CIP-56: Redefining Token Standards for Institutional DeFi

In December 2025, Tradeweb executed a landmark series of on-chain U.S. Treasury repo transactions on Canton Network, marking a significant moment for institutional blockchain adoption. These weren't proof-of-concept demonstrations like previous blockchain transactions, but rather represented real capital, real counterparties, and real settlement finality. At the core of this achievement lies Canton Improvement Proposal 56 (CIP-56), a Canton Network token standard that is rapidly emerging as the counterpart to Ethereum's ERC-20.

This article examines CIP-56’s technical design and explains how it addresses limitations that have historically prevented regulated institutions from adopting traditional token standards. It also offers a practical lens for builders: CertiK has audited Circle’s USDC bridge and USDCx, a CIP-56-compliant token deployment on Canton, giving our security team hands-on exposure to how institutional-grade assets are implemented and validated on this network.

Background

The Canton Network is a privacy-preserving blockchain platform built for institutional finance, operating as a “network of networks” that connects multiple private ledgers into a unified global system. Unlike public blockchains, where every node replicates the entire ledger, Canton enforces selective data sharing: each participant sees only the contracts to which they are privy, yet a global synchronizer ensures all parties share a consistent view of any common assets. This architecture enables Canton to quietly support over $280 billion in average daily on-chain repo transactions and $6 trillion in tokenized assets for major financial institutions. In short, Canton aims to deliver the composability of DeFi while meeting the privacy, compliance, and operational requirements of regulated markets.

As Canton expanded to support multiple digital assets, early token implementations lacked a consistent interface for representing balances or performing transfers. Different assets introduced their own token logic and interaction patterns. For wallets and applications, that meant repeated integration work: each new token could require asset-specific code just to support basic functions like balance display, transfers, and user-facing behavior.

A second challenge emerged around multi-asset settlement workflows that must resolve as a single outcome. Institutional use cases, such as delivery-versus-payment (DvP), require both legs of a transaction to complete together or not complete at all. Without common token interfaces, implementing atomic coordination can become customized across different asset combinations, and maintenance complexity grows rapidly as the asset universe expands.

Finally, institutional adoption brings operating requirements that many public-chain token patterns do not address by default. Regulated instruments can also require transfer restrictions, screening controls, and auditability. When each token implements these features differently, consistent enforcement becomes difficult, and the risk of integration mistakes rises.

CIP-56 addresses these challenges by standardizing token interfaces and APIs, making tokens broadly compatible with wallets and applications while reducing the need for token-by-token integration. Importantly, CIP-56 is positioned as an interface layer: it can support different token designs under a shared interaction model, including standardized participation for the native token.

CIP-56 Architecture: A Technical Deep Dive

1. Standardized Token Interface

CIP-56 exposes a fixed set of six APIs that standardize how Canton applications and wallets interact with fungible assets. This standardization unlocked two critical innovations that reshaped the Canton Network token ecosystem: universal wallet compatibility and atomic multi-asset composability.

Universal Wallet Compatibility

Before CIP-56, wallets like Dfns needed custom integrations for each asset. A wallet supporting Canton Coin couldn't automatically display CBTC or SBC holdings without additional development.

CIP-56 introduced standardized interfaces that all tokens implement:

• holdings API: Wallets can query holdings across all CIP-56 tokens using the same Holding interface
• transfer instruction API: A uniform transfer workflow regardless of the underlying asset
• token metadata API: A standardized access to token symbols, decimals, issuer information, and total supply

This meant that when wallets completed their CIP-56 integration, they could support not only Canton Coin but also any CIP-56-compliant token through a single implementation, thereby dramatically reducing ongoing integration overhead.

Atomic Multi-Asset Composability

Perhaps CIP-56’s most meaningful contribution is enabling atomic cross-token workflows via standardized interfaces. Before CIP-56:

• swapping Canton Coin for CBTC typically required custom smart contract logic;
• DvP settlements (exchanging securities for cash) required bespoke integration between each asset pair;
• and applications couldn't rely on uniform APIs to orchestrate multi-leg transactions.

CIP-56 solved this through standardized allocation APIs:

• allocation Request API: Applications can request tokens from wallets in a uniform way
• allocation API: Registries provide tokens for settlement workflows using standard interfaces
• allocation instruction API: Wallets can create token allocations in a consistent, standardized format

The proof came in October 2025, when CantonSwap executed the first atomic swap between Canton Coin and CBTC, two different tokens issued by different issuers, using only the CIP-56 standard interfaces and without requiring custom integration between the assets.

2. Multi-Step Transfer Protocol

A core architectural choice in CIP-56 is to adopt an Offer-Accept model to replace the push-transfer model. In this design, the sender first creates a transfer offer contract that specifies the recipient identifier and transfer amount. The recipient must then explicitly accept the offer for the transfer to complete. If the offer is not accepted within a defined timeframe, it expires automatically.

This mechanism provides recipients stronger control over what enters their wallet and helps prevent unwanted inbound transfers, including malicious airdrops of unregistered assets. Additionally, this design allows necessary compliance checks to be completed before the asset transfer becomes effective.

3. Compliance as Code and Real-Time Verification

CIP-56 is unique for its ability to embed regulatory policy directly into token transfer logic. This ensures that compliance checks are atomic with the transfer, reducing time-of-check-to-time-of-use risks that can arise in off-chain workflows.

The protocol allows issuers to require specific digital certifications for transfers to succeed. These certifications may include KYC levels, jurisdictional eligibility, or accredited investor status. During a transfer, a compliance oracle can perform real-time screening against both the sender and the receiver. If any required certification has expired or if the sanctions check returns a negative result, the entire transaction terminates immediately. Crucially, these rules remain enforced even when tokens move through third-party applications, and the audit trail for transfers remains cryptographically provable.

4. Atomic Multi-Asset Composability

By leveraging Canton’s global synchronizer, CIP-56 natively supports atomic settlement across different assets. This allows complex business workflows, such as the exchange of bonds for cash between different issuers, that can be bundled into a single transaction.

This capability was validated in the October 2025 CantonSwap case, where an atomic swap between Canton Coin and Bitcoin tokens was achieved. Because the protocol ensures that either all token contracts are updated or none are, settlement risk is eliminated at the protocol level. If any leg of a multi-asset swap fails or is rejected, the entire transaction rolls back.

5. Dynamic Authorization and Custody

To meet institutional requirements, CIP-56 introduces a sophisticated delegation model through limited custody authority. Instead of relying on permanent approvals, the model emphasizes explicit, time-limited delegations that allow custodians to act on behalf of clients within strictly defined parameters.

Institutions can enforce controls such as maximum transfer amounts, time windows, and whitelisted recipient lists. As a result, even if a custodian system is compromised, an attacker cannot exceed the scope of authority granted by the client. Clients maintain ultimate control and can revoke these delegations at any time. This model provides a significant security improvement over traditional custody, where a compromise often results in the total loss of client assets.

6. Privacy Preserving Off Ledger APIs

CIP-56 also adopts an off-Ledger API model for sensitive data queries to support institutional privacy requirements. Registries can provide holdings queries and total supply reports via REST APIs rather than publishing these values to a globally visible ledger.

This approach avoids the transparency default found in many public-chain systems, where any observer can scan the full ledger history to view account balances. By providing wallets with accurate circulation data through secure APIs, CIP-56 can support data governance requirements without compromising the privacy of individual holders.

Comparison to ERC-20

While CIP-56 draws on the conceptual foundations of Ethereum’s ERC-20 standard, it introduces fundamental architectural changes to meet the demands of regulated financial markets. The primary distinction is that CIP-56 replaces Ethereum's public, anonymous model with a privacy-first, identity-centric framework on the Canton Network.

1. Privacy and Data Governance

The most striking difference between the two standards is the level of data visibility. ERC-20 tokens operate on a fully transparent ledger where all balances and transactions are visible to anyone monitoring the chain. In contrast, CIP-56 runs on Canton’s permissioned and privacy-first ledger, where token data is compartmentalized so that only the relevant parties to a transaction can view associated balances and movements. By utilizing cryptographic enforcement of visibility rules, institutions can manage tokenized bonds or other assets without leaking competitive or strategy-sensitive information to the broader market.

2. Identity and Protocol-Level Compliance

ERC-20 has no native concept of real-world identity: any Ethereum address can hold or transfer tokens unless restrictions are custom-built into each contract. CIP-56 is built on the foundation of Canton’s identity-verified network, where every participant is a known legal entity identified by a Daml party identity. This identity-aware design enables CIP-56 to standardize permissions and compliance hooks at the protocol level.

While an ERC-20 token might attempt compliance by checking a simple blacklist, CIP-56 formalizes these controls through standard hooks and roles. These include dedicated regulator roles that can halt transfers or ensure that assets only flow between KYC-approved entities. These controls are integrated into the core interaction model, reducing the likelihood that compliance can be bypassed through inconsistent implementations.

3. Bilateral Transfer Mechanics

The transfer mechanics also differ substantially. ERC-20 uses a push-only model, where a sender initiates a transfer and tokens are transferred instantly to a recipient without their prior consent. While simple, this model can lead to issues such as token spam or the receipt of unwanted assets.

CIP-56 standardizes two-step transfers using an offer-and-acceptance protocol. This aligns with institutional workflows in which both parties must agree to a transaction, such as the delivery of a security against a payment. While bilateral acceptance introduces coordination requirements, Canton Network mitigates friction through automation, like the pre-approval mechanisms, preserving efficiency while increasing safety.

4. Native Atomic Settlement

ERC-20 does not natively support cross-contract coordination, so atomic swaps on Ethereum typically rely on additional smart contracts or external DEX infrastructure. Those add-ons can expand the attack surface and introduce custom-logic vulnerabilities. CIP-56 explicitly supports atomic DvP within its scope by leveraging Canton’s native transaction protocol. The 2025 October CantonSwap transactions demonstrated an atomic swap between Canton Coin and CBTC using only standard interfaces. Because settlement is all-or-nothing across legs, institutions can reduce settlement risk without relying on a central counterparty.

5. Finality and Operational Predictability

Platform-level differences also affect how these token standards perform in practice. ERC-20 transactions are subject to variable network fees and probabilistic finality, which requires waiting for multiple block confirmations. Canton provides fast and deterministic finality, which typically occurs within two to five seconds. This speed allows CIP-56 tokens to behave more like traditional financial infrastructure, where transfers are considered final and irreversible almost immediately. Additionally, the lack of unpredictable gas fees makes CIP-56 more suitable for high-volume institutional applications that require cost certainty.

Real-World Implementation: USDCx and Private Institutional Settlement

The launch of USDCx in late 2025 marks a critical milestone in institutional adoption of digital assets. By integrating the liquidity of a leading regulated stablecoin with the privacy features of the Canton Network, this deployment provides a practical validation of the CIP-56 framework.

1. Integration of Global Liquidity with Private Infrastructure

USDCx functions as a privacy-preserving wrapper for native USDC, allowing it to move seamlessly across the Canton Network while adhering to strict confidentiality requirements. Unlike the transparent ERC-20 model on public blockchains, USDCx uses the CIP-56 standard to ensure that transaction details and balances are visible only to the involved parties and authorized regulators. This integration allows financial institutions to use the world's most liquid stablecoin for settlement without exposing sensitive proprietary data or trading strategies to the broader market.

2. Architectural Validation via CIP-56

The implementation of USDCx relies on the standardized interfaces and security protocols established by CIP-56. Specifically, it employs the offer-and-acceptance protocol to execute transfers, eliminating the security risks associated with the traditional allowance-and-approval patterns used in older token standards. By using the CIP-56 Holdings API and the Transfer Instruction API, USDCx supports complex and atomic workflows, including Delivery vs. Payment. This ensures that assets like tokenized bonds or commercial paper can be exchanged for cash with deterministic finality and without the risk of settlement failure.

3. Security Collaboration and Protocol Governance

A defining feature of the USDCx rollout is its emphasis on security and rigorous technical validation. CertiK has audited Circle’s USDC bridge and the USDCx deployment on Canton, both of which follow CIP-56-compliant interfaces. These reviews help ensure that standardized token templates are implemented safely and that cross-domain asset movement maintains integrity under adversarial conditions. For institutional users, this type of third-party assurance is essential: it reduces reliance on unverified custom logic and supports a higher trust baseline for regulated deployments.

4. Implications for On-Chain Capital Markets

The success of USDCx serves as a technical blueprint for the future of regulated stablecoins and settlement assets on privacy-preserving networks. It demonstrates that the Canton Network can support high-velocity financial assets while providing the data governance and regulatory compliance that traditional capital markets demand. This deployment also significantly lowers the barrier for other asset issuers to enter the ecosystem, as they can now leverage a proven, secure tokenization standard. Ultimately, the presence of a private, composable settlement asset like USDCx accelerates the transition toward a global financial infrastructure in which all transactions are atomic, private, and compliant by default.

Conclusion

CIP-56 constitutes a meaningful advancement in token standardization by integrating the programmable flexibility of DeFi with the oversight, privacy, and operational controls required by institutional systems. This framework effectively addresses the historical limitations of public blockchain models by embedding privacy and identity at the protocol level. Such architectural foresight ensures that digital assets retain their necessary regulatory context throughout their entire lifecycle. The result is a token framework that can support substantial value transfer while maintaining confidentiality and systematic enforcement of policy.

From a practical engineering perspective, CIP-56 reduces integration friction and mitigates systemic risks associated with legacy approval models and multi-step settlement. Evidence from Canton’s growing production activity suggests that the architecture can support high-volume financial flows while enabling atomic settlement and granular transaction privacy. Just as importantly, a standardized interface lowers the technical and compliance barriers that previously made institutional adoption costly and error-prone.

Looking ahead, CIP-56’s trajectory will likely be shaped by ecosystem expansion, interoperability, and continued alignment with evolving regulatory regimes. Forthcoming enhancements, including formal verification and privacy-preserving analytics, will further strengthen the platform's security and usability for international participants. For teams building on Canton Network, CIP-56 offers a clear blueprint for moving from ERC-20-style thinking to an institutional-grade token model. As the network matures, CIP-56 will continue to serve as the definitive foundation for a new financial paradigm in which markets operate continuously, and assets are interoperable by default.

For projects preparing to issue tokens, develop DeFi applications, or bridge assets into Canton Network, partnering early with experienced auditors, such as CertiK, can significantly lower risk and accelerate enterprise readiness.