The financial system is rapidly moving towards a digital-first model, where value exists as data on secure networks or through tokenised representations. This transition delivers efficiency and automation but also introduces a critical risk: fragmentation.
Networks, tokens and legal frameworks rarely interoperate seamlessly. Semantic inconsistencies compound the problem. Tokens that appear similar can carry differing rights, transfer restrictions or compliance obligations, preventing automated processing and trapping liquidity. Entitlement fragmentation adds a further layer: some ledgers confer ownership directly, while others merely reflect positions elsewhere. Misaligned systems disrupt settlement and escalate disputes.
Fragmentation is therefore a structural risk. Without common standards, failures can cascade, leaving regulators and market participants uncertain about outcomes and accountability.
Learning from the internet
The early internet faced similar challenges. The Defense Advanced Research Projects Agency’s initial networks were fragmented, until open collaboration produced shared protocols like Transmission Control Protocol/Internet Protocol. This process, built around the Request for Comments framework, wasn’t smooth – commercial interests clashed and the transition was disruptive. But the result was a universal, scalable foundation.
Digital finance needs a similar approach. The incentives are misaligned, with private networks competing for users, regulators seeking control and different jurisdictions enforcing conflicting rules. Still, the lesson holds: interoperability won’t emerge organically. It must be built through deliberate, co-operative standards development.
Consistency, transparency and industry leadership
The goal should not be to impose a single universal token standard. Instead, the industry needs a meta-protocol – a common legal and technical framework that allows different token models to communicate.
Machine-readable asset schemas are key. These schemas define an asset’s properties, settlement rules and relevant legal references in a structured format. With this shared ‘language’, networks can automatically verify asset validity, reconcile positions and enforce compliance across platforms.
There are early signs of progress. The Internet Engineering Task Force’s Secure Asset Transfer Protocol shows how gateways can move tokens between networks while checking pre-agreed rules. A broader meta-protocol could extend this concept, connecting diverse systems without forcing them to abandon their native designs or governance. This requires a shared responsibility model. Industry participants build and maintain the technical infrastructure, while regulators and standards bodies define the overarching rules.
Two answers to ‘who owns what?’
The legal dimension is equally important. In representational models, the ledger is merely a mirror of an external register, requiring constant reconciliation. Constitutive models make the ledger itself the source of truth, enabling seamless transfers and automation – but only if strict legal safeguards are in place.
Jurisdictions are beginning to test ledger-native registers. Spain’s Entity Responsible for Enrollment and Registration framework, for instance, gives distributed ledger technology-based records the same legal standing as traditional systems, with regulated entities ensuring accuracy and finality.
This creates a trade-off: achieving legal certainty often means introducing centralised accountability, which clashes with the decentralisation ethos of many blockchain systems. Policy-makers and industry leaders must confront this tension directly.
Code into contracts, contracts into law
Tokenised assets are moving from experimental projects to core components of financial infrastructure. To scale safely, the industry must solve both semantic and entitlement fragmentation.
Machine-readable asset profiles can standardise how tokens are understood by systems and regulators. Clear entitlement models define who owns what, under what rules. Together, these form the foundation for genuine, auditable interoperability.
This is not a one-time technical fix; it is a long-term strategy requiring open standards, clear laws and coordinated oversight. By building this foundation now, the financial industry can replace today’s patchwork of bespoke systems with a mature, integrated digital economy.
Vivian Clavel Díaz is Head of Open Banking and Digital Currency Initiatives at Minsait (Indra Group).
This article was originally published in OMFIF’s Public blockchain working group report: ‘Driving public blockchain integration in banking’.
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