Tokenisation, the process of converting various asset rights into digital tokens using distributed ledger technology, has heralded a new era of innovation within the financial services industry. This pioneering approach offers heightened accessibility and liquidity for a diverse array of assets, encompassing real estate, financial instruments, commodities, intellectual property, art, and digital assets.
A key advantage of tokenisation is its capacity to enable fractional ownership, thereby enhancing the accessibility and transparency of investments while lowering transaction costs. This innovative approach holds the potential to fundamentally alter asset ownership and trading, fostering a more efficient and inclusive investment environment.
Nevertheless, a primary concern surrounding tokenised asset transactions pertains to the origination of the cash leg. Potential sources may include wholesale central bank digital currencies, tokenised commercial money, or private sector stablecoins, with the choice influenced by regulatory considerations, transaction magnitude, and requisites for security and efficiency. Interoperability is paramount to mitigating potential market fragmentation and forging the next phase of global liquidity provision.
Tokens can be classified as bearer assets or representations of claims upon an asset. Bearer assets streamline transactions by directly signifying ownership, whereas tokens representing claims confer a legal entitlement to the underlying asset, often overseen by a custodian or intermediary.
Investors can hold tokens in digital wallets, whether custodial or non-custodial, supplied by conventional financial institutions, specialised crypto custodians, or diverse DLT platforms. Security measures such as private key management, cold storage solutions, regulatory compliance, and insurance ensure the secure and sound holding and administration of tokenised assets.
The streamlined asset issuance, trading, and settlement through DLT stands to entirely transform legacy market infrastructure. Settlement becomes virtually instantaneous, and custody transitions to digital wallets and specialised crypto custodians, thus diminishing reliance on trusted intermediaries and escalating efficiency.
Tokenisation not only benefits financial markets but also empowers retail users by facilitating fractional ownership, enhancing liquidity, and reducing transaction costs. It unlocks access to new investment opportunities previously confined to institutional investors, democratising investment and broadening the scope for small investors to engage in a wider array of markets.
This pioneering innovation in financial services represents a watershed moment not only for institutional investors but also for retail users, charting the course for a more inclusive, just, and equitable financial system.
Dom Ghazan, Managing Director at Global Trade Finance, illuminated the transformative nature of this approach to financial services in the summer 2024 edition of the Digital Monetary Institute Journal, underscoring the potential of tokenisation to reshape the global investment landscape.