The European Central Bank (ECB) recently produced a report on tokenization that said: “the journey towards tokenized markets will require time, continuous evolution, and strategic adaptation.” The bank added that legacy and hybrid systems will likely coexist for some time in parallel environments.
“Reaping the benefits of tokenization will require careful management of the transition while fostering an environment that is conducive to long-term efficiency gains.”
The ECB explains that EU-wide regulation is needed and a European framework must arise to avoid dependence on “foreign providers.”
While noting that progress has been made with MiCA regulation and the DLT Pilot regime, “common standards and a harmonized regulatory framework are necessary to avoid fragmented implementation across the Single Market.”
Founder & CEO of Tokenovate, Richard Baker, worries that changing assets will accomplish little unless processes adapt.
He believes the report correclty draws attention to what happens after issuance, because that’s where most of the friction still sits while adding that far less has gone into “how those assets actually move and settle once a trade is done.”
“The ECB’s work on the digital euro, alongside projects like Pontes and Appia, is starting to address that gap. What’s interesting is not the asset itself, but the attempt to bring cash and settlement logic closer to the transaction. That has direct implications for how long risk is carried and how quickly firms can reuse capital,” says Baker.
Today, tokenized flows rely on legacy post-trade and transfer steps, with instructions passed between existing systems and settlement occurring later.
“Changing the asset without changing that process doesn’t achieve very much,” he says.
“If you want a different outcome, the sequence has to change. Cash and assets need to move together, and the data describing the trade must be consistent across all participants from the outset. Otherwise, you fall back into reconciliation and delay.”
Others have issued statements expressing concern about the pace of change in Europe. While everyone recognizes the future of digital assets, including tokenization and fragmentation, hurdles posed by diverse jurisdictions can impede the inevitable future of finance.
“Until that alignment is in place, tokenized markets will struggle to scale beyond controlled use cases.”