As Malaysia’s Securities Commission (SC) moves to modernise its capital markets for the digital era, two home-grown innovators—CoKeeps and Investhub—have stepped forward with a bold call: leapfrog the interim “digital twin” model and embrace fully on-chain tokenisation from day one.

Why Digital Twins Fall Short

The SC’s phased approach would initially anchor tokenised products to both on-chain tokens and parallel off-chain records (the “digital twin”). While familiar, this hybrid model:

• Adds complexity & cost by forcing constant reconciliation between two ledgers
  
  
  

• Exposes hidden risks when responsibilities blur between issuers, custodians, and technology providers (as seen in the Envion and Calidris token liquidations)
  
  
  

• Limits transparency for auditors and regulators juggling incompatible data sources
  
  
  

Advantages of a Fully On-Chain Framework

CoKeeps (Malaysia’s first licensed Digital Asset Custodian) and Investhub (a Liechtenstein-inspired tokenisation platform) argue that a native, on-chain model delivers:

1. Operational Efficiency
   
   
   

   • All transactions, ownership records, and corporate actions live on a single, public DLT—no dual ledgers to sync or manual spreadsheets to maintain .
     
     
     

2. Automated Accounting & Auditing
   
   
   

   • Smart contracts can trigger real-time accounting entries and token-based corporate actions. Auditors gain a single, immutable source of truth.
     
     
     

3. Stronger Investor Protection
   
   
   

   • On-chain proof of ownership eliminates vector for fraud or record-keeping errors. In liquidation scenarios, smart contracts can automate distributions directly to wallet addresses.
     
     
     

4. Cost Reduction
   
   
   

   • By removing off-chain processes—like paper confirmations or custody reconciliation—issuers and market operators can slash operational overhead.
     
     
     

Real-World Lessons: Case Studies

• Ferrari Token (CT1Investhubag.eth): When the issuer went bust, no one held the private keys—on-chain enforcement mechanisms were absent, stalling asset recovery.
  
  
  

• Envion Token: Liquidators still required wet-ink paperwork and manual bank payouts, costing millions in inefficiencies.
  
  
  

• Trada Token: A pure on-chain invoice-financing token settled seamlessly in USDC—contrast this with fiat settlements that pile on fees and delays.
  
  
  

Each case underscores how native tokens streamline lifecycle events—from issuance to secondary trading to wind-down—while hybrid twins leave gaping regulatory blind spots.

Key Recommendations for the SC

1. Fast-Track Native Token Framework
   
   
   

   • Define clear technical and operational standards (e.g., smart-contract audit requirements, disaster-recovery plans) tailored for on-chain capital market products.
     
     
     

2. Mandate Independent Custody
   
   
   

   • Require Recognised Market Operators (RMOs) to custody investor assets with regulated, third-party providers—drawing lessons from Bybit, FTX, and QuadrigaCX failures.
     
     
     

3. Adopt Global Best Practices
   
   
   

   • Leverage elements of the EU’s DORA and Liechtenstein’s FMA rules to craft a risk-based, on-chain resilience framework.
     
     
     

4. Streamline Regulatory Processes
   
   
   

   • Recognise smart-contract token allocations as legal delivery of capital; eliminate legacy paper confirmations for token-based capital increases.
     
     
     

By prioritising a fully on-chain approach, Malaysia can leap ahead—offering a clear, transparent, and cost-effective regime that aligns with global innovators and cements its position as a frontrunner in regulated digital finance.

This article is based on the joint comments submitted by CoKeeps and Investhub in response to Malaysia’s Public Consultation Paper No. 1/2025.