Why Interoperability Between RWA Token Standards Is a Myth

Interoperability is a marketing term for RWA tokenization. The reality is a landscape of competing, incompatible standards like ERC-1400, ERC-3643, and proprietary bank-led tokens that cannot natively communicate. Each creates a walled garden of liquidity.

Token standards define the prison. An asset tokenized on a permissioned chain like Provenance with its own standard is not fungible with a similar asset on Ethereum using ERC-3643. This legal and technical fragmentation defeats the core value proposition of blockchain: a single, global ledger.

Bridges are a symptom, not a cure. Projects like Axelar or LayerZero can move generic tokens, but they cannot reconcile the underlying legal rights and compliance logic embedded in different RWA standards. Bridging becomes a complex, custodial re-issuance process.

Evidence: The $1B+ tokenized U.S. Treasury market is split across at least six separate platforms (Ondo, Maple, Backed, etc.), each with distinct issuance rails and investor onboarding, proving the market consolidates on-chain infrastructure, not asset standards.

Legal primacy is non-negotiable. RWA tokenization's core value is legal enforceability, not programmability. A token representing a US Treasury bill on Ondo Finance must be legally distinct from a tokenized real estate deed on Provenance Blockchain. Forcing a single standard like ERC-3643 to represent both creates a legal abstraction that courts will not recognize.

Technical standards enforce fragmentation. The ERC-1400/ERC-3643 family embeds compliance logic (transfer restrictions, KYC) directly into the smart contract. This creates a walled garden of compliance that is intentionally incompatible with permissionless DeFi protocols like Uniswap or Aave. Interoperability would require stripping out the legal guardrails, defeating the purpose.

The bridge is a legal liability, not a technical one. Projects like Axelar or Wormhole can move bytes, but they cannot reconcile the off-chain legal frameworks that give those bytes value. Bridging a security token from a regulated chain to Ethereum Mainnet does not transfer its regulatory status, creating a compliance black hole.

Evidence: The market votes with silos. Major institutional platforms like Securitize and Maple Finance operate their own closed ecosystems. They prioritize legal certainty and regulatory approval over composability, proving that for RWAs, sovereignty trumps interoperability.

The standards are the silos. Protocols like Centrifuge's Tinlake and Maple Finance encode bespoke legal rights, redemption mechanics, and compliance checks directly into their contract logic. This creates non-fungible smart contract states that generic bridges like LayerZero or Axelar cannot interpret or transfer.

Composability requires fungibility. An ERC-20 is fungible because its contract logic is simple and universal. An RWA token's value is tied to off-chain legal claims and on-chain permissioning that breaks standard DeFi composability. You cannot pool a Centrifuge asset with a Maple loan in a Uniswap V3 pool.

Bridges transfer value, not rights. Infrastructure like Wormhole and Circle's CCTP excel at moving generic token balances. They fail to port the underlying legal entitlement and income streams, which are locked in the source chain's jurisdiction-specific smart contract. The asset arrives on the destination chain as a hollow shell.

Evidence: The total value locked (TVL) in cross-chain RWA protocols is negligible. Over 95% of RWA activity remains isolated on its native chain, proving that bridging infrastructure is irrelevant when the asset definition itself is non-portable.

Wrappers create synthetic liabilities. A token representing a Centrifuge TIN on Ethereum is a new derivative, not the original asset. This introduces counterparty risk with the wrapper custodian and severs the direct legal claim embedded in the native token standard.

Bridges are oracle problems. Protocols like LayerZero and Wormhole finalize transfers based on external validator sets. For RWAs, this means a bridge's security model, not the asset's legal framework, dictates settlement assurance, creating a dangerous trust mismatch.

Liquidity fragments across wrappers. Each bridge (e.g., Stargate for ERC-20s, Axelar for Cosmos) mints its own wrapped version. This replicates the original interoperability problem, scattering liquidity across non-fungible synthetic claims on the same underlying asset.

Evidence: The collapse of the Wormhole bridge in 2022 demonstrated that $325M in wrapped assets was instantly at risk, a systemic vulnerability impossible for regulated RWAs where legal title is paramount.

Regulatory arbitrage drives fragmentation. Jurisdictions like the EU, UK, and US will enforce incompatible legal frameworks for tokenized assets. A token compliant under MiCA will not be recognized under a US securities regime, creating sovereign legal silos.

Technical standards will diverge. The ERC-3643 standard for permissioned tokens and ERC-1400 for security tokens are architecturally incompatible. Protocols like Polymesh and Tokeny build entire ecosystems around their own compliance engines, not cross-chain bridges.

The bridge analogy is flawed. Interoperability tools like LayerZero or Axelar solve for asset transfer, not legal transfer. A bridged RWA token loses its on-chain compliance guarantees, rendering the transfer legally void.

Evidence: Look at TradFi. The DTCC in the US and Euroclear in Europe are technologically capable of linking but remain separate due to legal sovereignty. Tokenized RWAs replicate this model on-chain.