Tokenization: open or closed?
Canton Network and Ethereum serve different rails for RWA tokenization, but when does choice become a liquidity problem?
The usual answer in finance to an either-or question is ‘both’. That’s true of tokenization, where the action is gathering around two protocols, one that is designed for permissioned, club-like activity, and another that is public and open to all participants. Depending on the objective, a bank or asset manager can operate on Canton Network for a closed-door environment, or on Ethereum if they want to reach a far greater universe.
At some point, though, ‘both’ becomes hard to achieve.
Today more than $29 billion of real-world assets are deployed on-chain, according to rwa.xyz, with more than $15 billion of that distributed through Ethereum. That distribution represents asset value of $354 billion, of which $303 billion is stablecoins.
Ethereum’s position represents stock: the value of RWA represented on-chain. But when measuring flow, the cumulative notional value of transactions – use of collateral, secondary-trading volume, total settlement value – the clear winner now is Canton, which processed more than $6 trillion in RWA in 2025, mainly in repo and other wholesale flows.
This reflects how banks and asset managers are using these platforms.
Bifurcation
Ethereum and its competitors (Solana, a direct competitor, plus other chains that interoperate with Ethereum such as Avalanche, BNB Chain, and Polygon) provide transparency, reach, and composability of the token. They are important for distribution, investor access, and secondary-market liquidity.
Canton Network – and other permissioned distributed-ledger stacks such as Corda, Hyperledger Fabric and Enterprise Quorum – provide bilateral trust, regulatory comfort, and confidentiality. These are where banks go for dealer-to-dealer settlement, intraday collateral mobility, and internal treasury flows. Canton’s ‘killer app’ is processing Broadridge’s DLR, a platform for repo and securities financing among buy and sell sides.
In sum, one rail brings chaos, but the other brings opacity.
This bifurcation raises two questions for financial institutions. The first is that each rail by itself brings its own constraints: legal, operational, market structure. What happens when an institution hits a buffer?
The second question is how institutions will address the fragmentation of liquidity this brings. TradFi doesn’t have this division of activity into such distinct buckets. For now, tokenization markets are nascent. How big do they have to get before this divide becomes a constraint? How expensive will it be to manage separate liquidity pools?
It’s possible that this fragmentation problem will gradually solve itself. But today, moving assets between chains is expensive, adding up to 5 percent in cost, and creating pricing gaps between venues, which for now, arbitrage is unable to address.
Blockchain is touted as being efficient because traditional assets become cheaper and faster to issue, move, and pledge. Static holdings such as T-bills or money-market funds become programmable collateral. Composability makes it easy to offer such assets to new investors without reinventing compliance.
But at scale, this either/or problem would undermine any such efficiency gains. Do the Canton and Ethereum worlds converge – or harden into separate worlds?
Ethereum
That may depend on the flexibility of the contending platforms.
By the end of last year, regulators in major financial centers had turned Ethereum’s token an institutionally acceptable asset, thus making Ethereum the default public venue for tokenized RWAs.
Most use cases today involve tokenized funds and T-bills, stablecoin payments, and a few funky capital-markets products such as private credit and structured products. Every asset, every position, every transaction is globally auditable and visible to the network. Any wallet, custodian, or fintech can participate, negating new distribution costs. Tokenized assets are composable, meaning they can plug into lending markets, automated market makers, and other aspects of DeFi.
All of this has made institutions cautious about Ethereum and its ilk. DeFi means operational risk. The industry is rife with hacks and failed bridges (layer-2 chains). It’s still amateur hour at many of these projects.
Even with improved L2s and privacy tools such as zero-knowledge proofs, institutions can still end up revealing too much about their positions and flows.
And who do you call when le merde hits the fan? Ethereum is ‘run’ by a decentralized foundation.
Moreover its technical founder, Vitalik Buterin, is campaigning for the network to return to its cypherpunk roots, meaning its developers may lean harder into censorship resistance, privacy, and neutrality.
This would suggest Ethereum could become more like a public infrastructure that cannot be customized to enterprise preferences (such as whitelisting or access controls). This could also align with institutional interests, making it more auditable, better governed, more trustworthy, and inhospitable to the ‘number-go-up’ crowd. With the likes of Solana biting at its heels, such changes would probably be positive for financial institutions, but it would come with tradeoffs. And the uncertainty means institutions, while craving Ethereum’s public distribution and liquidity, will hesitate before putting their balance sheet on it.
Canton
This is why many leading institutions are piling into Canton. It takes away a lot of the problems of Ethereum. For wholesale markets, a club is better than a public market. It enables institutions to move tokenized collateral among trading books in privacy; and RWA tokenization stacks for issuance and settlement remain inside a bank’s private subnet, shielded from scrutiny. Activities such as repo can scale inside this shell, and avoid all the messiness of DeFi and engaging with smart contracts from anonymous parties.
But this comes at a price. The state of a token is not anchored to a public ledger via ZK proofs, which means no one can independently verify asset supplies, flows, or aggregate exposures. They only see what their counterparties choose to disclose.
One of the theoretical benefits of tokenization would be risk management: more visibility would make it difficult for an Archegos-type situation to develop. Archegos was a hedge fund that borrowed massively from multiple banks against the same collateral, and when it went under, it cost its prime brokers dearly. But in Canton, there isn’t the kind of transparency to mitigate this kind of counterparty risk.
One of the benefits of Canton is it’s a club. But a club means internal ‘super validators’ and other influential functions are controlled by a committee. Today this gives banks a sense of comfort. But over time can also give incumbents leverage over who else gets to join the club, potentially blocking new competitors.
And then there’s reach. Assets native to Canton can’t readily be used in DeFi, or held in the wallets used by smaller institutions or retail investors. A Canton participant can syndicate the economics off-chain, creating synthetic exposures, but this brings back the inefficiencies that tokenization is meant to smooth over.
For now, those problems are theoretical. The big banks, asset managers, and card processors are happy to be in their own club for wholesale instruments. But at some point, competitive pressures will make them want some of their tokenized assets to be discoverable, tradable, and collateralized in the broader on-chain world.
Come together?
Nobody wants an either/or. They want both. The rails themselves may evolve to address their limitations.
Canton could increase external, independent trust without sacrificing the privacy that institutions like. Perhaps it could allow cryptographic tools to provide aggregated data to public chains, or introduced tiered memberships that layer in degrees of technical participants. It could overhaul the rights to Canton’s native token. (One of the distinguishing features of Canton Network is that, while it’s a permissioned club, its governance token trades on public crypto exchanges.)
We’ve already noted the debate within Ethereum’s developer community about its direction. Its question is how to keep its robust verifiability while improving privacy.
Some of this is about operating standards for DeFi players, such as around security procedures, but this could go further, toward introducing legal concepts around on-chain fiduciaries. Ethererum could also take the lead on making ZK-based privacy pools make the jump from cool ideas to audited, regulator-understood products.
Its biggest challenge may be its own messaging. Vitalik Buterin doesn’t ‘run’ Ethereum, he’s just one influential voice among a coterie of developers. But the foundation may need to work on how to communicate with institutions (and their risk and audit committees) – not to centralize decisions, but to explain what is going on.
Institutions, meanwhile, will need to think about their own approach. They can’t assume these protocols will converge enough on their own, or that liquidity will cohere. But banks and asset managers that create their own bridges? That would be the ultimate advantage in tokenized assets.