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The cryptocurrency boom ended in frauds and fines. The revolution in digital assets is grinding on nonetheless.
Banks and institutional money managers have long been intrigued by the scope for efficiency gains from using the technology underlying crypto — the shared immutable digital ledger, or blockchain. Some are increasingly convinced about its disruptive potential.
The big prize for financiers is the tokenisation of financial securities and funds. At the core of the idea is standardisation. Time and money can be saved by stripping out financial intermediaries who all work on different versions of the same data in their own silos. Transactions between them must all be checked and verified.
Tokenised volumes today are small. Clear, consistent regulation will be needed to achieve scale, according to Lamine Brahimi of digital asset group Taurus. It also depends on the involvement of “mega” custodians to safeguard holdings and the existence of robust tokenised money or deposits.
Institutions are starting to take advantage of the benefits that tokenisation offers. Franklin Templeton launched the first tokenised money market fund using the Stellar blockchain earlier this year. Others are following. Abrdn launched a tokenised sterling fund in the summer. Shares in investment funds are also switching on to blockchains.
Those could just be the low-hanging fruit of blockchain technology. Tokenisation could also make a big difference to markets such as private debt and structured finance, according to Ralf Kubli, board member of the Casper Association in Switzerland. Information on cash flows and payment obligations could be coded to public tokens, potentially increasing liquidity and opening up access to many more investors.
In this way, tokenisation would blur the line that separates private and public assets. That means it is potentially more than an efficiency tool for traditional asset managers. Should it go mainstream, there will be an opportunity to take the fight to the alternatives industry.
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