Why Tokenization Still Relies on Traditional Finance

By Mark Arasaratnam, Managing Director, GenTwo Digital. 

This piece originally appeared in the Finanz und Wirtschaft Crypto Special on September 27, 2025. Read the original here (in German).

Over the past decade, crypto has often been presented as the successor to traditional finance. The promise was radical: open protocols would displace old institutions, and tokens would replace securities. Yet, despite billions invested and countless pilot projects, the reality is more sober. Crypto is not replacing finance – it is leaning on it, and in many respects remains dependent on its infrastructure.

This matters because tokenization is once again being hailed as the “next big thing.” Large banks, asset managers, and regulators are examining how real-world assets – from treasuries to private credit – can be brought onto blockchains. Advocates argue that tokens make everything faster, cheaper, and more accessible. The temptation is to believe that minting a token solves the problem. But a token is only the final leg of an issuance process enabled by its own settlement rails. It does not create liquidity, nor does it make an asset investible on its own. 
 

No foundations, no market

Liquidity comes from distribution agreements, from market makers engaged and willing to provide quotes and depth, and from custody structures that regulators and auditors accept. Investibility comes from legal wrappers – funds, trusts, special-purpose vehicles – that define investor rights, provide insolvency protection, and ensure compliance with securities law. Without this scaffolding, tokenization is nothing more than digitization: a record without a market, a digital twin masquerading as the real thing. 
 

Paradoxically, then, the more ambitious the tokenization agenda becomes, the more it depends on the most traditional elements of finance. Jurisdictions such as Guernsey, Jersey, or the Cayman Islands remain central, because they offer proven regimes for structuring products and protecting investors. Custodians, paying agents, and auditors still have to sign off. Regulators still draw the perimeter of what can be offered, to whom, and under what conditions. 
 

In practice this means that anyone serious about tokenization must first deal with the same issues faced by any issuer of conventional products: prospectus obligations, investor categorization, tax treatment, and operational workflows.
 

Some countries are also experimenting with native issuance – the Swiss DLT law allows this. However, these remain local sandboxes. What the market ultimately needs is a standard that is recognized worldwide. Independent regimes are missing. Without this framework, tokenization is nothing more than digitalization: an entry in a database somewhere that claims to be the original. 

None of this makes tokenization less relevant. On the contrary: it clarifies its real role. Tokens are not a replacement for securitization (not yet), but an extension. Once the underlying architecture is in place, tokens can add speed, programmability, true fractional ownership, and even composability with other on-chain assets. They can streamline settlement and reporting, lower minimum investment sizes, and open products to new classes of investors. For example, an institutional product previously available only in million-unit denominations could be made accessible to a broader range of investors through tokenization. But the sequence matters: first the wrapper, then the token.

A story of convergence
 

The lesson is simple but contrarian: crypto does not liberate us from finance – it relies on it. The winners will not be those who mint the most tokens, but those who get the plumbing right and focus on utility. 

At heart, this is a convergence story. Traditional finance provides the trust, rules, and protections that make investments credible. Tokenization provides the technology to scale them faster and further. Together they can expand the investment universe in ways that neither side could achieve alone. In a global environment where investors demand transparency and regulatory certainty, this convergence is decisive.
 

At GenTwo, we see our role as building the financial engineering layer that makes this possible. We create the securitization framework – through special-purpose vehicles and modular platforms – that turns any asset into an investible product. With this foundation, tokenization is no longer just a promise, but a path to liquidity and access, built on solid ground. For us, the conclusion is clear: only when the bridge between tradition and innovation is structurally sound will tokenization achieve its full potential.