Learn how to tokenize assets like securities or cash and settle them directly on-chain using Ethereum-based protocols, as explored in the DTCC and JPMorgan pilot. This guide walks you through the practical steps.
Introduction: Why Tokenization and On-Chain Settlement Matter
Tokenization—the process of digitally representing real-world assets on a blockchain—is rapidly transforming how financial markets operate. As highlighted in the DTCC and JPMorgan pilot, institutions are now exploring on-chain asset settlement to reduce risk, increase speed, and improve transparency.
This guide will walk you through the process of tokenizing an asset—like cash or securities—and settling it on-chain using Ethereum. Whether you’re a fintech developer, startup founder, or blockchain enthusiast, this workflow can help you build compliant, real-world applications.
What You’ll Learn
- How to prepare a real-world asset (RWA) for tokenization
- How to mint your asset as an ERC-20 or ERC-1400 token
- How to facilitate atomic on-chain settlement using smart contracts
- How to implement a “reversible” transaction model (optional but relevant from the DTCC pilot)
Step 1: Choose the Right Token Standard
The first decision is selecting a token standard that matches your asset type and compliance needs.
For securities, use ERC-1400, which supports partitioned ownership and regulatory rules.
For stablecoins or cash tokens, ERC-20 is the standard, but consider ERC-Pay if you’re integrating payment logic.
Tools:
- Remix IDE – for deploying smart contracts
- OpenZeppelin Contracts – for secure, audited token implementations
Step 2: Define and Encode Ownership Rules
Before minting, define how ownership works. For example:
- Does the token grant dividend rights?
- Are investors KYC-verified?
- Can tokens be transferred freely or only to whitelisted wallets?
ERC-1400 allows you to encode this into the smart contract via validateTransfer() and partitioned balances.
Example: Use the CheckKYC modifier to restrict transfers only to approved users.
Step 3: Mint Tokens Representing the Asset
Once rules are in place, deploy your token contract and mint tokens corresponding to your real-world asset.
Example: Mint 1,000 tokens representing 1,000 shares of a private company.
function mint(address to, uint256 amount) public onlyOwner {
_mint(to, amount);
}Verify contract deployment using Etherscan.
Step 4: Integrate Stablecoin or CBDC Token for Cash Leg
For on-chain settlement, both parties must transact using on-chain cash. Options include:
- USDC / USDT: Widely accepted ERC-20 stablecoins
- JPM Coin: JPMorgan’s internal cash token
- Testnet option: Deploy your own demo stablecoin for sandboxing
Important: Make sure the buyer has enough stablecoins in their wallet for the trade.
Step 5: Execute Atomic Settlement via Smart Contract
Use an atomic swap contract to ensure both the asset and payment move at the same time—this is the on-chain equivalent of traditional settlement.
Basic Structure:
function atomicSwap(address buyer, address seller, uint256 assetAmount, uint256 cashAmount) public {
require(AssetToken.transferFrom(seller, buyer, assetAmount));
require(CashToken.transferFrom(buyer, seller, cashAmount));
}Test this using Hardhat or Truffle for local execution.
Step 6: Optional — Implement a Settlement ‘Undo’ Mechanism
As seen in the DTCC pilot, incorporating a reversible transaction feature can add compliance flexibility but may raise decentralization concerns.
Approach:
- Add a transaction buffer (e.g., 24 hours) before finality
- Use a multisig or oracle to approve/rollback during that window
Example:
modifier onlyDuringBuffer() {
require(block.timestamp < settlementTime + 1 days);
_;
}Use with caution, especially in DeFi contexts.
Step 7: Monitor and Audit the Settlement
Use tools like:
- Dune Analytics – for custom dashboards
- Tenderly – for transaction monitoring
- Sentry – for error tracking in dApp frontends
Ensure your system logs each step clearly and stores hashes on-chain for compliance and auditing.
Step 8: Stay Within Regulatory Guardrails
The CLARITY Act shows that legislation may lag behind innovation. However, regulators are paying close attention to DeFi and tokenized assets.
Best Practices:
- Implement KYC/AML upfront
- Log all compliance checkpoints on-chain using events
- Engage experienced legal counsel when tokenizing regulated assets
Conclusion: Real Settlement Is No Longer a Theory
As the DTCC and JPMorgan pilot shows, tokenized settlement is already moving from proof-of-concept to production. With Ethereum-based infrastructure and smart contract tools, you can build your own on-chain settlement system today.
Ready to build your tokenized workflow?
👉 Try Remix now and deploy your first token
Want to turn your dApp into a compliance-ready product?
👉 Leverage OpenZeppelin’s security libraries
