Building scale in tokenised collateral
May 2026
As tokenised collateral moves from proof-of-concept projects to production-scale deployments, questions around interoperability, regulation, and market infrastructure are becoming increasingly important. Tonic’s Chris Watts, CEO and co-founder, and Steven Czarnota, head of digital, discuss the industry’s progress with Zarah Choudhary
Image: Tonic
Tonic has evolved alongside the wider digital asset market in recent years. How has the company’s strategy and business model changed as institutional adoption has matured?
Chris Watts: Tonic has always been underpinned by our expertise-led model and client centricity, enabling us to accelerate growth outcomes for our clients.
Historically we have been focused on a core set of connected domains, covering collateral, clearing, financing, broader post-trade, treasury, and risk.
Two years ago, we made it our mission to become the specialist bridge across TradeFi and DeFi ecosystems for our clients, underpinned by our deep understanding of both worlds.
We are there to give speed and the right direction to our clients’ transition into DeFi, helping to future-proof their business model and growth.
Today we are in a unique position to do just that.
With collateral mobility becoming the most significant use case the industry has coalesced around, as market leaders we were a natural first port of call for our clients looking at tokenised collateral.
Knowing that was coming, we invested heavily in our internal digital asset education, confident that this would be a game-changing market shift, where our clients would lean on us for specialist support.
We have also seen a shift in our digital asset engagements over the last two years. 12-24 months ago, early digital collateral engagements were heavily weighted toward advisory work, often led by education, market landscaping, regulatory implications, strategy, and use case prioritisation, as clients focused mainly on early proof of concepts.
That focus has now shifted, as the industry steps into productionised and scalable solutions. As a result, we now find ourselves working with clients much more deeply across client strategy validation, business case definition, platform selection, target operating model design, and platform implementation.
Driven by our clients’ needs, we have also organically expanded way beyond pure tokenisation and collateral into the wider digital asset agenda, spanning crypto, digitally native money market funds, and stablecoins.
Tonic has worked on a range of digital asset and collateral initiatives across the industry. Which projects or partnerships best reflect the role the firm is playing in today’s digital asset ecosystem?
Watts: We are fortunate to sit alongside many of the industry’s core service providers, including custodians, central securities depositories (CSDs), clearing houses, and dealer banks.
Tonic is considered a trusted partner to our client base, who provide expertise-led support across our Advise, Transform, and Implement service modules.
We have to be careful about sharing specifics of client projects, but the common thread is helping them bridge between TradFi and DeFi ecosystems, with Tonic optimising their strategy and accelerating their transformation lifecycle, to drive commercial growth.
We also often help bridge these firms to their end clients, whether through industry working groups or structured client interviews, to validate and prioritise their product roadmaps, so they can execute at speed.
One engagement that is public, and so can be shared, is our work with DTCC on their Collateral Appchain.
We supported DTCC in bringing that product-to-life for their clients through a flagship industry event — the Great Collateral Experiment.
We also partner closely with a lot of the key players in the DeFi ecosystem, whether distributed ledger technology (DLT) platforms, interoperability applications, stablecoin, and crypto firms. Here we offer high value to our clients by helping accelerate important partner selection decisions.
Something Tonic can offer any firm with is a free digital asset infoshare session. Here we informally walk through key market trends and insights, so companies have the understanding to make key early digital asset decisions.
Collateral management has emerged as one of the strongest tokenisation use cases in capital markets. Why has this area gained so much traction compared to other tokenised asset classes?
Steven Czarnota: Industry research has done a lot to bring this to life recently.
Firms have repeatedly evidenced significant savings tied to being overfunded across fragmented collateral venues, in some cases by as much as 25 per cent.
That makes it an easy use case for the market to rally around, because the business case is unambiguous.
Funding and optimisation algorithms can have limited impact, due to constraints across the underlying TradFi pipes that move collateral today.
Removing those frictions via DeFi solutions also opens up a wide set of sub-use cases, including mobilising new collateral types such as gold and money market funds, removing the double funding of substitutions, and enabling intraday collateral for real-time financing and central counterparty (CCP) collateral.
A large part of our advisory work with clients is identifying where, across that set, the greatest economic benefit sits for their specific book.
How closely connected is tokenised collateral to other developing areas such as digital money market funds, tokenised cash, and onchain liquidity solutions?
Czarnota: The core value proposition of tokenisation is asset mobility and liquidity, and the reason you move an asset is either a cash trade or to post as collateral.
So when any asset becomes mobile on DLT, collateral immediately comes into the picture.
A related prerequisite to building volume scale for digital collateral, is ensuring that both securities and cash movements are digitised within the same operating model.
For example, if you have a tokenised bond used in a repo transaction, you need a cash leg, which means you also need to think about what that tokenised cash leg looks like.
At that point the risk profile of a tokenised deposit versus a stablecoin becomes a first-order question. Similarly, as soon as a money market fund is tokenised, it is mobile and can be used for financing or posted against derivatives exposures.
Where is the market for tokenised collateral today in terms of adoption, transaction volumes, and real-world client demand? Which use cases are seeing the most momentum?
Czarnota: There is meaningful volume flowing today, and solutions such as Broadridge, HQLAX, and Kinexys have been in the market for some time.
Most of the use cases that have reached scale to-date have focused on solving intraday liquidity needs, through real-time repo products.
While hundreds of billions are flowing through these platforms each day, the broader, cross-product collateral market sits at around US$39 trillion, so tokenised collateral still represents only a small share of the total. Repo accounts for the bulk of that market, so it makes sense for the industry to have concentrated there, where the balances make the business case self-evident.
That said, the use case set is widening. Regulatory tailwinds mean firms are now comfortable operating in the uncleared space, and clearing houses themselves are beginning to accept tokenised forms of collateral.
Despite growing interest, large-scale adoption has remained relatively gradual. What do you see as the biggest barriers to scaling tokenised collateral volumes across the industry?
Czarnota: Legal and regulatory status has historically been a drag on design and delivery timelines, although most firms have now secured the legal confirmation that representing their own books and records on a DLT network is technology neutral.
The challenge is that digital collateral uptake has often played out so far within walled gardens and private DLT networks, which has held back critical mass.
Critical mass is the single most important factor for tokenised collateral, because the value only materialises when firms can reuse their assets across their breadth of counterparties and venues.
That makes interoperability the real enabler, and it is where the industry has the most work to do.
Today there are 70+ known DLT platforms in the financial markets, meaning that — in the rush to build suitable DeFi solutions — we have managed to re-create silos that risk acting as a blocker to scale.
Fortunately, specialist interoperability vendors are now acting as the glue that connects these platforms to create a single, unified collateral mobilisation network.
People and culture can also be considered a potential barrier to growth here. DLT and digital collateral solutions are being productionised right now and are becoming ready for mass usage.
However, inertia, education, and lack of strategy can be blockers across some segments of the market. Some parallels here to the relatively slow speed of AI roll-out across financial markets.
Looking ahead over the next two to three years, what developments do you think will be most important in accelerating adoption, whether through regulation, shorter settlement cycles, or increased market infrastructure interoperability?
Czarnota: Interoperability will be the single biggest accelerant over the next two to three years.
Firms are solving the connectivity problem in different ways, whether by connecting into common Layer 1s, wrapping tokens, or enabling direct integration between DLT networks.
As these approaches mature, they unlock the cross-network reuse of collateral that drives genuine scale.
Regulatory clarity is the second major tailwind. We are moving beyond DLT as a record-keeping layer toward truly digitally native assets, with the European Central Bank now accepting digitally native debt and US regulators encouraging CCPs to accept stablecoins and crypto with reasonable haircuts.
Shorter settlement cycles, demand for 24/7 trading and the continued build-out of market infrastructure will reinforce this trajectory, but interoperability and critical mass are the two factors most likely to move the dial on adoption.
As firms begin shaping their long-term digital collateral strategies, what key decisions are they currently facing, and what practical steps should institutions be taking now to prepare for this transition?
Czarnota: Firms sit at very different points on this journey.
Some technology providers have been active in the market for years, but because this part of the industry moves quickly, they are continually evolving their services in pursuit of scale.
A number of these firms built on infrastructure that is no longer current, and are now making important decisions about what will give them durable scale going forwards.
Firms newer to the market are focused on accelerated education.
This is often followed by which use cases will allow them to enter the game and start catching up with their peers as well as which solution providers they want to partner with.
What is becoming clear across both groups is that the industry is moving toward a network of networks.
The conclusion most firms reach, regardless of where they started, is that their target state needs to be clear and multichain.
Chris Watts: Tonic has always been underpinned by our expertise-led model and client centricity, enabling us to accelerate growth outcomes for our clients.
Historically we have been focused on a core set of connected domains, covering collateral, clearing, financing, broader post-trade, treasury, and risk.
Two years ago, we made it our mission to become the specialist bridge across TradeFi and DeFi ecosystems for our clients, underpinned by our deep understanding of both worlds.
We are there to give speed and the right direction to our clients’ transition into DeFi, helping to future-proof their business model and growth.
Today we are in a unique position to do just that.
With collateral mobility becoming the most significant use case the industry has coalesced around, as market leaders we were a natural first port of call for our clients looking at tokenised collateral.
Knowing that was coming, we invested heavily in our internal digital asset education, confident that this would be a game-changing market shift, where our clients would lean on us for specialist support.
We have also seen a shift in our digital asset engagements over the last two years. 12-24 months ago, early digital collateral engagements were heavily weighted toward advisory work, often led by education, market landscaping, regulatory implications, strategy, and use case prioritisation, as clients focused mainly on early proof of concepts.
That focus has now shifted, as the industry steps into productionised and scalable solutions. As a result, we now find ourselves working with clients much more deeply across client strategy validation, business case definition, platform selection, target operating model design, and platform implementation.
Driven by our clients’ needs, we have also organically expanded way beyond pure tokenisation and collateral into the wider digital asset agenda, spanning crypto, digitally native money market funds, and stablecoins.
Tonic has worked on a range of digital asset and collateral initiatives across the industry. Which projects or partnerships best reflect the role the firm is playing in today’s digital asset ecosystem?
Watts: We are fortunate to sit alongside many of the industry’s core service providers, including custodians, central securities depositories (CSDs), clearing houses, and dealer banks.
Tonic is considered a trusted partner to our client base, who provide expertise-led support across our Advise, Transform, and Implement service modules.
We have to be careful about sharing specifics of client projects, but the common thread is helping them bridge between TradFi and DeFi ecosystems, with Tonic optimising their strategy and accelerating their transformation lifecycle, to drive commercial growth.
We also often help bridge these firms to their end clients, whether through industry working groups or structured client interviews, to validate and prioritise their product roadmaps, so they can execute at speed.
One engagement that is public, and so can be shared, is our work with DTCC on their Collateral Appchain.
We supported DTCC in bringing that product-to-life for their clients through a flagship industry event — the Great Collateral Experiment.
We also partner closely with a lot of the key players in the DeFi ecosystem, whether distributed ledger technology (DLT) platforms, interoperability applications, stablecoin, and crypto firms. Here we offer high value to our clients by helping accelerate important partner selection decisions.
Something Tonic can offer any firm with is a free digital asset infoshare session. Here we informally walk through key market trends and insights, so companies have the understanding to make key early digital asset decisions.
Collateral management has emerged as one of the strongest tokenisation use cases in capital markets. Why has this area gained so much traction compared to other tokenised asset classes?
Steven Czarnota: Industry research has done a lot to bring this to life recently.
Firms have repeatedly evidenced significant savings tied to being overfunded across fragmented collateral venues, in some cases by as much as 25 per cent.
That makes it an easy use case for the market to rally around, because the business case is unambiguous.
Funding and optimisation algorithms can have limited impact, due to constraints across the underlying TradFi pipes that move collateral today.
Removing those frictions via DeFi solutions also opens up a wide set of sub-use cases, including mobilising new collateral types such as gold and money market funds, removing the double funding of substitutions, and enabling intraday collateral for real-time financing and central counterparty (CCP) collateral.
A large part of our advisory work with clients is identifying where, across that set, the greatest economic benefit sits for their specific book.
How closely connected is tokenised collateral to other developing areas such as digital money market funds, tokenised cash, and onchain liquidity solutions?
Czarnota: The core value proposition of tokenisation is asset mobility and liquidity, and the reason you move an asset is either a cash trade or to post as collateral.
So when any asset becomes mobile on DLT, collateral immediately comes into the picture.
A related prerequisite to building volume scale for digital collateral, is ensuring that both securities and cash movements are digitised within the same operating model.
For example, if you have a tokenised bond used in a repo transaction, you need a cash leg, which means you also need to think about what that tokenised cash leg looks like.
At that point the risk profile of a tokenised deposit versus a stablecoin becomes a first-order question. Similarly, as soon as a money market fund is tokenised, it is mobile and can be used for financing or posted against derivatives exposures.
Where is the market for tokenised collateral today in terms of adoption, transaction volumes, and real-world client demand? Which use cases are seeing the most momentum?
Czarnota: There is meaningful volume flowing today, and solutions such as Broadridge, HQLAX, and Kinexys have been in the market for some time.
Most of the use cases that have reached scale to-date have focused on solving intraday liquidity needs, through real-time repo products.
While hundreds of billions are flowing through these platforms each day, the broader, cross-product collateral market sits at around US$39 trillion, so tokenised collateral still represents only a small share of the total. Repo accounts for the bulk of that market, so it makes sense for the industry to have concentrated there, where the balances make the business case self-evident.
That said, the use case set is widening. Regulatory tailwinds mean firms are now comfortable operating in the uncleared space, and clearing houses themselves are beginning to accept tokenised forms of collateral.
Despite growing interest, large-scale adoption has remained relatively gradual. What do you see as the biggest barriers to scaling tokenised collateral volumes across the industry?
Czarnota: Legal and regulatory status has historically been a drag on design and delivery timelines, although most firms have now secured the legal confirmation that representing their own books and records on a DLT network is technology neutral.
The challenge is that digital collateral uptake has often played out so far within walled gardens and private DLT networks, which has held back critical mass.
Critical mass is the single most important factor for tokenised collateral, because the value only materialises when firms can reuse their assets across their breadth of counterparties and venues.
That makes interoperability the real enabler, and it is where the industry has the most work to do.
Today there are 70+ known DLT platforms in the financial markets, meaning that — in the rush to build suitable DeFi solutions — we have managed to re-create silos that risk acting as a blocker to scale.
Fortunately, specialist interoperability vendors are now acting as the glue that connects these platforms to create a single, unified collateral mobilisation network.
People and culture can also be considered a potential barrier to growth here. DLT and digital collateral solutions are being productionised right now and are becoming ready for mass usage.
However, inertia, education, and lack of strategy can be blockers across some segments of the market. Some parallels here to the relatively slow speed of AI roll-out across financial markets.
Looking ahead over the next two to three years, what developments do you think will be most important in accelerating adoption, whether through regulation, shorter settlement cycles, or increased market infrastructure interoperability?
Czarnota: Interoperability will be the single biggest accelerant over the next two to three years.
Firms are solving the connectivity problem in different ways, whether by connecting into common Layer 1s, wrapping tokens, or enabling direct integration between DLT networks.
As these approaches mature, they unlock the cross-network reuse of collateral that drives genuine scale.
Regulatory clarity is the second major tailwind. We are moving beyond DLT as a record-keeping layer toward truly digitally native assets, with the European Central Bank now accepting digitally native debt and US regulators encouraging CCPs to accept stablecoins and crypto with reasonable haircuts.
Shorter settlement cycles, demand for 24/7 trading and the continued build-out of market infrastructure will reinforce this trajectory, but interoperability and critical mass are the two factors most likely to move the dial on adoption.
As firms begin shaping their long-term digital collateral strategies, what key decisions are they currently facing, and what practical steps should institutions be taking now to prepare for this transition?
Czarnota: Firms sit at very different points on this journey.
Some technology providers have been active in the market for years, but because this part of the industry moves quickly, they are continually evolving their services in pursuit of scale.
A number of these firms built on infrastructure that is no longer current, and are now making important decisions about what will give them durable scale going forwards.
Firms newer to the market are focused on accelerated education.
This is often followed by which use cases will allow them to enter the game and start catching up with their peers as well as which solution providers they want to partner with.
What is becoming clear across both groups is that the industry is moving toward a network of networks.
The conclusion most firms reach, regardless of where they started, is that their target state needs to be clear and multichain.
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