Why do tokenized assets still need traditional cash for settlement

Tokenization promises to relocate stocks, bonds, funds and other financial assets to the blockchain network, but this only solves half of the transaction.

When investors purchase $10,000 worth of tokenized treasury bonds, the seller must deliver the securities and the buyer must deliver $10,000 in funds. Both parties still need to complete the settlement. This raises one of the most important questions in the field of tokenized finance: What currency should pay for tokenized assets?

Asset tokenization is only half of the transaction

Traditional financial markets solve this problem through the "Delivery versus Payment"(DvP) mechanism. The basic principle is simple: buyers deliver cash, sellers deliver securities. Banks, custodians, clearing houses and settlement systems coordinate the flow of these funds and assets to ensure that no party surrenders assets without receiving payment.

Blockchain technology is expected to accelerate this process. In the tokenization system, securities and cash do not need to be transferred through multiple institutions, but can be exchanged simultaneously. This is called "Atomic Settlement".

Imagine Alice buying a tokenized bond from Bob. The system will lock Alice's digital funds and Bob's bond tokens, verify whether both are available, and complete the two transfers simultaneously. If either party is unable to deliver, neither transfer will occur. Atomic settlements reduce counterparty risk and shorten the time capital is occupied between execution and final settlement of a transaction.

However, for atomic settlement to work, the prerequisite is that reliable money can flow on the same digital infrastructure as assets. And this is where the challenge begins.

Stable coins, bank deposits or central bank currency?

On the capital side of the tokenized market, there are three main candidates: stablecoins, tokenized bank deposits, and tokenized central bank currencies.

stablecoins are already widely available on public blockchains. Therefore, tokenized treasury bonds can be exchanged with dollar-pegged stablecoins without the two parties leaving the blockchain. This makes stablecoins very attractive for the all-weather market. However, stablecoins are usually liabilities of private issuers, and their value depends on the quality of reserves and the issuer's ability to exchange tokens for traditional currencies. This is different from placing funds directly in a bank or central bank.

Tokenized bank deposits provide another possibility. They represent existing commercial bank deposits in the form of tokens. Instead of creating separate stablecoins, banks allow customers to transfer deposit funds through programmable digital infrastructure. The key legal difference is that tokenized deposits are still bank liabilities, similar to funds already in traditional bank accounts. Commercial banks are increasingly interested in this model because it allows programmable settlements without completely rebuilding the existing banking system.

The third option is tokenized central bank currency . This is particularly important for large financial institutions, where central bank reserves are already at the top of the traditional settlement system. Banks may fail and stablecoin issuers may face redemption pressure, but central bank currency does not depend on the solvency of private companies.

Why Wall Street still needs cash support

This question has become increasingly important as tokenization expands from the experimental phase. Blockchain may be able to transfer tokenized stocks almost instantaneously, but if payments still need to go through traditional banking systems, the transaction will not be fully on-chain. Recent institutional projects demonstrate this hybrid structure: Banks and financial companies are experimenting with tokenizing treasury bonds, deposits and funds, while still relying on existing banking infrastructure for some settlement processes.

This is not necessarily a weakness. Financial markets are unlikely to move completely from traditional settlement to all-tokenized infrastructure overnight. Instead, the two systems may coexist for years. One tokenized security may be traded on the blockchain, while its payments are made through commercial banks; another transaction may use stablecoins. Large institutions may eventually use tokenized central bank reserves for settlement.

The key is whether these different forms of money can interact safely. Therefore, interoperability may be as important as tokenization itself. If a market contains thousands of tokenized securities, but each asset requires a different payment network or cannot connect to the banking system, the improvements will be limited.

This is why the future of tokenized finance is not just about putting more assets on the chain, but also about connecting assets to currency. Tokenized stocks and bonds may eventually be traded around the clock and settled nearly instantaneously, but each purchase still requires a trustworthy target on the other side of the transaction. The real breakthrough lies in the fact that securities and cash can move simultaneously. Prior to this, tokenization had solved only half of the transaction.