It’s been almost a year since Blackrock CEO Larry Fink announced that asset tokenization is the future of markets and securities.
It’s been nearly five years since the world’s first token real estate asset offering, which saw the sale of a portion of The St. Regis Aspen Resort Hotel to investors eager to acquire a portion of prestigious Colorado real estate.
It’s been nearly 22 years since US payments company TrustCommerce laid the foundations for tokenization in its digital form in a token-based data security system designed to protect credit card information.
So why hasn’t tokenization taken off as the new asset ownership model that its advocates say it represents?
“The tokenization industry has not lived up to its potential,” said Tok Ming Yee, of the Singapore-based family office of JRT Partners. Asian investor. “There’s been a lot of talk, but due to the fact that the tokenization has to match TradFi (traditional finance) in order to get off the ground, it doesn’t give you the benefits it can.”
Tok Meng Yi
“Existing governments and financial institutions are not willing to migrate to a purely digital world – outside of TradFi’s existing infrastructure – and that is why this has been held back,” he said.
“Unless governments say it is okay to go fully digital and they will sign on to it, tokenization is not going to take off, because right now, in order to work, it has to sit on top of the existing infrastructure, and so there are a lot of cost and speed benefits that are not being realized.
Potential benefits of tokenizing an asset, by creating a digital representation of it on the blockchain, include lower transaction costs, instant 24/7 settlement, and the ability to use smart contracts that are triggered when pre-determined conditions are met by various parties.
Tokenization can provide liquidity to a wide range of illiquid assets, such as real estate, art, and rare objects, as well as financial assets such as stocks, bonds, and other securities that Blackrock’s Fink sees as an inevitable and ultimately ubiquitous application.
But Ye said the paradigm shift represented by tokenization – and by extension other forms of digital assets – currently represents too big an adjustment for authorities and the financial sector to make.
“Governments want the benefits of blockchain technology without the speculation of cryptocurrencies and the rubbery ecosystem that has characterized this universe so far, which is why they are trying to integrate digital assets into a system that they can accept,” he said.
Irrfan Ahmed, Head of Digital Asset Marketing Asia Pacific (APAC) and Middle East and North Africa at State Street Digital, takes a more optimistic view of developing the asset tokenization and infrastructure needed to realize its potential benefits.
State Street Digital
“There have been regulatory updates in jurisdictions such as Luxembourg, Switzerland and a few states in America that have allowed assets to be issued on a blockchain without the use of a central repository of securities,” he said.
“So these changes in terms of infrastructure, maybe a mechanism for how we see the infrastructure of financial markets change over time — and those changes happen frequently.”
Formed under pressure
Henry Chung, founder and CEO of digital securities trading platform Fusang, said tokens are already gaining traction among traditional finance companies and asset-holder clients.
“The interesting shift that is happening now is that after the collapse of (cryptocurrency exchange) FTX, there has been a huge change in the market landscape. A lot of TradFi organizations now think there is something interesting to do in this market,” he said. Asian investor.
Ahmed said State Street has been focused on developing token products for institutional investors that are differentiated from the offerings of native digital service providers that typically serve retail customers, creating a way for institutional investors to jump in by more than one foot.
“The tokenization has already happened in real terms with cryptocurrencies. If you take something like bitcoin and tokenize it on another network, it changes the profile of the asset. So, you can lock that bitcoin into a smart contract, and it will then have additional properties and capabilities that you didn’t have.” As an original token.It looks like a derivative, but you give it a completely different flavour.
“This is something we look at on the traditional side of finance, how (can we) change the way we think about encapsulating a token or encapsulating an asset in a token wrapper.”
But Ben Caslin, vice president and chief strategy officer at Dubai-based digital asset exchange MaskEX, and former CEO of now-shuttered Hong Kong cryptocurrency exchange AAX, said the way the tokens were framed was fundamentally flawed, and that they represent and are It is not so much a way to free investors to exercise greater control in an ecosystem characterized by a wide range of choices, as it is a way to lock them into the same structures that currently exist at TradFi.
Missing a point?
Written by Ben Cassell
“Coding is often presented as the end game and the most transformative application of blockchain technology, but this is a very desperate and uninformed perspective,” said Caslin. Asian investor. “Coding can be part of the ‘new finance’, but it doesn’t really address the deeper problem – the problem is that we depend too much on our gatekeepers, at the expense of our financial independence.”
He said that tokenization would not give asset holders any greater control over their investments than they currently have.
“With tokenization, what we’re doing is just strengthening and tokenising the existing custodians who will hold those assets, so that investors remain accredited, and assets remain ‘allowed’ and therefore limited,” he said.
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(tags for translation)blockchain