Why Physical Infra Needs Its Own Security Token Standard

ERC-20's fungibility and purely digital custody model is a mismatch for unique, physical collateral. This creates a legal and technical abstraction gap that undermines security.

• No native legal recourse for token holders against the underlying asset.
• Opaque off-chain dependencies on centralized custodians and oracles.
• Single points of failure where a custodian's bankruptcy voids the token's value.

A new primitive must encode legal rights and physical state directly into the token's logic, moving beyond simple balance accounting.

• On-chain legal frameworks like ERC-3643 or ERC-1400 for permissioned transfers and investor checks.
• Multi-signature custody proofs requiring consensus from independent, regulated entities.
• Slashing mechanisms that penalize custodians for proof-of-reserve failures or asset mismanagement.

Ondo's OUSG (tokenized US Treasuries) demonstrates the required architecture, acting as a de facto standard for others like Matrixdock and Backed Finance.

• Legal isolation via a dedicated SPV for bankruptcy remoteness.
• Professional custodian network (e.g., Bank of New York Mellon).
• Regular attestations from third-party auditors published on-chain.
• Permissioned transfers to comply with securities regulations.

Price feeds aren't enough. A physical asset standard requires proof-of-existence and proof-of-custody oracles that are economically aligned.

• EigenLayer AVSs like Lagrange or Hyperbolic for decentralized verification of real-world events.
• ZK-proofs of physical audits (e.g., RISC Zero) to cryptographically verify custodian reports.
• Staked oracle networks where data providers are slashed for submitting false attestations.

Protocols like Tangible and Centrifuge pioneer asset-specific vaults that bundle custody, valuation, and income distribution into a single primitive.

• Asset-native tokens (e.g., TNFTs for real estate) that represent direct ownership rights.
• Revenue auto-distribution via ERC-20 reward tokens streamed to holders.
• On-chain appraisal committees using delegated reputation to assess asset value.

Fragmented, ad-hoc solutions prevent composability and concentrate risk. The winning standard will be adopted by MakerDAO, Aave, and major custodians, becoming the base layer for trillions in asset tokenization.

• Composability unlocks liquidity: Standardized tokens become collateral across all DeFi.
• Security becomes programmable: Slashing, insurance, and dispute resolution are baked in.
• The alternative is systemic collapse: A single major custodian failure could cripple the entire RWA sector.

ERC-20 tokens are bearer instruments, but ownership of a power plant or fiber optic cable is defined by title registries and legal jurisdiction. Without a dedicated standard, token holders face irreconcilable legal ambiguity in enforcement and recovery.

• On-chain transfer ≠ legal title transfer
• Creates massive liability for issuers and investors
• Exposes projects to regulatory shutdown risk

Infrastructure assets generate operational data (energy output, bandwidth usage) and require off-chain actions (maintenance, compliance audits). Generic standards lack native hooks for oracle-attested performance and governance-triggered upkeep.

• No framework for Chainlink or Pyth-verified KPIs
• Revenue distributions are manual and opaque
• $10B+ RWAs are flying blind without live data feeds

Each jurisdiction has unique rules for securities and anti-money laundering. A generic token forces every project to rebuild KYC/AML and transfer logic from scratch, creating a compliance attack surface and hindering liquidity.

• No native investor accreditation checks
• Manual whitelisting destroys composability with Uniswap, Aave
• FATF Travel Rule compliance requires custom, brittle solutions

Without a universal standard, each infrastructure project creates its own tokenized walled garden. This kills the core Web3 value proposition of composable liquidity and prevents assets from moving across DeFi protocols like MakerDAO or cross-chain bridges like LayerZero.

• Assets cannot be used as collateral in money markets
• Zero network effects between infrastructure projects
• Reinvents the wheel of tokenized private equity failures

Physical assets require licensed custodians and regulated trustees. A standard ERC-20 in a self-custodied wallet breaks the legal chain of custody, invalidating insurance and violating securities law. The tech stack needs native multi-sig roles for operators, custodians, and investors.

• Self-custody voids most insurance policies
• No delineation between beneficial vs. legal ownership
• Creates a single point of failure for asset control

An ERC-20's supply is fixed, but infrastructure assets depreciate, require capex, and have variable revenue. Without a standard for tokenized cash flows, depreciation schedules, and capital call mechanisms, the on-chain representation becomes economically disconnected from reality.

• Token price diverges from Net Asset Value (NAV)
• No mechanism for funding $M+ maintenance events
• Destroys trust in the token-as-asset model