What are the risks of asset tokenisation?

Technology risk

Tokenised assets are governed by smart contracts, code that executes automatically on the blockchain. If that code contains a vulnerability, it can be exploited, potentially allowing unauthorised transfers or incorrect compliance enforcement. The severity of this risk depends heavily on the quality and auditability of the smart contract code underlying the platform.

Redbelly Network, on which Tokeniser is built, uses smart contracts that have been developed and audited with institutional-grade security standards. CSIRO and the University of Sydney contributed to the foundational research underlying Redbelly's consensus mechanism. However, no technology is risk-free, and fund managers should understand the smart contract audit history of any platform they use.

Regulatory risk

Australia's regulatory framework for tokenised assets has become significantly clearer following the Government's March 2025 Statement on Developing an Innovative Australian Digital Asset Industry and ASIC's participation in Project Acacia. The existing legal framework, including Corporations Act provisions for managed investment schemes and company registers, applies to tokenised equivalents.

However, regulation continues to evolve. Specific licensing requirements for digital asset platforms, rules around tokenised money and settlement finality, and international regulatory developments may impose new obligations on fund managers operating tokenised structures. Engaging specialist legal advice before tokenising is advisable.

Custody and key management risk

In traditional asset administration, ownership is recorded in a registry controlled by a professional administrator. If a certificate is lost or an account is compromised, recovery processes exist. In a tokenised model, ownership is recorded on-chain and associated with a cryptographic private key. If that key is lost or stolen, access to the associated tokens may be lost permanently, or, if stolen, the tokens may be transferred to an attacker.

Tokeniser addresses this through institutional custody solutions and recovery mechanisms that do not exist in purely self-custodial wallet models. Understanding the custody architecture of your chosen platform is essential before tokenising assets. See: What is self-custodial asset administration?

Liquidity risk

A common misconception about tokenised assets is that tokenisation creates liquidity. It does not, directly. What tokenisation does is remove the administrative friction from a transfer, making it technically possible to transfer a tokenised private asset in seconds rather than days. But a transfer can only occur if a willing buyer exists at an acceptable price.

For illiquid private assets, unlisted fund units, private equity interests, property fund units, the primary liquidity constraint is demand, not administration. Tokenisation addresses the administration constraint but not the demand constraint. Fund managers should not represent tokenised assets to investors as liquid simply because they can technically be transferred.

Migration and operational risk

Migrating an existing fund or company register onto tokenised infrastructure involves operational risk: errors in migrating holder data, failures in communicating the change to existing investors, and the risk of a gap in the register during transition. These risks are manageable with careful planning and professional advice, but they are real and should be factored into the decision to tokenise an existing register.

Putting risk in context

None of the risks described above are reasons to avoid tokenisation. They are reasons to choose the right platform, engage appropriate legal and compliance advice, and establish sound operational processes before and during tokenisation. Traditional asset administration carries its own risks, counterparty risk, manual error, reconciliation failures, and cyber exposure, which tokenisation can reduce. The question is not whether tokenised assets carry risk, but whether the risk profile is better or worse than the alternative.