The digital native asset market is experiencing unprecedented growth and tokenisation of these assets – the process by which a blockchain token, or more specifically a security token, is created to digitally represent a real tradeable asset, is putting increasing pressure on financial institutions to quickly develop new solutions in their suite of products and services to meet client demand.
This new ‘token economy’ is a virtual tsunami that is disrupting the financial world. This is due to fast adoption by investors and sellers who see the power of tokenisation’s associated benefits to deliver a more efficient, frictionless and fairer environment.
This is particularly the case with ‘illiquid’ assets like art, property, gold etc which are difficult to speedily transact and are bound by local regulations and rules. Tokenisation promises to change all that with blockchain processes that are transparent, faster, cheaper, and ‘always on’. This should make the financial industry more accessible, potentially unlocking trillions currently held in these illiquid assets and vastly increasing the volumes of trades.
Tokenisation also opens the market up to many new investors as multiple tokens can be issued on any given asset reducing very high entry level costs or tying up money for extended periods. This will enable investors to have wider and more diverse portfolios and much more freedom of choice.
Of course there are still obstacles to be overcome and regulation and legislation will surely follow as the fundamental shift of power from central trusted institutions to individuals takes place, and cryptography replaces third party intermediaries as the guardian of trust.
Financial institutions and service providers will need to carefully consider the blockchain technologies they will need to integrate with and also replace existing financial technology infrastructure in order to operate in these fast emerging digital financial markets that are already making waves within their customer base.
Chief among these will be cybersecurity and secure storage that will safeguard tokens and keys from theft or loss. Those that are not prepared risk being left behind.