Cutter Consulting Perspective: Tokenization is Driving a Fundamental Industry Shift

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In this Q&A with Billy Rogers, Front Office Consultant Principal, we explore how tokenization is reshaping market infrastructure and what investment managers should do to prepare.

Cutter Research: Let’s start with the topic of digital assets and tokenization in general. What is the most misunderstood aspect of tokenized assets among traditional financial institutions?

Billy: Most of the comments I hear from asset managers around tokenized or digital assets seem to focus on the underlying need (or lack thereof), the infrastructure (or lack thereof), and the regulatory framework (or lack thereof). While I believe these are the right areas to focus on, the misconception may be in the “or lack thereof” comments. The underlying needs are becoming increasingly obvious, the infrastructure is quickly being built out, and the regulators are working hard to adjust the current frameworks to accommodate.

With that in mind, we at Cutter feel that tokenization and digital assets truly represent the next fundamental operating model shift across our industry, with implications for custody, controls, data, intra-day liquidity, regulation, and integration with existing investment workflows. The opportunity is real, but firms need to treat it as an institutional market structure evolution, not a crypto side-project.

Cutter Research: Where should buy-side firms start if they want to evaluate tokenization seriously?

Billy: Start with the use case, not the technology. The key question is where tokenization can solve a real operational or investment problem, such as improving collateral mobility, expanding access to private markets, streamlining fund administration, fractionalizing assets, or reducing settlement friction.

From there, firms can assess the operating, risk, legal, and data implications before deciding whether the technology is ready for institutional scale.

Cutter Research: What will separate early movers from firms that remain on the sidelines?

Billy: I believe the early movers have already moved. Since at least 2017, we’ve seen various POC and MVP initiatives in the digital asset space, and large players such as J.P. Morgan have used tokenized frameworks for internal capital movements with much success.

We now see the shoots of those previous seeds spreading across the industry ecosystem, and I’d expect the conversation to turn from early-movers to fast-followers. Going forward, and with ledger/digital wallet capabilities being established within the underlying infrastructure, we believe the new wave of adopters will be those firms partnering with established industry participants, running controlled pilots with a clear aim to strengthen data and custody frameworks, and identifying where tokenized structures can create value for their firm. The winners will combine curiosity with institutional discipline.

Cutter Research: What is the biggest barrier to broader adoption?

Billy: The biggest barrier is not interest ─ it’s confidence. Buy-side firms need greater clarity around regulation, stronger market infrastructure, more consistent data standards, and trusted connectivity across custodians, platforms, and counterparties. Until those pieces mature and/or coalesce in some sort of “digital 40 Act” framework, adoption will continue to be selective and use case-driven rather than broad-based.

Cutter Research: How do you see traditional finance and DeFi infrastructure coming together to solve operational challenges?

Billy: The most compelling opportunities will come from combining the strengths of both models ─ the controls, governance, and regulatory discipline of traditional finance with the programmability, transparency, and automation of DeFi infrastructure, along with the ability to monitor and trade both traditional and digital assets seamlessly. That blend could help reduce reconciliation breaks, improve collateral movement, streamline and provide for ontological settlement, and create more efficient workflows across custodians, asset managers, and service providers. The goal is not to replace institutional infrastructure overnight, but to modernize those parts that are most manual, fragmented, or slow.

Cutter Research: How quickly do you expect tokenization to move into the mainstream?

Billy: It’s already underway. DTCC’s pilot program following the SEC’s No Action Letter, Nasdaq’s work in collateral management, SWIFT’s digital ledger initiative, Broadridge’s repo-market solution, and Talos’ partnerships with established market players all point to tokenization moving into real institutional infrastructure. These are just a few of the shoots that will soon start to permeate the financial landscape.

While I do not think adoption will happen all at once, it will gradually build around specific use cases where the economics and operational benefits are clear. Private markets, collateral, fund structures, and settlement are likely starting points. Over time, as standards improve and institutional infrastructure matures, tokenization will become less of a standalone topic and more of an embedded part of the investment operating model.

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