Erwin Voloder, Head of Policy, European Blockchain Association, shared that Nethermind and PwC Germany have released report on the important role of token standards and what they mean for scaling up institutional adoption.
The bulk of the report cuts “across token standards and their relationship to MiCA and MiFID II.”
While MiCA offers a “framework for crypto-assets, it doesn’t cover financial instruments like security tokens which would presumably fall under MiFID II.”
Voloder also mentioned that the challenge here is “not just applying MiFID II to tokenized instruments but the regulatory complexity surrounding cross-jurisdictional compliance.”
The report emphasizes how issuers need to be clear “about whether their assets fall under MiCAR or MiFID II, as this determines their compliance obligations.”
The report emphasizes the growing importance of ERC-1400 and ERC-3643.
These standards embed compliance features, such “as KYC/ AML requirements, transfer restrictions, and document management, directly into the token architecture (e.g., T-REX and ONCHAINID).”
Voloder added that even though token standards like ERC 3643 can “automate certain compliance processes on-chain, many regulatory obligations including governance structures and audit trails still require off-chain mechanisms.”
The report puts forward a “hybrid model (combining on-chain automation with off-chain governance) as one pathway for institutional adoption.”
They suggest this is to overcome operational frictions from “full reliance on blockchain compliance in established markets.”
Interoperability challenges are also discussed, noting “that ERC-20’s are widely adopted but struggle with compatibility across different blockchain ecosystems, and that this gap is a challenge for scaling adoption – particularly for those actors dealing with large-scale tokenized portfolios.”
The report also draws attention to the “importance of privacy-enhancing technologies like ZKPs.”
As tokenized assets become more “regulated, privacy and data security concerns will continue to grow, especially in the financial services sector.”
Looking ahead, Erwin Voloder noted that interoperability “may be a sticking point, but the industry is rapidly advancing interop solutions (Chainlink’s CCIP, Canton Network, Across Protocol, and Optimism Superchain – specifically, message passing and standardized token models).”
Aside from the obvious legal clarity needed around tokenized RWAs, Basel III’s risk weightings/capital buffer, “specifically around Type 2b crypto-assets effectively makes it cost prohibitive for institutions to hold tokenized assets on their balance sheets. Or EIOPA’s recent guidance on 100% capital requirements for crypto-assets held by issuers.”
To really scale up RWAs the industry needs “more flexibility around capital treatment that accurately reflects both token taxonomy constraints, and the technical reality in relation to perceived vs. realized risk.”
Erwin Voloder, Head of Policy, European Blockchain Association, concluded that in his view, this is equally as important “as ensuring token standardization stays in lock step with institutional demand.”