Are Outdated Rules Slowing Tokenized Assets? 'We Need To Align With Regulators'

The discussion around tokenization has moved beyond theory, with industry leaders pointing to infrastructure and regulatory coordination as the foundation for its future adoption. At the recent Benzinga Future of Digital Assets conference, panelists explored the challenges of holding tokenized assets back and what needs to happen for widespread use to become a reality.

Aligning Traditional Finance With Blockchain

Andrew Czupek, Northern Trust’s head of digital assets for the Americas, stressed the importance of connecting existing systems with blockchain technology to allow traditional and digital financial platforms to interact seamlessly. "You can work one, and you can work another, but if you’re not supporting both and aligning them…how do you do that?" he said. Czupek added that banks must explain their goals to regulators while addressing concerns and building trust. "We must align with their thinking and walk them through why we're doing these projects."

Colin Butler, global head of institutional capital at Polygon Labs, echoed the need for better infrastructure. He described the gaps preventing tokenized systems from achieving mainstream use, noting that scalability and user experience have been stumbling blocks. "We're working hard to address those points…so the world of Web3 looks much more like Web2," Butler explained. He stressed the significance of streamlining asset transfers across different blockchains in a way that does not overwhelm users.

Liquidity Remains A Hurdle

AlphaPoint’s general counsel, Reba Beeson, highlighted liquidity as a core issue slowing tokenization's progress. "Once an asset is tokenized, what do you do with it?" she asked, pointing to the need for platforms capable of facilitating transfers and investments at scale. Beeson cited AlphaPoint’s collaboration with GreenX, where tokenization is used to build a tradable green asset market in Malaysia.

Andrew Murphy, head of legal at Talos, added that achieving liquidity often requires a major player to take the first step. "You need to have a whale come in and drag everyone else along, kicking and screaming," he said. Murphy suggested that regulatory uncertainty has been used as an excuse, arguing that current rules provide room for progress. "You can probably do more than you think under the existing structure."

Regulatory Challenges And Collaboration

Murphy also pointed to the regulatory system as a major barrier, likening it to applying outdated rules to a modern framework. "You're taking these traditional traffic laws… and you have these fast-flying cars as tokenized digital assets," he said. Without adjustments, regulators risk limiting the technology's potential benefits.

Beeson emphasized the importance of collaboration with regulators, noting that customers often need help explaining blockchain technology's security and scalability. "Our customers have the direct interface," she said. "We work to ensure the technology meets risk parameters and functions as intended."

The Path Forward For Tokenized Assets

The panelists agreed that aligning traditional finance with tokenized systems will require collaboration between regulators, financial institutions and technology providers. As Butler put it, achieving seamless infrastructure would make the technology accessible without requiring users to understand its complexity.

With progress on institutional stablecoins and infrastructure, the focus is now on building trust and addressing lingering concerns. "We can't oversell it, and we can't undersell it either," Czupek said, noting that discussions with regulators must include both short-term benefits and long-term possibilities.

The panel concluded that while tokenization still faces challenges, it has clear opportunities to transform financial systems if the regulatory, technological and market layers align.