Few concepts have captivated both institutions and innovators quite like ‘tokenisation.’ Yet as adoption spreads and use cases mature, a key distinction is often lost in translation — the difference between tokenised securities and security tokens.
While the wording may seem interchangeable, the underlying reality is not. One represents the digitisation of legacy instruments. The other reflects a foundational shift in how financial assets are created, governed, and transacted. Understanding this distinction is as essential for the builders of the next generation of capital markets infrastructure, as it is for investors.
What are tokenised securities?
Tokenised securities are traditional financial instruments — such as bonds, equity, or funds — that have been represented on a blockchain. Think of them as digital twins: the security itself remains off-chain, often governed by paper-based contracts and legacy settlement systems, but its ownership or transfer is mirrored on-chain via tokens.
This is the model most institutions are comfortable with — and the one I promoted while leading Fidelity International’s digital assets effort. We onboarded tokenised bonds, tokenised money market funds, replicating on-chain, what already existed off-chain. While headlines of those deals are attention-grabbing, this approach allows for limited innovation — such as faster internal settlement or fractional representation — while keeping existing compliance and legal structures unchanged.
The challenge? Most of the benefits remain cosmetic. The underlying asset lives in the old world, and so do its frictions. Transfers typically require off-chain validation. Legal enforceability depends on contracts, not code. And investors still face many of the current challenges, from delayed settlement (due to required off-chain reconciliation) to the reliance on existing intermediaries like brokers or registrar (which are required to validate transactions).
What are security tokens?
In contrast, security tokens are native digital assets — financial instruments that are born on-chain. Their rights, obligations, and compliance logic are embedded directly into the smart contract that governs them. The blockchain isn’t just a mirror; it’s the single source of truth. The token isn’t a derivative, it’s the asset itself.
With security tokens:
- Ownership is provable via cryptographic identity
- Transfers are programmable and compliant by design
- Issuance, trading, and settlement occur natively on-chain
- There’s no need to reconcile against a paper registry — the ledger is the law.
This isn’t just digitisation — it’s re-architecture. Security tokens represent a shift from analog legal processes to digital-native financial infrastructure.
Why this matters?
At a glance, both approaches may appear similar. After all, both involve assets on a blockchain. But the long-term implications diverge materially.
The comparison below highlights the practical differences:
Tokenised securities help legacy systems run more efficiently. Security tokens have the ability to make those systems obsolete.
So why are most players still tokenising the “old way”?
Because changing infrastructure is hard. It’s easier, and safer, to wrap an existing asset in a digital shell than to rethink legal structures, compliance layers, and investor protections from scratch.
Major banks and asset managers are cautious, and understandably so. They seek efficiency gains, not disruption – especially not disrupting themselves away from the whole process. As a result, much of what we see today as “tokenisation” is a digital skin over a paper-based body.
But the promise of tokenisation — broader access, lower cost of capital, real-time execution, even peer-to-peer transaction — cannot be realised without moving toward true security tokens.
Building for the digital era – What’s required
To move beyond just tokenising existing securities, we need a framework for native digital securities that are:
- Fully compliant (e.g., leveraging verifiable identity and regulatory frameworks like the UK Digital Securities Sandbox)
- Programmable from the ground up (with embedded credit scoring, automated settlement, and regulatory logic)
- Designed for institutional trust and transparency.
In terms of assets, a healthy starting point is assets that aren’t already efficiently traded. For instance, electronic invoices, consumer loans or even real estate could be transformed into transferrable, rating-grade digital securities. But the principles apply broadly: create the asset digitally, define it legally, embed compliance, and let the blockchain do the rest.
This is not the future. It’s the infrastructure that’s being built right now, but that many still struggle to differentiate from the more broadly publicised tokenised securities.
Looking ahead
As regulators begin to formally recognise on-chain records as valid legal proofs of ownership — a shift already underway in jurisdictions like the UK, UAE, and back home in Switzerland — the divide between tokenised securities and true security tokens will become starker.
At platformD, this distinction is not theoretical: it shapes how we design trade-finance and capital markets infrastructure — moving beyond digitisation of legacy instruments to programmable, compliant, and scalable digital assets.
.png)
