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Tokenization: Bullsh*t Filtering

What do you need for any successful and scalable tokenization endeavour? Is it the team? Or is it the market condition? 

I used to think it was the team but more recently I have started to appreciate the enormous impact market conditions have on the outcome of a tokenization startup. Of course we need a competent team but as someone once told me “if you are too early to the market, it’s the same as being wrong.” 

In the early stages of any tokenization endeavour, I would argue the market condition comes first and then the team. So the all important question is how do you tell if the stars (market conditions + competent team) are aligned for a particular vertical? 

Drawing on my fintech go-to-market experience, I want to present a simple framework for gauging any tokenization effort’s effectiveness in this week’s newsletter. The framework I use is simple. It consists of three broad areas:

  1. Pain Point

  2. Solution Architecture 

  3. Governance and Operations

Let’s dig in.

Pain Point

There are many cases where entrepreneurs dream up “solutions” that supposedly disrupt incumbent businesses. That’s cool. But 99% of them burn through their cash pile and fail to find customers in time… 

Sure, if you are a VC, a single 1000x outcome makes up for 100 failed seed round checks. But we are not VCs here. If you are an operator in the space, your GTM approach shouldn’t be “hey I am trying a bunch of stuff to see if I can find that 1 in 100 miracle”. Your approach should ALWAYS start with a pain point from a customer in your target demographics. 

Let me emphasize this point. If a startup in this space fails to produce adequate evidence of engaging with target customers about the solution they are supposed to be building, run the other way. They are in the business of looking for a problem to solve instead of solving a customer’s pain point.

Of course, the traction could be slow. But the outcome of any client engagement must clearly demonstrate measurable benefits when we do a before vs after comparison. This forms the basis of any product pitch.

Another important thing to remember is a single client doesn’t make a market. Unless the startup has more than 4 years of runway, in which case they can be given more latitude when it comes to the speed at which they can close client engagement, I would ask for evidence that they can scale their BD pipeline to multiple clients. By this I do not mean having ethereal agreements after a call, I mean signed statements of work contracts.

Solution Architecture

Of course, startups with a rock star BD team may be able to pre-sell a vision and start architecting a solutions framework in parallel or after customers have committed. But that alone is not sufficient to signal the stars are aligned for this particular venture.

If a startup can sign up customers, it is imperative to understand exactly what their solution architecture is and the degree to which its operational process faces frictions and challenges.

Let me give you an example. Back in 2021, crypto-native tokenization projects saw the legendary up to the right growth trajectory in loan origination volume. Billions were pouring in from unsophisticated crypto retail and lent out to prop trading desks. The now defunct Genesis Trading were handing out $15 billion a quarter to juice up leverage in the system. You can read more on the details here

It seemed like a 0 to 1 moment. $4 billion of uncollateralized loans were given out to finance “delta neutral strategy” in a year. All of this sounded great. But a deeper level investigation would have revealed leaks that didn’t meet operational rigour of any standards.

Lax underwriting processes, unaudited financial documents, lack of covenants, lack of visibility of risk positions were all hidden away under the ballistic loan growth chart. The leaks and dangers in the system were all well hidden. If a startup’s growth chart is built on such an unstable foundation, it is more likely to blow up, especially the bigger it gets, than it is to scale up consistently. And of course, it all blew up when 3AC and FTX collapsed.

There is a fine line between the ephemeral illusion of traction and the long term sustainable growth scaling. To tell them apart, I like to break down a solution space into:

  • Blockchain Layer

  • Transaction Layer

  • Operational Layer

For the blockchain layer, it is important to understand:

  • what parts of participant’s existing process are being put onchain 

  • how are the records of transactions and ownership data originated and kept

  • how does the legal framework in the jurisdiction support or undermine this onchain setup

For the transaction layer, it is important to understand:

  • rules governing token minting, transferring and burning mechanisms

  • smart contract functionality and security assumptions

  • how various certification and valuation processes are executed onchain automatically or offchain by a third party

For the operational layer, it is important to understand:

  • who or how will offchain assets be valued, monitored and managed for onchain record keeping purposes

  • what are the rules for token custody and permissioning for token movements

  • what are the fallback options if any part of the process goes wrong

Governance and Operations

Having a functional product isn’t enough when it comes to tokenization. Once a project has demonstrated it can get customers for its solutions and that the solution actually works for its intended purpose, we still need to make sure that the solution is not only legal and regulatory compliant but there are processes in place to safeguard, scale and manage the operations.

Here are some questions I would ask:

  • Criteria for customer qualification

  • Payment currencies and any offchain banking linkage/reliance

  • Asset custody guideline

  • Process flowchart

Remember it is NOT enough that a startup has a well presented set of documents detailing their answers. The key is whether that set of processes is also backed up by signed contracts from paying customers.


Tokenization is an exciting space given its potential to significantly transform the financial system but it is also a space littered with jargons and impressive sounding marketing terms that do not have the equivalent backing in substance and track-record.

Separating chaff from grain is no easy task whether you are a VC, a financial institution or an operator. I came up with this framework because I, myself as an angel investor, an analyst and eventually an operator in the space, had to be able to tell how much BS was contained in a polished presentation.

I do not claim this is a definitive guide. But it is a general framework I use to assess to what degree any tokenization effort has traction or challenge. If you are a VC investing in the space, you can use them as a complement to your DD process. If you are a banking executive looking at solution providers, you can use them to separate the promising from the time-wasting. If you are a tokenization operator or entrepreneur, you can use them as a guide for measuring your own process.

Disclaimer: This content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.


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