When people talk about RWA tokenization, they often focus on the shiny part: fractional ownership, global access, and new markets. But beneath the surface lies a less glamorous, yet critical layer—custody. Without it, the link between a blockchain token and the real-world asset it represents falls apart.
Custody sounds technical, but at its core it’s just about one thing: who keeps the asset safe and who investors rely on when questions come up. This setup shapes how regulators treat the whole project. Get custody wrong, and even the smartest token design won’t matter. Today, the debate mostly circles around two paths—handing control to a central trustee or spreading it across decentralized systems.
Why Custody Matters
A tokenized bond or piece of real estate may look simple on-chain, but somewhere off-chain sits the legal title, the deed, or the financial instrument itself. Custody is about bridging that gap.
Igor Izraylevych, CEO of S-PRO, puts it plainly:
“A token without custody is just a promise. The real test is whether investors can trust that someone – or something – is holding the underlying asset securely and transparently.”
That trust is where the custody debate begins.
Centralized Trustees
The traditional model borrows heavily from finance. Assets are held by a trustee—typically a regulated institution such as a bank, custodian, or law firm. Tokens issued on-chain represent claims against what the trustee safeguards.
Advantages:
- Regulatory clarity. Centralized trustees often fit neatly into existing legal frameworks.
- Simplicity. Investors know who to hold accountable if something goes wrong.
- Compliance. Anti-money laundering (AML) and know-your-customer (KYC) checks are easier to integrate.
Challenges:
- Single point of failure. If the trustee mismanages assets or collapses, the entire structure is at risk.
- Cost. Trustees charge fees, which can eat into returns.
- Limited innovation. The system looks a lot like old finance with a blockchain wrapper.
Projects in Europe often lean on centralized trustees. For example, tokenized real estate funds in Germany typically rely on established banks as custodians. The benefit is investor confidence, but the trade-off is reduced decentralization.
Decentralized Frameworks
On the other hand, innovators push for decentralized custody. Instead of one institution, control is distributed through smart contracts, multi-signature wallets, and even decentralized autonomous organizations (DAOs).
Advantages:
- Transparency. Everything is verifiable on-chain.
- Resilience. No single actor can seize or mismanage the asset alone.
- Innovation. Models can integrate automated yield distribution, governance rights, or programmable compliance.
Challenges:
- Legal uncertainty. Courts and regulators may not recognize DAOs or multi-sig structures as valid custodians.
- Complexity. Users must trust the code, which can contain bugs or vulnerabilities.
- Accountability. If something goes wrong, who do you sue?
Some pilots in Switzerland and Singapore are exploring DAO-like structures where investors collectively control custody decisions. These experiments show potential but also highlight how fragile the legal footing can be.
As Igor says:
“Decentralized custody is elegant on paper. But until regulators acknowledge it, projects will either bend back to centralized trustees or stay in a legal grey zone.”
Hybrid Approaches
A growing trend is to mix the two. Assets may sit with a regulated custodian, but token governance – voting, income distribution, secondary trading – runs through decentralized mechanisms.
This hybrid model tries to satisfy regulators while keeping the crypto-native spirit alive. For example, a property in Switzerland might be legally held by a trustee, yet token holders can vote on management decisions via a DAO structure.
The Role of Standards
Custody models don’t exist in a vacuum. Technical standards like ERC-3643 (formerly T-REX) or ERC-1400 were designed to manage permissioned transfers, compliance, and documentation. They allow custody obligations to be embedded directly in the token logic.
But standards don’t solve everything. They only work if trusted parties – or decentralized systems – are in place to enforce them. This is why many projects remain stuck in pilot stages despite technical readiness.
As Igor highlights:
“Technology is the easy part. Custody is about human trust, regulation, and the boring details nobody likes to talk about – but they make or break tokenization.”
Worldwide Signals
United States. The SEC has been cautious, often insisting on regulated custodians for tokenized securities. This pushes most projects toward centralized trustees.
Europe. Germany and Luxembourg allow tokenized funds but require licensed custodians, reinforcing the centralized approach.
Switzerland. Regulators are open to experimentation, and some projects combine legal custody with DAO-based governance.
Asia. Singapore is testing sandbox models, exploring whether decentralized frameworks can coexist with strong investor protections.
For a broader view of how markets are testing these models, see the overview of tokenization trends and use cases.
Custody as the Bottleneck
Looking at today’s landscape, custody remains the bottleneck for RWA tokenization. Centralized trustees are safe but feel like old wine in a new bottle. Decentralized frameworks promise innovation but face legal headwinds. Hybrids seem to be the compromise, but even they require careful balancing.
Spend a few minutes reading whitepapers and you’ll notice a pattern: custody is always mentioned, rarely detailed. Marketing talks about liquidity, accessibility, or democratization, but the real question remains – who actually holds the asset, and under what rules?
That’s where the future of RWA tokenization will likely be decided.
Also read: How to Create Your Own NFTs: A Comprehensive Guide
