Financial industry executives will need to familiarize themselves with the essentials of tokenization, and quickly. After a decade of fits and starts, momentum is building behind the development of markets in tokenized assets. These are not volatile, unbacked cryptocurrencies, but rather tokens that are linked to existing financial or physical assets and that now enjoy a measure of legal certainty, e.g. , tokenized money market funds, tokenized bonds and tokenized commercial bank money.
Bullish forecasts are another sign that the financial industry is taking notice. Recent projections for market value of tokenized assets in 2030 range from USD 1.9 trillion to upwards of USD 10 trillion. A bright future for tokenization is not guaranteed, however. In particular, continued fragmentation of technology platforms will impede growth. The costs for first movers are also currently high, and much remains unclear about the regulatory frameworks.
The surest sign that tokenization’s time is near is the concerted attention it is receiving from financial industry regulators and central banks. The European Securities and Markets Authority (ESMA), the Bank for International Settlements (BIS), the Monetary Authority of Singapore (MAS), the European Central Bank (ECB) and many others have been busy publishing research and exploring transactions involving tokenized assets. The technology foundations for tokenization largely exist today (i.e., DLT, Blockchain), and nascent markets are taking shape.
Baker McKenzie’s publication discussing the current status of tokenization, the potential it holds for transforming the provision of financial services and what needs to happen for the potential to become reality may be found here.
