With multiple pilots on tokenisation now completed, a new report from ValueExchange, sponsored by Digital Asset, outlines several critical steps for developing a tokenisation roadmap in light of industry experience to date.
‘Doing Tokenization Right’ follows three years of market research and interviews with exchanges, depositories, brokers, custodians and service providers and is designed to convey the industry’s collective experience.
The report breaks down the distinct drivers for tokenisation for different segments of market participants from issuers to investors. It affirms opportunities for banks, brokers and investors to achieve greater liquidity, accelerated information relay, reduced settlement risks, intraday product design, as well as balance-sheet benefits of real-time pricing, among other benefits.
But while tokenisation can reduce risk and drive efficiency, the report points out that numerous tokenisation projects have failed as a result of poor planning and lack of a clear use case.
The benefits of early tokenised deals have centred largely on near-term benefits of process automation and instant settlement, but, says the report, “It is quickly becoming clear that the benefits extend well beyond the back-office.”
It suggests that to best leverage smart contract and blockchain technology for long-term goals, financial institutions need to have a business model in place to tokenise the entire lifecycle of an asset rather than any singular phase of the process. For example, the report points out, “Whilst much focus is on the cost benefits of issuing the security, the benefits of tokenisation to issuers extend throughout the security lifecycle.”
It offers the example of the creation and management of coupon payments for bonds. “In a tokenised environment, these highly programmable and largely standardised events no longer require anything more than a cursory approval by issuers,” it says. “Programmed and automatically triggered, these events no longer require manual resources to book-keep, to trigger payments and to reconcile transactions – leaving issuers (and their agents) free of the operational and risk burden of handling these events.”
In October, Digital Asset unveiled Daml Finance, an open-source offering within its smart contract platform to provide users with the technological framework for asset tokenisation.
Not long before that, SWIFT announced it had successfully shown that tokenised assets can move seamlessly on existing financial infrastructure, labelling it “a major milestone towards enabling their smooth integration into the international financial ecosystem”.