Tokenization is emerging as one of the most closely watched developments in market structure. In a recent episode of ISDA’s The Swap, Episode 55: Tokenization in Derivatives Markets, Sandy Kaul, Head of Innovation at Franklin Templeton and Joseph Spiro, Digital Assets Product Director at DTCC, highlighted where tokenization is already delivering value and what still needs to change before it can scale across derivatives markets.
For Kaul, one of the most significant advantages of tokenization is the ability to embed contractual terms directly into the asset itself. “There are still many instances where we have contracts that we need to refer to that are separate from the trading of an instrument itself,” she said. “With tokenization, we can now begin to embed those contracts inside of assets and have the asset and the contract move together.” By aligning the legal agreement and the instrument in a single programmable token, firms can reduce reliance on manual processes and separate documentation systems.
She also emphasized the impact of moving from multiple ledgers to a shared record. In today’s markets, each counterparty maintain their own books and records. These must constantly be reconciled. Kaul noted that in a tokenized environment, all authorized participants would be referencing a single, shared record of the transaction, rather than maintaining and reconciling separate internal ledgers.
Spiro highlighted another core benefit: speed and finality of settlement. With assets and payments existing on the same blockchain rails, transactions can settle almost immediately. “You get the settlement done within a matter of seconds, as opposed to, hopefully by the end of the day,” he said. He also underscored the programmability of tokens. “Don’t forget that a token is a smart contract on chain.” That means corporate actions, dividend payments, eligibility rules and compliance controls can all be automated within the instrument itself.
Collateral management has emerged as a particularly promising application. Both executives described the current collateral process as operationally intensive and constrained by market hours. Spiro said tokenization “makes collateral management absolutely the best first use case,” pointing to 24/7 availability, transparency and programmable logic. Smart contracts can encode eligibility criteria, haircuts and minimum transfer amounts, automatically enforcing the terms of a credit support annex and facilitating substitutions or margin calls in real time.
Kaul offered a live example from Franklin Templeton’s tokenized money market fund. The firm has used the fund in collateral arrangements with crypto derivatives exchanges, replacing stablecoins with a regulated, yield-bearing instrument. “We’ve been able to really allow people to post collateral that is yield bearing without losing access to the yield,” she explained. Because the fund operates on blockchain infrastructure, it can move “24 hours a day, seven days a week.” Notably, the yield can be separated from the token, allowing income to be directed to one wallet while the collateral remains posted in another — an added layer of flexibility.
At DTCC, Spiro and his team have been advancing similar concepts through what he called the “Great Collateral Experiment.” The initiative demonstrated that assets from multiple blockchains could be integrated into a unified collateral framework, provided they are digitally represented. “Interoperability is key,” he stressed, noting that common data standards are essential so that smart contracts can interpret asset characteristics consistently across platforms.
Despite the operational efficiencies, both executives acknowledged that widespread adoption requires regulatory clarity. Spiro pointed to “inconsistent treatment across various jurisdictions” and open questions around custody and investor protection. For tokenization to scale in derivatives markets, legal certainty around netting, margin and enforceability must be preserved in a digital format.
Compliance, they agreed, must be built into the technology itself. “Compliance is, and has always been and will continue to be critically important,” Spiro said. In a tokenized environment, that means embedding transfer restrictions, access controls and mechanisms to prevent misconduct directly into smart contracts.
Kaul added that regulators may need to adjust to a more real-time oversight model. Historically, supervision has been retrospective. With blockchain infrastructure, “regulators can be a part of the network and watch activity as it is unfolding.” That shift introduces both opportunity and complexity, requiring updated approaches to reporting and surveillance.
Interoperability across multiple blockchains presents another challenge. There will not be a single chain, and fragmentation could undermine efficiency gains. Kaul argued that standardized smart contract templates and protocol-based integration make cross-chain compatibility more achievable than in legacy systems. “Just knowing what template, what smart contract template you’re using, allows us to create that de facto standardization across chains,” she said. Spiro agreed that consistent data standards are critical for ensuring assets are evaluated uniformly, particularly in collateral contexts.
Cost savings are already measurable. Kaul cited a pilot in which 50,000 transactions processed traditionally would have cost roughly $75,000, while the same transactions executed on blockchain cost “just over $1.” For her, that illustrates the tangible operational improvements tokenization can deliver.
Adoption, both suggested, is no longer hypothetical. DTCC is preparing production launches, and asset managers are expanding tokenized offerings. “It’s happening now,” Spiro said of institutional-scale implementation.
