Tokenisation: Solving traditional blockchain problems and enticing traditional finance

James has a passion for how technologies influence business and has several Mobile World Congress events under his belt. James has interviewed a variety of leading figures in his career, from former Mafia boss Michael Franzese, to Steve Wozniak, and Jean Michel Jarre. James can be found tweeting at @James_T_Bourne.

The long and winding road of blockchain technology adoption has been sometimes tremendous, other times turbulent. If the winds of change are heading in any particular direction right now for the enterprise, however, it appears to be towards tokenisation for real world assets.

Citi and JP Morgan are among the financial institutions looking in this direction – and now we can add BlackRock to that list. The company unveiled its first tokenised fund issued on a public blockchain – Ethereum – describing it as the ‘latest progression of [its] digital assets strategy.’

The fund, known as BUIDL (BlackRock USD Institutional Digital Liquidity Fund), has BitGo and Coinbase among its initial ecosystem participants, with BNY Mellon engaged to enable interoperability between digital and traditional markets. According to BlackRock, BUIDL “seeks to offer a stable value of $1 per token and pays daily accrued dividends directly to investors’ wallets as new tokens each month.”

Alongside this, BlackRock has made a strategic investment in Securitize, provider of a platform for issuing and trading digital asset securities. “Tokenisation of securities could fundamentally transform capital markets,” said Carlos Domingo, Securitize co-founder and CEO in a statement. “[The] news demonstrates that traditional financial products are being made more accessible through digitisation.”

A similarly bullish tone was adopted by Citi this time last year. In its Money, Tokens and Games (pdf) report, the bank forecast up to $5 trillion (£3.94tn) of tokenised digital securities, alongside $1tn of DLT-based trade finance volumes, by 2030.

Citi explains the various use cases and potential for tokenising real-world assets. In effect, the promise is in retaining ownership, delivering custody to certain stakeholders – such as museums for rare object collectors – and avoiding centralised platforms, whilst also unlocking liquidity.

“Tokenisation also unlocks new ways of financing infrastructural assets – roads, heavy machinery, and public goods – and opens new financing avenues for small companies and SMEs through direct-to-retail DeFi channels,” Citi noted in its report, adding that it can also help solve traditional blockchain problems, such as lack of transparency and democratised access, as well as liquidity.

“Tokenisation also helps improve the efficiency of holding real-world assets on investor balance sheets, by potentially reducing liquidity capital asks and easing the collateralisation process,” the report added.

That is the theory; but what about the practical? One project which recently completed and was deemed a success was the pilot for Digital Asset’s Canton Network, featuring Goldman Sachs and BNY Mellon, again, among other participants. The trial invited participants, from asset managers, to banks, to exchanges, to try 22 dApps to exchange tokenised securities, money market funds, and deposits across applications.

The pilot, as Digital Asset noted, “showed the potential of the Canton Network to reduce costs, risks, and inefficiencies, while striving to meet regulatory requirements for the issuance, transfer, and settlement of tokenised traditional assets.”

Frederik De Brueck, head of enterprise blockchain and innovation at Fujitsu Global, predicted that 2024 would be the ‘transformative year’ of enterprise blockchain – with tokenisation at the heart of it. “Tokenisation is reshaping sectors, especially those with physical assets,” wrote De Brueck, echoing Citi’s message of influencing not just real estate and art, but manufacturing and other sectors.

“Its impact is significant and transformative, extending beyond asset digitisation to create a new digital ecosystem for managing, trading, and using data and value assets in normal ways,” added De Brueck.

As a market develops, rest assured that technological innovation will develop alongside it. Spydra, an India-headquartered firm is a good example of this; the company announced earlier this month the launch of a no-code asset tokenisation platform, built on the Hyperledger Fabric framework, clearly targeting a ‘new era of enterprise innovation’.

It is not a surprise therefore that this will be the focus of industry events this year. The Blockchain Expo global series, a TechForge Media event, will be taking the first stop of its eighth incarnation to Silicon Valley on 5-6 June 2024. Among the key sessions on the first day will be perspectives on what is to come in tokenisation; understanding the diverse range of assets being tokenised across industries, as well as how tokenised assets can reshape traditional business models.

Find out more about tickets, who’s speaking, view the full agenda and register for free here.

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