Tokenizing real-world assets into digital forms is projected to unlock a significant total addressable market and provide substantial cost-saving opportunities. In the realm of financial services, a digital asset refers to a digital representation—or “digital twin”—of an underlying financial asset. These digital assets often take the shape of digital tokens, typically deployed on a blockchain or a similar distributed ledger technology (DLT). On such platforms, these tokens can be issued, distributed, and traded as financial instruments in a secondary market. AWS customers from various sectors are actively investigating how this technology can lower operational costs, create new markets, and foster innovative products with additional revenue streams. For a detailed introductory overview of tokenization, refer to this other blog post, Build a digital asset tokenization framework for financial services use cases using Amazon Managed Blockchain – Part 1.
In this scenario, a transfer agent oversees the issuance and distribution of digital tokens, ensuring that each token accurately reflects the value and rights associated with the underlying assets, while also keeping records of ownership and managing transactions. Digital asset custody involves the secure storage and management of these assets, which typically necessitates specialized infrastructure including secure storage solutions, private key management, and adherence to evolving regulations surrounding digital assets.
Often, third-party custodians or dedicated digital asset custody providers—such as banks, fintech firms, or tokenization solution providers like Fireblocks—handle custody, allowing transfer agents to concentrate on issuance and transfer business processes. This division of responsibilities ensures that digital asset custody is managed by entities equipped with the necessary security protocols, legal oversight, and technical expertise essential for safeguarding these assets.
Fireblocks is a robust platform that offers secure infrastructure for the movement, storage, and issuance of digital assets, enabling financial institutions, Web3 companies, and payment providers to scale their digital asset operations. The solution architecture discussed in this article strategically integrates Fireblocks’ security and token lifecycle management with various AWS services, ensuring end-to-end protection, scalable operations, and streamlined governance for a range of tokenization applications.
This architecture is not intended as a definitive implementation guide, as different institutional brokers may adapt their infrastructure according to their specific business and technical needs. Instead, the solution architecture serves as an illustrative example demonstrating how the existing technical framework of a financial services enterprise, such as a bank or an asset manager issuing a tokenized digital asset, can interface with a specialized ISV technology provider—like Fireblocks—via AWS to engage in an industry-wide tokenization network utilizing public distributed ledger technology.
The Tokenization Business Use Case
This use case centers on the tokenization of a financial asset sold by a financial institution, such as a hold managed by the bank, with fractional ownership being issued by the bank and traded by participants in the tokenization network. The tokens represent a claim on a portion of the underlying asset as held by the custodian bank. By digitizing fractional ownership into tokens on a decentralized record system, multiple organizations can engage in the lifecycle of the tokenized asset without intermediaries, thus reducing costs and enhancing efficiency. This use case is illustrated in the following diagram, which shows how a financial institution acting as a transfer agent platform provider can offer a cryptographically secure, peer-to-peer record of ownership and facilitate an electronic secondary market for trading these digital assets.
This conceptual implementation would empower a custodian institution acting as a transfer agent to issue, transfer, and redeem tokens on the decentralized network. The diagram depicts an overview of the participants involved in the digital asset tokenization lifecycle.
In this scenario, for simplicity, a single transfer agent manages both issuance and custody functions, which could represent the role of a global investment bank operating in capital markets. The architecture also illustrates how asset ownership records on a distributed ledger can be seamlessly integrated with traditional order systems within the enterprise’s core infrastructure.
For the purposes of this article and simplicity, we focus on the workflows of issuance, transfer, and redemption:
- Issuance – The process starts with issuing a new token to an identified potential owner, which involves verifying the customer for KYC (Know Your Customer) and AML (Anti-Money Laundering), setting the market price of the commodity, placing an order, and minting a new token to represent the new owner’s stake in the asset.
- Transfer – The ownership of the asset is passed from one owner to another, where both parties are known and validated by the issuer and the platform. The actual transfer occurs via smart contracts on the distributed ledger, with corresponding “off-ledger” records being updated following the confirmation of the ledger transaction.
- Redemption – To redeem their tokens, the holder starts a redemption transaction on the blockchain network, instructing the token issuer or a designated redemption mechanism to exchange the tokens for the underlying asset or service. Once redeemed, the tokens are typically removed from circulation or retired from the blockchain, using methods such as token burning.
Solution Architecture Overview
The following diagram illustrates a conceptual solution architecture that spans on-premises applications, AWS applications, and the Fireblocks platform. While only key functional aspects relevant to the core tokenization workflows of issuance, transfer, and redemption are highlighted, this architecture can be expanded to accommodate various other workflows. General infrastructure considerations such as high availability and disaster recovery, although crucial, are not elaborated upon in detail in this post. For more information on those topics, refer to the AWS Well-Architected Framework.
This solution architecture supports two primary functional workflows:
- Tokenization request flow: Deals with requests to perform a tokenization action.
- Tokenization response flow: Handles responses from executing the requested action.
These two workflows are described in detail in the subsequent sections, with references to the corresponding number icons on the architecture diagram.
The solution is crafted to accommodate a wide range of tokenization action requests initiated by existing mission-critical systems, such as order systems, liquidity feeds, KYC/AML, and regulatory reporting systems.
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