A website says its tokens are “100% backed by real assets”. Where are those assets, who holds them and how do we know? The token ledger and asset verification answer different questions.
After the tokenised building example, consider a fictional token linked to a metal inventory. The method also applies to other goods and financial instruments, using different documents.
Identify each responsible party
The issuer creates the token and makes the documented commitments. The physical custodian stores the metal. A verification provider may perform checks. A token custody provider, if used, controls digital access arrangements for its customer.
Several businesses may perform these roles, or one group may concentrate them. Naming them reveals dependencies. Holding a token’s key is not the same as holding the metal.
In our example, a wallet failure, warehouse problem and issuer default are different incidents. “Everything is on the blockchain” does not adequately address any of them.
Existence is not enough
Imagine a report stating that 100 bars were observed on one day. Questions remain: who owns them? Do they secure another debt? Do they cover all circulating tokens? Can collection rights be exercised?
The PCAOB Office of the Investor Advocate explains proof-of-reserve limitations. A snapshot of specified assets is not a full financial statement audit and may exclude liabilities or customer rights.
Start with scope: who checked what, when, using which procedures and with which limitations?
Match inventory with commitments
Suppose each token contractually corresponds to a defined unit of metal. The file should support comparing the available quantity, the quantity promised through tokens and other commitments affecting the inventory.
A public dashboard showing only tokens lacks half the picture. One showing only metal lacks the rights promised to holders. If the two figures come from different dates, the comparison should say so.
An oracle can make an update available to a program. It does not make the verifier all-knowing or replace physical and documentary checks.
Examine incidents before discussing guarantees
Any insurance has an insured party, scope, exclusions and limit. It does not mean every token holder automatically receives compensation for every loss. Read which event and beneficiary the policy covers.
Replacing a custodian, dealing with missing stock and submitting claims also need explanation. The BIS summary of tokenisation risks highlights operational vulnerabilities and the relationship with reference assets.
Check your understanding
A report establishes that a warehouse contained metal yesterday. Does it prove you can collect it tomorrow, free of charge and before every other creditor? No. Existence, competing commitments and collection conditions are separate checks.
Remember: useful evidence connects an identified asset, promised rights and commitments affecting those rights. A photograph or isolated balance is insufficient.