The mechanics of a Tokenization Engine
Last week — during ethCC 2025 in Cannes — two major announcements captured the attention of crypto and fintech operators: US stocks are coming onchain.
Robinhood first, and then Kraken (in partnership with Backed Finance, my former employer ), announced that a substantial set of US stocks were being made available onchain for their clients in token form, with 24/7 trading hours (24/5 for Robinhood) and onchain liquidity available from day one.
This news sparked a massive reaction and brought the tokenization narrative back to the forefront of the crypto space, after a long period of dull.
Therefore, given the huge buzz around tokenization, I decided to break down the key components of a tokenization engine and analyze what I believe will be the true differentiators behind the winning solutions.
Note: Considering the broad scope of the topic, I’ve built a generic tokenization framework that applies to most listed securities and funds. For private assets, the framework remains valid but must be adapted to account for their specificities.
Key Components
Utilities
User Wallet (MPC Wallet provider)
The engine must integrate with an MPC wallet provider to allow the deployment of wallets at scale. The user wallet acts as the interface between end-users and the tokenization engine. It’s the wallet where users can deposit funds that will then be converted into asset-backed tokens.
Key Providers: Fireblocks, Fordefi, Dfns.
Onchain notification system
A module that pushes alerts and state changes (e.g. issuance or redemption events) on the chain to the backend system of the engine, that will then proceed to orchestrate the execution.
Key Providers: QuickNode, Alchemy, Blockdaemon.
Transaction monitoring
Core to the engine’s audit layer. Monitors onchain activity tied to tokenized assets to flag suspicious transactions, ensure compliance with AML policies, and maintain auditable trails. Often interfaces with analytics or compliance partners.
Key Providers: Chainalysis, Scorechain, Lukka, Elliptic.
Minting Engine
System Wallet (MPC Wallet provider)
The "admin wallet" of the engine—used to perform operations such as minting and burning tokens, managing reserves, and interacting with core contracts like On/off ramps.
Order Management System
Handles order intake, validation, routing, and status tracking within the engine. For platforms enabling secondary trading, the OMS is essential for coordinating onchain execution, pricing logic, and user matching, either internally or via DEX integrations.
Token Factory
A smart contract suite that allows the engine to create new token contracts tied to real-world assets. Includes templated logic for compliance rules (e.g., transfer restrictions), metadata, and lifecycle controls (e.g., pause/freeze, upgrades).
TFI - Traditional Finance Interface
On/Off Ramp
Connects the tokenization engine to fiat rails: it’s a financial bridge that allows users to move capital into and out of onchain assets.
Broker
An API or service layer in the engine that routes trade requests to licensed intermediaries. It’s a legally regulated entity that connects the token engine to primary and secondary markets for traditional securities. Its main functions are: market access for the engine and settlement - the broker works with custodians to settle asset ownership after trades.
Custodian/Depository service
The custodian is the regulated entity responsible for holding the real-world assets (e.g., US equities, bonds, or fund shares) that are represented onchain by tokens. It is the foundation of trust in the tokenization engine, ensuring that:
Each token corresponds to a real, legally held asset
Assets are stored in a compliant, segregated, and verifiable manner
Regular audits, reporting, or cryptographic attestations can be produced
The token issuer doesn't need to be the asset custodian, reducing counterparty risk
The custodian is also often involved in corporate actions (dividends, splits) that must be reflected onchain via the token engine.
Fund Administrator (fund specific)
Feeds offchain fund data (e.g., NAV, allocations) into the engine’s logic. The engine uses this data to adjust token supply, ensure pricing accuracy, and satisfy regulatory disclosures tied to tokenized funds.
Ecosystem
Proof of Reserves
Third party provider that verifies—cryptographically and via attestation—that the token supply is fully backed by the underlying assets. The provider may run this proof periodically and publish it onchain for transparency.
Key Providers: Chainlink, Pyth, RedStone, Chronicle.
Oracle
The price oracle is a critical component that ensures the offchain price of the tokenized asset is made available onchain in a reliable and transparent way. It enables smart contracts, DEXs, and DeFi protocols to reason about the token’s price and use it for their own purposes.
As the token matures and onchain liquidity develops, the oracle should gradually rely on onchain price data instead of offchain feeds.
Key Providers: Chainlink, Pyth, RedStone, Chronicle.
Lending market
A tokenization engine should design its tokens to be natively composable with DeFi lending protocols, enabling them to be used as collateral or loanable assets in permissionless money markets. This requires careful design around token standards, pricing oracles, and liquidity characteristics to ensure the tokens are compatible and attractive for lending protocols.
Key Providers: Aave, Morpho, Euler, Kamino.
DEX (Onchain liquidity)
The tokenization engine may either push tokens directly into DEX liquidity pools or integrate routing logic to source liquidity. This ensures tokens minted can actually be traded 24/7 in a permissionless market.
Key Providers: Uniswap, Pancakeswap, Curve, Raydium, Aerodrome.
Derivatives
Tokenized assets must be designed to serve as underlyings for permissionless derivatives—such as options, futures, perpetuals, and structured products—when they meet the composability and oracle requirements of derivative protocols. The tokenization engine’s role is to ensure tokens are trustworthy, liquid, and transparently priced, making them suitable for use in these permissionless financial instruments.
Key Providers: GMX, Jupiter, Synthetix, dYdX, Hyperliquid.
What really matters
The previous section outlined the core modules needed to assemble a tokenization engine. But in practice, two elements stand above the rest as the decisive factors for success: the legal wrapper and the ecosystem.
The Legal Wrapper
The legal wrapper is the invisible contract that gives real-world value to an onchain token. Without it, a token is nothing more than a number on a blockchain — a digital placeholder with no enforceable link to the underlying asset. The legal wrapper establishes the compliant connection between the token and the asset held by the custodian, ensuring that the holder of the token has actual rights over the real-world asset.
In the often-anonymous and loosely regulated crypto world, this element has historically been overlooked. But when things go wrong — and they will — it’s the legal wrapper that determines whether token holders have a legitimate claim or are left with worthless code. It is, in essence, the only enforceable guarantee that connects the tokenized representation to something tangible and legally protected.
The Ecosystem
The second key differentiator is the ecosystem that forms around the token. The true power of tokenized assets lies in their composability — the ability to plug into a wide array of onchain applications: DEXs, lending protocols, structured products, derivatives, and more.
This composability unlocks utility, liquidity, and programmability far beyond what’s possible in traditional finance. It allows tokenized assets to be borrowed against, traded 24/7, and embedded into smart contracts — creating a UX and capital efficiency leap compared to isolated digital representations in TradFi systems.
Without an active and varied ecosystem, this advantage vanishes. A tokenized asset without places to go and things to do is just another form of digital paper. The tokenization engine may mint it — but it’s the ecosystem that gives it life. And in the world of crypto this element might result even more decisive than the legal wrapper.
Conclusions
Many projects have entered the race to bring traditional securities onchain, and most are building stacks that increasingly resemble one another. As tokenization engines become commoditized, the real differentiation will lie elsewhere.
What will separate winners from the rest is not technical plumbing, but the strength of the legal wrapper and the depth of the ecosystem around the token.
Teams that master both early on will set the standards, capture liquidity, and define the dominant rails for onchain capital markets.