The Inheritance Test — Julian Gretzinger

The axiom

A wrapper inherits the properties of its underlying. It cannot bestow them.

Properties flow upward — from the underlying to the wrapper — and never the other way. A wrapper is correctly used when it organises, records, or grants access to properties the underlying already has. It is the wrong wrapper when it is chosen to manufacture a property the underlying lacks. The fallacy, in every era and every form, is the belief that the wrapper changes what is inside it.

One clarification the rest of the method depends on: identify the true underlying before testing anything. Where a structure pools many exposures, the pool itself is the underlying — and the pool genuinely has properties, such as diversification, that no single component has. Pooling does not bestow those properties downward onto a wrapper; it constitutes a new underlying that possesses them. A securitisation can create real diversification and still obey the axiom: the wrapper inherits from the pool, and the pool is the thing that was actually built.

Two families of wrapper

Wrappers do two different kinds of work, and conflating them is the commonest error in applying the test.

A packaging wrapper restructures the economics — it pools, tranches, or repackages exposures into a new instrument. Securitisations, structured notes, and tracker certificates are packaging wrappers. They can change the economic underlying, because a pool is not its components, and they are tested at Gate 1.

A registration wrapper changes only how ownership is recorded and how the instrument settles. Tokens, CSD book-entries, and manual registers are registration wrappers. They change settlement and the locus of ownership and nothing economic, and they are tested at Gate 3.

Most real instruments stack both. Run each layer against the gate that governs it. The in-rem question at Gate 2 applies to every layer.

Scope

The Inheritance Test diagnoses wrapper risk: whether the form of an instrument matches what it claims to deliver relative to its underlying. It does not diagnose operational, counterparty, or tenure risk in unwrapped direct ownership — cases where a holder takes direct title to a physical or economic asset with no packaging or registration wrapper interposed. A buyer who owns a plant, a building, or a farm outright faces real risks — the durability of a land lease, the identity and competence of an operator, the composition of a blended yield — that sit outside what the three gates are built to test.

Where no wrapper exists, Gates 2 and 3 return not applicable. The gap between what is marketed and what is actually delivered still deserves scrutiny in such cases, but it is a different diagnostic, not a verdict this framework should manufacture.

The principle: directional inheritance

Test the wrapper against what it promises. For each property it holds out — liquidity, a transformed risk profile, a price, ownership, finality — ask whether that property flows up from the true underlying, or whether the promise depends on something the underlying does not supply. Where the promise exceeds what can be inherited, the wrapper fails.

The corollary matters as much as the rule: a property the wrapper does not promise is not tested. The fallacy is the gap between claim and delivery; where there is no claim, there is no gap.

Establishing the facts

No verdict is possible without the structure. Before running the gates, establish: the instrument and its issuer; the property it is marketed as delivering; the legal chain from the holder to the asset; the governing law and jurisdiction; the settlement and registration mechanism; and the custody of any physical or off-chain underlying.

Where a material fact cannot be established or verified, the verdict is indeterminate, and the missing fact is named. A verdict is never manufactured from assumption. Establishing the structure is the work; guessing at it is malpractice.

The three gates

A structure is run through all three gates. Each names a distinct and separately remediable defect. But because an economic shortfall cannot be cured downstream, a Gate 1 failure decides the verdict on its own.

Gate 1 — Economic inheritance

Where the wrapper promises an economic property, can the true underlying supply it?

Liquidity. Depth the underlying lacks cannot be wrapped into existence. A venue is not a market; a listing is not liquidity. Distinguish inherited liquidity — deep, always-on, tied to the underlying — from provided liquidity: a counterparty’s balance sheet rented to the holder, finite, priced, discretionary, and withdrawn precisely under the stress in which it is needed. A liquidity with a nameable counterparty is credit, and credit is Gate 2’s problem — which is how you know Gate 1 did not actually pass.
Risk transformation. Genuine transformation requires a real pool doing real work across many names. A wrapper around a single exposure transforms nothing, whatever it is called.
Markability — the capacity to be reliably priced. A continuously priced wrapper on an underlying that cannot itself be priced promises a price it does not have.

A Gate 1 failure is dispositive against the claim-set under which it occurs.

Gate 2 — Legal inheritance (the in-rem gate)

Does holding the wrapper confer an enforceable property right in the underlying, or a contractual claim dressed as ownership? The gate tests creation, perfection, and enforcement — what survives the issuer’s insolvency. Two named sub-questions: is the underlying held segregated and traceable to the holder, or commingled in an omnibus pool; and does the holder’s position carry statutory protection and priority, or rank as an unsecured claim. A governing-law clause resolves the contractual question. It does not resolve the in-rem question.

Gate 3 — Jurisdictional realisation

Does the chosen registration layer actually deliver, under its governing law, the two things it can change: settlement finality, and a recognised locus of ownership? A valid settlement mechanism is not the same as legal recognition that the holder owns the asset rather than a claim on it.

The claim-conversion rule

Counting the layers between the holder and the asset is the crude form of the test. The precise form is this: trace the chain to the first point at which an ownership right becomes a contractual claim against an intermediary. Everything downstream of that point is creditor risk wearing the asset’s name.

One distinction keeps this rule from proving too much. Modern intermediated holding is deliberately a hybrid: the investor in a book-entry chain typically holds an entitlement or co-ownership share, not direct title — and also not a bare claim. The rule therefore distinguishes a protected entitlement — segregated from the intermediary’s own assets, traceable to the holder, and carrying statutory protection and priority in the intermediary’s insolvency — from an unsecured claim, which ranks with the intermediary’s general creditors. A protected entitlement is functionally ownership-grade and passes; an unsecured claim does not. The diagnostic is not whether an intermediary exists — it is what the holder’s position becomes when that intermediary fails.

A structure can have one layer and pass, if that layer is the asset’s recognised title. It can have two and fail, if the first interposition already converts ownership into an unsecured claim. The diagnostic is not how many boxes sit in the chain — it is where, if anywhere, ownership turns into a claim that does not survive insolvency.

The registration overlay

A registration wrapper — token, CSD entry, or manual register — changes exactly two things: the mechanics of settlement and transfer, and, where the governing law recognises it, the locus of ownership. It changes nothing economic. For token form specifically:

Tokenisation is the right wrapper when the binding constraint is settlement or ownership-locus.
It is the wrong wrapper when the binding constraint is liquidity, credit, or valuation — none of which a rail can supply.
It is the right wrapper in the wrong jurisdiction when used to carry ownership outside a regime that recognises the token as the asset.

The identical logic governs a CSD book-entry or a manual register. Economic claims belong to the packaging layer and are tested at Gate 1, never here.

The verdict

Verdicts are assigned against a claim-set. Every structure is run twice in principle: once against the claims as marketed, once against the claims an honest description would make. Where a structure fails the gates under its marketed claims but passes under honest ones, the defect is in the labelling, not the form — that is what right structure, wrong claim means, and it is why a Gate 1 failure against an inflated promise does not condemn a structure that never needed to make it.

Identify the binding constraint, run the gates, and reach one of five findings:

Right wrapper — the form matches the constraint and claims only what it delivers.
Wrong wrapper — the form promises a property the underlying cannot supply, under any honest description.
Right structure, wrong claim — the structure passes under an honest claim-set but fails under the marketed one, most often a claim sold as ownership. The remedy is disclosure, not redesign.
Right wrapper, wrong jurisdiction — the form is correct but sited where its law does not carry it.
Indeterminate — the structure cannot be established from the available facts.

Then prescribe the correct form. The prescription is the point: the test does not merely say no, it says which wrapper the structure should have used. Name the kind of fix: a disclosure change, a restructuring within the existing jurisdiction, or a form or jurisdiction change — the type of fix tells the reader whether the defect costs a sentence, a mandate, or a legislator.

Where the verdict depends on a condition that can change — a specific custody arrangement, a market maker’s continued willingness, a regulatory status, or a single counterparty’s solvency — name the condition and state what the verdict becomes if it fails. A pass that depends on something you can name is not the same as a pass that doesn’t, and the reader is owed the difference.

The wrapper inherits; it does not bestow. Tokenisation changes settlement and the locus of ownership — not liquidity, not credit, not price.

Worked cases

Each is analysis of publicly available material under the method above, as at the verification date stated. Structures change; figures are perishable; verify current terms before relying on any assessment.

Single-loan credit repack, CSD-listed note

Classical · packaging + registration

A single illiquid private loan repackaged as a note and listed in book-entry form. Gate 1: the listing implies a tradability the loan cannot support, and the loan cannot be independently marked; risk transformation is not claimed — a single name — so it is not tested. Gates 2–3: the book entry confers a protected entitlement — segregated, traceable, statutorily prioritised — and clean settlement.

Verdict: wrong wrapper — on the liquidity the listing implies. Sold honestly as an illiquid single-name note held to maturity, the form is not the problem; the promise is what fails, not the wrapper.

Tokenised forward revenue-share on a single foreign operation

Tokenised · four layers

A revenue-sharing token whose stated support is a usufruct over the future revenues of a single overseas operating asset, with a parallel ISIN wrapper. Chain: token → revenue claim on the issuer → usufruct over future revenues → asset operated by a subsidiary abroad — the first interposition already converts ownership into a claim. Gate 1 fails: no liquidity, no risk transformation, no independent mark. Gate 2: a contractual claim several layers from the asset. Gate 3: a validly constituted security — of a remote claim.

Verdict: wrong wrapper for the asset-backed framing it carries. Honestly described, it is a tokenised forward sale of future revenues, not an asset-backed instrument.

Tokenised single equity on a crypto exchange

Tokenised · two layers

A token tracking a single listed share, backed one-for-one by custodied shares, issued by an offshore vehicle and traded around the clock. Gate 1: liquidity is not inherited — redemption is gated to qualified investors — and off-hours trading prices the token when the market is closed. Gate 2: by the issuer’s own disclosure, the holder has no shareholder rights and no claim to the shares — a creditor claim, not equity. Gate 3: settlement is genuine; recognition that the token is the share is absent.

Verdict: right structure, wrong claim. Under the marketed claim-set — owning the share, trading it anytime — the structure fails Gates 1 and 2. Under an honest claim-set — a tokenised tracker on the share’s price, settled continuously — it passes. The remedy is disclosure.

Bank-issued tokenised collectibles under a recognising regime

Tokenised · one layer

A regulated bank tokenises collectibles its clients already own — for custody, transfer, and succession — under a law that lets the token carry the ownership right, with the bank as registered custodian. Gate 1: not stressed — it promises administration, not liquidity. Gate 2: passes — the token is constructed to be the title; transfer of the token transfers ownership. Gate 3: passes — it changes exactly the two things it can.

Verdict: right wrapper. Tokenised direct ownership — the structure that clears the in-rem gate, the form the wrong-wrapper cases were reaching for, and the counterpart to the private-company-share case below: the same ambition, carried by law here and dropped by it there.

Regulated e-money token

Tokenised claim · honestly labelled

A euro-denominated e-money token issued under an authorisation regime requiring segregated reserve assets, redemption at par on demand, and prudential supervision. Gate 1: not stressed — the token promises a stable claim redeemable at par, not exposure to an underlying market. Gate 2: the holder has a claim on the issuer — but that is what e-money is, definitionally and by disclosure; reserve segregation, custody rules, and redemption rights are legislated claim-hardening, statute making a claim as ownership-like as a claim can be made. Gate 3: token form delivers the settlement mechanics; the claim’s locus is the regulatory regime, honestly so.

Verdict: right wrapper. A claim, sold as a claim, hardened by statute. The instructive contrast is with the tokenised-equity case: the same in-rem substance earns opposite verdicts depending entirely on the honesty of the label and the statutory protection behind it.

Tokenised private-company share outside a recognising regime

Tokenised · jurisdictional

A token purporting to carry a share in a private limited company, competently built: honest economics, a clean chain, a real custodian, no inflated promise. Gate 1: not stressed. Gate 2: the intended construction is sound — the token is meant to be the share, not a claim on it. Gate 3: fails — the governing company law requires its own form for a share transfer (notarial deed or written assignment), so transferring the token transfers nothing; the “share token” is, in law, a side-agreement about a share whose actual transfer never occurred on-chain. The defect persists even in jurisdictions that have legislated for ledger-based securities where the statute covers bonds or fund units but not company shares.

Verdict: right wrapper, wrong jurisdiction. The one verdict private structuring cannot cure. A Gate 1 failure is fixed by honest design; a Gate 2 failure by better structure; a mislabelling by disclosure. This is fixed only by legislation — a law that lets the token carry the right. The pairing with the collectibles case is the point: the same ambition, token as title, with opposite outcomes, and the only variable is whether the law carries it.

Apply the Inheritance Test

The framework is also maintained as a forkable repository at github.com/juliangretzinger/inheritance-test. The framework runs as a procedure. The specification below is written to be pasted into an AI assistant — as a system prompt, a project instruction, or a style — so that it applies the test consistently, and returns indeterminate rather than a guess where the structure cannot be established. It is published under the same CC BY 4.0 licence.

Operating instruction v1.0

The Inheritance Test — Operating Instruction (v1.0)

ROLE
Apply the Inheritance Test to determine what the holder of a structured or tokenised instrument actually owns, and whether the wrapper is right for the instrument's binding constraint. Reason as an independent analyst of structures — never as a promoter, never as a critic of the people who built them. Produce a verdict under the fixed schema below.

SCOPE
This instruction governs wrapper risk only: whether an instrument's form matches what it claims to deliver relative to its underlying. It does not cover operational, counterparty, tenure, tax, or general investment risk — including in unwrapped direct-ownership assets (a physical plant, building, or farm held outright with no wrapper interposed). Where no wrapper is present, Gate 2 and Gate 3 return N/A; do not manufacture a verdict outside this scope. If asked to assess those other risks, say plainly that this is a separate analysis outside the Inheritance Test, and invite a distinct prompt for it.

NON-NEGOTIABLE RULES
1. Test against the promise. Assess each property only where the instrument claims it. A property not promised is not a failure. Verdicts are assigned against a claim-set: run the gates against the claims as marketed and against the claims an honest description would make. Fails-as-marketed but passes-as-honest = RIGHT STRUCTURE, WRONG CLAIM (a labelling defect, not a form defect).
2. Establish the facts first; never invent structure. If a material fact (legal chain, governing law, custody, marketed claim) cannot be established or verified, return INDETERMINATE and name what is missing. A confident verdict on an unverified structure is always wrong.
3. Verify where you can. If tools are available, confirm the structure from primary sources before judging. State the assessment date and whether each fact is verified, stated, or assumed.
4. Assess structures, not people. Frame findings as "as marketed" vs "as structured." Do not impute fraud, bad faith, or intent.
5. Identify the true underlying. Where exposures are pooled, the pool is the underlying. Pooling constitutes a new underlying; it does not bestow properties downward.
6. Separate the two wrapper families. Packaging wrappers (securitisation, note, certificate) restructure economics -> Gate 1. Registration wrappers (token, CSD, register) change settlement and ownership-locus -> Gate 3. Gate 2 (in-rem) applies to every layer.
7. Distinguish protected entitlement from unsecured claim. Intermediated holding is a hybrid, not a failure. Segregated from the intermediary's own assets, traceable to the holder, statutorily protected and prioritised in the intermediary's insolvency = protected entitlement, passes Gate 2. Ranking with general creditors = unsecured claim, fails. The diagnostic is what the holder's position becomes when the intermediary fails, not whether an intermediary exists.
8. Distinguish inherited from provided liquidity. Inherited = deep, always-on, tied to the underlying. Provided = a counterparty's balance sheet rented to the holder: finite, priced, discretionary, withdrawn under stress. Provided liquidity does not make Gate 1 pass; a liquidity with a nameable counterparty is credit (Gate 2's problem).

INPUTS REQUIRED (request or flag any that are missing; do not assume)
- instrument and issuer
- the marketed claim (property the instrument holds out)
- the legal chain from holder to asset
- governing law and jurisdiction
- settlement and registration mechanism
- custody of any physical/off-chain underlying

PROCEDURE
1. Establish the facts. If key facts are unavailable and unverifiable -> INDETERMINATE, name the gaps, stop.
2. Identify the true underlying and the binding constraint.
3. Trace the chain; mark the claim-conversion point (first layer where ownership becomes a claim). Everything downstream is creditor risk.
4. Run the gates, testing each property only where promised:
Gate 1 (economic): liquidity, risk transformation, markability. A Gate 1 failure is dispositive.
Gate 2 (legal/in-rem): ownership or claim? creation, perfection, enforcement, insolvency.
Gate 3 (jurisdictional): settlement finality and recognised ownership-locus under governing law.
5. Assign a verdict from the taxonomy.
6. Prescribe the correct form.

VERDICT TAXONOMY (choose exactly one)
- RIGHT WRAPPER
- WRONG WRAPPER
- RIGHT STRUCTURE, WRONG CLAIM (mislabelled)
- RIGHT WRAPPER, WRONG JURISDICTION
- INDETERMINATE (structure not established)

OUTPUT SCHEMA (state nothing not supported by an established fact)
Instrument: [name / description]
Assessment date: [date] — Facts: [verified / stated / unverified]
True underlying:
Binding constraint:
Chain & claim-conversion point:
Gate 1 — economic: PASS / FAIL / N/A — [one line]
Gate 2 — legal/in-rem: PASS / FAIL — [one line]
Gate 3 — jurisdictional: PASS / FAIL — [one line]
Verdict: [one taxonomy value]
What the holder actually owns: [one sentence]
Prescription: [correct form, or the disclosure fix. Name the kind of fix: disclosure change / restructuring within jurisdiction / form or jurisdiction change. The fix type tells the reader whether they need a sentence, a mandate, or a legislator.]
Confidence & caveats: [verified vs assumed; what fact would change the verdict. Where the verdict depends on a changeable condition (custody, market maker, regulatory status, counterparty solvency), name it and state what the verdict becomes if it fails.]

STANDING
An opinion under a published method, from stated facts at the assessment date. Not investment, legal, or tax advice; not a rating; not a recommendation. Verify current terms before reliance.

Applies the Inheritance Test (v1.0) by Julian Gretzinger, CC BY 4.0, juliangretzinger.com/inheritance-test.html

Origin and licence

The test grew out of the Wrapper Fallacy essays and a question that kept recurring in structuring work: before liquidity, before yield, before the rail — what does the holder actually own when the structure is tested? The same question was being answered from scratch, deal by deal. So it was formalised: three gates, a fixed taxonomy, a procedure anyone can run. It was written down in mid-2026 alongside a response to the European Commission’s review of the crypto-asset framework, and continues a line of argument on token property law that began with a submission to the same institution in 2020.

It is published as an open standard — CC BY, deliberately not trademarked — because a diagnostic is only useful if anyone can apply it, and because the questions it asks should not have an owner. Attribution is the only condition. The method is free; the judgement in hard cases remains, as it always was, the practitioner’s. The vocabulary the test reasons in is defined in the Glossary.

Method notes

Versioning. This methodology is versioned; assessments cite the version under which they were made. This is version 1.0.
Scope of originality. This framework does not claim to originate look-through analysis, which has clear antecedents in structured finance and property law. What it offers is a named, portable diagnostic — a specific vocabulary, gate structure, and verdict taxonomy — not previously formalised in this form.
Standing. Each assessment is an opinion reached under this method, from material available at its verification date. It is not a rating, not advice, and not a recommendation to buy, sell, or hold.
Facts before verdict. No assessment is valid on an unestablished structure. Where a material fact cannot be verified, the verdict is indeterminate, and the gap is named.
Independence and disclosure. Assessments carry a conflict-disclosure flag. Where the author has, or may acquire, an interest in an assessed structure or a competing one, the matter is disclosed and, where independence cannot be preserved, recused. The governing conflicts policy is published separately.
Right of reply. Issuers of named structures may submit a response for publication alongside an assessment.
Licence. Published under a Creative Commons Attribution 4.0 International licence (CC BY 4.0). Anyone may use, adapt, and build on this method, for any purpose including commercial, provided the Inheritance Test and its author are credited.
Citation. Julian Gretzinger, The Inheritance Test, version 1.0 (2026), juliangretzinger.com/inheritance-test.html.