Citation:

Vittal Jadhav. "Security Token Standards for Institutional Adoption of Tokenized Funds" International Research Journal of Economics and Management Studies, Vol. 4, No. 8, pp. 23-33, 2025. Crossref. http://doi.org/10.56472/25835238/IRJEMS-V4I8P104

Abstract:

The future of asset management, Tokenized funds, is an emerging digital analog of conventional types of investment instruments represented on a blockchain. The effectiveness of its success, particularly in institutional settings, depends largely on the maturity and core stability of the underlying cleansing token standards that ensure compliance, governance, and operational integrity. In this paper, the dynamic nature of standards such as ERC-1400, ERC-3643, CMTAT, and new protocols in the ecosystem is discussed. We examine how these standards address the primary institutional needs of KYC/AML compliance, including restrictions related to asset transfer, identity management, and auditability, both in terms of financial instrument structuring and governance. In addition to the technical one, the paper explores barriers institutions have to using tokenized funds, including regulatory uncertainty and cross-border compliance, as well as custody infrastructure and examines how the modern standards solve or fail to solve these aspects. We review each of the standards using a structured comparison matrix, with a focus on fundamental institutional standards. We also point out how future development can proceed, such as through central banks, the development of new cryptographic technologies such as zero-knowledge proofs, and harmonization between frameworks in jurisdictions and chains. According to our observations, none of the existing standards fully meet the institutional requirements at present, but the alignment of new protocols, regulatory guidance, and solutions to interoperability may trigger the broad-based implementation of tokenized finance. Such a transformation will be anchored in security token standards, which will become the linking tissue between legal compliance and programmable financial infrastructure.

References:

[1] Hines, B. (2020). Digital finance: Security tokens and unlocking the real potential of blockchain. John Wiley & Sons.
[2] Zhang, D. (2019). Security Tokens: Complying with Security Laws and Regulations Provides More than Token Rewards. UMKC L. Rev., 88, 323.
[3] Frolov, V. N., Vatolin, A. A., & Romanchuk, A. P. (2023). Asset tokenization and related problems. Proceedings of the Steklov Institute of Mathematics, 323(Suppl 1), S98-S112.
[4] Ahmed, H. (2024). Security tokens, ecosystems and financial inclusion: Islamic perspectives. International Journal of Islamic and Middle Eastern Finance and Management, 17(4), 730-745.
[5] Momtaz, P. P. (2023). Security tokens. In The Emerald Handbook on Cryptoassets: Investment Opportunities and Challenges (pp. 61-78). Emerald Publishing Limited.
[6] Casanovas Romeu, P., Gonzalez-Conejero, J., & de Koker, L. (2017). Legal Compliance by Design (LCbD) and through Design (LCtD): Preliminary Survey.
[7] Donoghue, S. (2024). Custody in the age of digital assets: The path to building market infrastructure fit for a tokenized economy. Journal of Securities Operations & Custody, 16(2), 168-179.
[8] Leckow, R., & Emre, E. (2019). Cross-Border Resolution: Progress and Challenges in Cross-Border Enforcement. List of IMF Member Countries with Delays in Completion of Article IV Consultations or Mandatory Financial Stability Assessments over 18 Months, 69.
[9] Budnik, R. A. (2023). Risks and prospects of creativity tokenization. Journal of digital technologies and law, 1(3).
[10] Di Angelo, M., & Salzer, G. (2023). Identification of token contracts on Ethereum: standard compliance and beyond. International Journal of Data Science and Analytics, 16(3), 333-352.
[11] Harris, C. G. (2023, July). Cross-chain technologies: Challenges and opportunities for blockchain interoperability. In 2023 IEEE International Conference on Omni-layer Intelligent Systems (COINS) (pp. 1-6). IEEE.
[12] Goodhart, C. A. (2011). The changing role of central banks. Financial History Review, 18(2), 135-154.
[13] Tian, Y., Lu, Z., Adriaens, P., Minchin, R. E., Caithness, A., & Woo, J. (2020). Finance infrastructure through blockchain-based tokenization. Frontiers of Engineering Management, 7(4), 485-499.
[14] Dutta, S. K. (2020). Tokenization. In The definitive guide to blockchain for accounting and business: Understanding the revolutionary technology (pp. 79-105). Emerald Publishing Limited.
[15] Silva, R., Marques, R. P., & Inácio, H. (2024). A design for tokenization in governmental investment. International Journal of Accounting & Information Management, 32(1), 19-39.
[16] Buldas, A., Draheim, D., Gault, M., Laanoja, R., Nagumo, T., Saarepera, M., ... & Truu, A. (2022). An ultra-scalable blockchain platform for universal asset tokenization: Design and implementation. IEEE Access, 10, 77284-77322.
[17] Glass, G. V. (1978). Standards and criteria. Journal of Educational Measurement, 15(4), 237-261.
[18] Ciriello, R. F. (2021). Tokenized index funds: A blockchain-based concept and a multidisciplinary research framework. International Journal of Information Management, 61, 102400.
[19] Layr, A. K. (2021). Tokenization of assets: security tokens in Liechtenstein and Switzerland. Milan Law Review, 2(1), 45-72.
[20] Ford, M. W. (2022). Management standards and institutional influence: An exploratory study using the Baldrige criteria. Quality Management Journal, 29(1), 18-33.

Keywords:

Security tokens, tokenized funds, ERC-1400, ERC-3643, CMTAT, KYC/AML.