The third architectural principle behind Canton is Tokenization.

Tokenization is often described as converting a database entry into a cryptographically signed digital record that can be exchanged electronically, but for financial instruments it needs to include much more than a record of ownership.

Bonds, equities, derivatives and structured products have terms, rights, obligations, lifecycle events, eligibility rules, settlement conditions and servicing requirements, while also involving issuers, investors, custodians, registrars, paying agents and settlement intermediaries.

A bearer token can make an asset transferable, but it does not remove the fragmentation when these functions remain spread across separate systems that still need to be reconciled.

In Canton Network, a Daml contract can represent the instrument, its current state and the relevant parties, while Daml choices define the actions that can be performed throughout its lifecycle, including issuance, transfer, settlement, payment, redemption and the exercise of rights.

Tokenization therefore becomes part of the operating model, allowing institutions to coordinate the full lifecycle of an asset through a shared process while retaining control over their own systems and data.