The financial services industry is one of the epicenters of non-cryptocurrency blockchain adoption, providing fuel for the blockchain usage. A growing part of that evolution is tokenization, which brings with it benefits for asset managers and clients alike.
There are tangible benefits in tokenization, which occurs on the blockchain, including increased efficiencies and removal of burdensome paperwork. Tokenization can also increase accessibility on multiple fronts and that could be to the benefit of clients.
“One of the core promises of tokenisation is its ability to democratise investment opportunities. By enabling the digital representation of assets on a blockchain, tokenisation allows for fractionalisation, making financial products more scalable and personalized,” according to Schroders.
Increased blockchain tokenization is likely to be a prominent theme in the years ahead in the financial services industry. Today’s retail investors, particularly those in younger age demographics, are tech-savvy. They want to do business with advisors and firms that are leaning into technology and providing more accessible to previously hard to reach asset classes and themes.
Examining Tokenization Perks
Tokenization accrues clear benefits, including increased access and efficiencies. Additionally, you should not overlook transparency – something craved by asset allocators and clients alike.
“In the asset management space, firms are trying to translate what is done in portfolio management entirely on-chain,” added Schroders. “This includes developing on-chain capabilities for record-keeping, valuation, execution, and client servicing. Blockchain’s immutable transaction records provide valuable holding information, aiding issuers in liability management exercises with a clear, indisputable history of asset ownership and movements.”
There’s also the potential for increased tokenization to drive a new wave of high-end job creation across the financial services industry. As demand for this technology increases, so should product innovation and the need for tech-experienced professionals across the space.
Of course, the regulatory environment bears monitoring. While blockchain is being widely embraced across the financial services spectrum, it’s still a younger technology. Tokenization is even younger. Regulators are aware of those factors. While that doesn’t imply they’re anti-tokenization, it can be inferred that they’ll be keeping a watchful eye on how this concept evolves and is deployed.
“Financial Services Regulators (FSRs) are crucial in creating policies that balance innovation with risk management. FSRs must work closely with industry leaders to understand the nuances of tokenisation and craft regulations that foster innovation while protecting investors and maintaining market stability,” concluded Schroders.
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