Among the most promising recent evolutions in blockchain technology has been the rise of asset tokenization: the process by which real-world assets, from real estate, bonds, and art to equities, become converted into digital tokens. Tokenization is changing modern finance by reimagining ownership, value, and transactions while it creates a bridge between traditional assets and decentralized networks.
However, with tokenization platforms multiplying on different blockchains, one consistent problem is interoperability. Even though blockchain design has significantly advanced, the inability of the different tokenization systems to communicate well, transact, and transfer assets across them is a major barrier. This lack of interoperability leads to a restriction of liquidity, increase in costs, and a gradual pace in the adoption of tokenized and assets globally.
This article explores why interoperability continues to be a challenge across tokenization platforms, the technical and regulatory factors behind it, and how the crypto industry can move toward more connected ecosystems.
Understanding Interoperability in Tokenization
Interoperability simply means that different blockchain systems can communicate and interact without friction. This implies that, in tokenization, tokens are created on one platform and can be transferred, traded, or recognized by another, just as you can send an email across different providers such as Gmail or Outlook.
Unlike emails, most blockchains and tokenization platforms are designed as stand-alone architectures. Each has its unique set of token standards, smart contract designs, and consensus rules. So, transferring a token from one network to another isn't that simple - it usually requires third-party bridges or complex conversion mechanisms, adding risk and inefficiency.
Interoperability is important for many reasons, including:
It allows for seamless transfers of tokenized assets across chains and markets.
It develops larger liquidity with the interconnection of fragmented systems.
It enables various investors and institutions to use the same asset on several dApps and financial systems.
Without it, tokenized assets would be stuck inside their ecosystems, limiting the global vision of a connected token economy.
Why Is Interoperability Still a Problem?
Despite growing awareness, various technical, regulatory, and business hurdles stand in the way of making tokenization platforms interoperable.
1. Technological Fragmentation
Different blockchains are built on different technical stacks. Each has its own unique consensus mechanisms, such as Proof of Work versus Proof of Stake, conditions for finality, and token standards.
Ethereum: ERC-20, ERC-721 token standards
Binance Smart Chain follows BEP standards, and
Private permissioned blockchains usually possess their specific, customized token formats.
This means that tokens created on one platform are not automatically compatible with others. There are bridging solutions — which act as connectors between two blockchains — but they are complex and have been frequent targets for security breaches.
In tokenization, small differences in how smart contracts represent ownership, transfers, and metadata make cross-chain interoperability very difficult.
2. Lack of Common Standards
One of the main causes of interoperability issues is the lack of common standards for the creation of tokens and data exchange.
Each tokenization platform defines the attributes of these assets differently, be it ownership rights, yield distribution, or compliance logic. Without commonly agreed-upon industry standards, each system becomes a silo.
Thus, it's tough to make two tokenization solutions "speak the same language."
For example,
A bond token on one blockchain might represent interest payments through automated smart contracts.
Another might encode those rights off-chain through manual verification.
Consequently, systems cannot recognize or validate each other's tokens on their own.
3. Fragmented Business Models and Incentives
Many of those tokenization platforms are created by private entities that would want to keep control within their ecosystem. This creates a competitive situation, not one involving collaboration.
Platforms might not want to open access or share liquidity with competitors.
Proprietary systems can generate higher transaction fees and keep users within one network.
Such closed approaches hinder efforts to develop a common interoperable layer, since there’s little financial incentive for one platform to connect to another.
Ultimately, this fragments liquidity tokenized assets are tradable only in very limited ecosystems, rather than freely across the digital asset marketplace.
4. Regulatory and Legal Complexities
Interoperability is not just a technical issue; it's also a regulatory one.
Every jurisdiction defines ownership of assets, transfer rights, and investor protection in its own way. When tokenized assets cross borders or platforms, the legal frameworks are hard to reconcile.
For example, a tokenized real estate asset in Singapore could be legally recognized under local property laws but would need to comply with a completely different set of financial regulations when moved onto a European platform.
Moreover, custodians, clearers, and financial intermediaries need to ensure that legal rights associated with tokens off-chain are valid when transferred across systems-something today's fragmented platforms cannot support easily.
5. Security Risks in Cross-Chain Operations
Interoperability solutions commonly rely on bridges or intermediary protocols that connect two or more blockchains. Unfortunately, such bridges have become common targets of cyber-attacks. Billions of dollars in assets have been stolen in high-profile bridge exploits in 2022 and 2023 alone.
Every time a token crosses chains, several systems have to agree on the finality of transactions, data validation, and verification, wherein any weak point in this process leads to loss of funds or double-spending. Until universally secure interoperability protocols are developed, many institutions will remain cautious about connecting tokenization platforms.