities, and structured products each have unique complexity and requirements. But all commonly need time-based event processing, real-time state reflection, and automatic execution mechanisms.
Current solutions – Polymesh, Securitize, Ondo Finance, tZERO, Centrifuge – only offer partial solutions, not complete answers. They still depend on manual processing, are disconnected from DeFi, and cannot reflect real-time state changes.
The future of security tokenization lies not in simple digitization but complete recreation. The era of Living Securities must come – where all attributes and behaviors of securities are implemented in code, synchronized in real-time, and executed automatically.
This requires new infrastructure beyond current unidirectional oracles and static smart contracts – infrastructure capable of bidirectional state synchronization and dynamic execution. Systems that understand that securities are not just data points but complex state machines requiring continuous synchronization with the real world. That is both the most fundamental challenge and the greatest opportunity facing security tokenization.
References
[1]. Baker McKenzie, “Tokenization in Financial Services | Insight,” June 26, 2025. This report discusses tokenization challenges, automation, and regulatory compliance in financial services. https://www.bakermckenzie.com/en/insight/publications/2025/06/tokenization-in-financial-services
[2]. Blockchain App Factory, “How Ondo Finance ($ONDO) Leveraged Tokenized Treasuries to Attract Institutional Capital,” May 23, 2025. Details Ondo Finance’s tokenized Treasury product limitations and institutional adoption. https://www.blockchainappfactory.com/blog/how-ondo-finance-ondo-leveraged-tokenized-treasuries-to-attract-institutional-capital/
[3]. InnReg, “Tokenized Securities Explained: Examples and Regulation,” July 20, 2025. Explains tokenized securities structure, automation needs, and regulatory landscape. https://www.innreg.com/blog/tokenized-securities
[4]. Oraclizer, “The Uncomfortable Truth About Current RWA Tokenization,” August 7, 2025. Analyzes current tokenization gaps and calls for new bidirectional state synchronization infrastructure. https://research.oraclizer.io/the-uncomfortable-truth-about-current-rwa-tokenization-why-tokenized-assets-remain-islands-in-defi/
