Banks Drive For years, it have been touting the potential of “tokenising” assets like bonds and currencies. By leveraging blockchain technology, they aim to make trading more efficient, faster, and cheaper. However, the transition to blockchain-based trading is proving to be slower than anticipated, with some investors expressing caution. This article delves into the current state of asset tokenisation, the challenges faced, and the outlook for the future.
What is Asset Tokenisation?
Definition and Concept
Asset tokenisation involves creating blockchain-based tokens to represent holdings of mainstream assets such as currencies or bonds. This process aims to streamline trading, enhance efficiency, reduce costs, and simplify the tracking of ownership.
Potential Benefits
- Efficiency: Faster settlement times and reduced paperwork.
- Cost Reduction: Lower transaction fees and operational costs.
- Transparency: Improved tracking and recording of asset ownership.
- Accessibility: Easier access to a wider range of investors.
Current State of Tokenisation
Industry Predictions
Consultants and digital asset executives predict a significant proportion of the world’s assets will be tokenised via blockchain. HSBC and Northern Trust projected that 5% to 10% of all assets could be tokenised by 2030.
Slow Progress
Despite these optimistic predictions, the shift to digital versions of assets has been sluggish. At the Money20/20 fintech conference, executives highlighted the slower-than-expected pace of adoption.
Experimental Projects
Various experimental projects, such as blockchain-based bonds, have been initiated. However, these projects often lack a liquid secondary market, which is crucial for widespread adoption.
Challenges Facing Tokenisation
Lack of Standardization
One major hurdle is the lack of standardization across different platforms. Banks are often working on their own networks, making cross-platform trading difficult.
Market Fragmentation
“Fragmentation slows down adoption, as investors don’t want to connect to dozens of different networks,” said Julien Clausse, head of BNP Paribas’ digital asset platform AssetFoundry.
Regulatory Concerns
Regulatory uncertainty and differing regulations across regions pose significant challenges. Banks and financial institutions must navigate complex legal landscapes to ensure compliance.
Technical and Operational Issues
Implementing blockchain technology requires significant changes to existing systems and processes. Australia’s stock exchange, for instance, spent seven years attempting to re-build its software platform around blockchain before pausing the project.
Industry Insights
Citibank’s Perspective
Ryan Rugg, Head of Digital Assets for Citibank’s trade and treasury solutions business, noted that while there have been experiments with money markets and bonds, scalable live applications are still limited.
Ripple’s Experience
Monica Long, president of U.S. crypto firm Ripple, mentioned that many U.S. Banks Drive have “put digital asset services a bit on hold.” Despite this, Ripple’s acquisition of crypto custody firm Metaco and a partnership with HSBC show promise.
Future Outlook
Hybrid Models
According to Julien Clausse, the industry is likely to operate in a hybrid world for years to come. Some domains will actively embrace tokenisation due to its perceived benefits, while others will stick to traditional methods.
Continued Development
Despite the slow progress, the push for tokenisation continues. As technological, regulatory, and operational hurdles are addressed, the adoption rate may accelerate.
Long-term Vision
The long-term vision remains optimistic. With continuous advancements in blockchain technology and increasing familiarity among investors, the goal of tokenising a significant portion of global assets remains achievable.
Conclusion
The journey towards tokenising assets is proving to be more complex and slower than initially anticipated. Challenges such as lack of standardization, market fragmentation, and regulatory concerns have hindered rapid adoption. However, the potential benefits of tokenisation ensure that the industry will continue to strive towards this transformative goal. As Banks Drive and financial institutions navigate these challenges, a hybrid approach seems likely in the near term, paving the way for broader adoption in the future.
FAQs
What is asset tokenisation?
Asset tokenisation involves creating blockchain-based tokens to represent holdings of mainstream assets such as currencies or bonds, aiming to enhance efficiency, reduce costs, and improve transparency.
Why is the shift to tokenisation slow?
The shift is slow due to challenges like lack of standardization, market fragmentation, regulatory concerns, and technical and operational issues.
What are the benefits of tokenisation?
Tokenisation offers benefits such as faster settlement times, lower transaction fees, improved tracking and transparency, and broader accessibility to investors.
Are there any successful tokenisation projects?
While there have been experimental projects, scalable and live applications are still limited. Some notable efforts include Citibank’s tokenised deposit and Ripple’s partnership with HSBC.
What is the future outlook for tokenisation?
The future outlook remains optimistic, with a likely hybrid approach in the near term. Continued advancements in technology and regulatory clarity are expected to accelerate adoption.