Tokenisation 101

As any industry, ours also comes with its lingo, and sometimes understanding what is what gets muffled, especially given that we work within an ecosystem that’s relatively new. 

Worry not. This page gives you an overview of what tokenisation is, the building blocks involved in this process, and a few reasons why this is where the future of financial services lies. 

Growth Potential

The global tokenization market size is expected to grow from $ 1.9 billion invested in 2020 to $ 4.8 billion by 2025, at a CAGR of 19.5% over the forecast period.

(source: Markets & Markets). 

What is tokenisation?

Tokenisation is a digital securitisation process of ownership of certain goods, physical objects or rights. Imagine owning your home in digital form on a decentralised database. Anything can be tokenised: government bonds, real estate or even licensing rights to pieces of music. Instead of a “physical” document a digital token “certifies” the respective ownership. 

Why go through the trouble of tokenising? 

For one, tokenisation will significantly increase the existing market efficiency. Everything that can be traded on stock exchanges to this day will be expanded to include additional assets in the future. Numerous stock exchanges are currently working on implementing blockchain technology in their internal systems. In fact, we are proud to be building DeFinity, which is a decentralised DeFi exchange, specialised to trade traditional and digital FX. 

Digital Securities

With the introduction of “digital” (tokenised) securities, small and medium-sized companies (SMEs) benefit from being able to implement their financing projects with significantly more flexibility and get access to new sources of finance. 

With our platform, non-listed SMEs can also issue bonds based on digital securities with a limited prospectus requirement. 

All the issuer needs to do is publish a securities information sheet. The costs are a fraction of a traditional bond issue.

The tokenisation of company shares will also shape the venture capital market and make more investments possible.

Interested in finding out more about the process of raising funds through security tokenisation? Head to our blog for a plethora of articles that elaborate the process. 

Benefits of tokenisation

Faster and cheaper transactions

Digital assets make the complex route via banks, stock exchanges, brokers and other intermediaries redundant and discards paper-driven trading. Digital processing of transactions therefore becomes significantly cheaper and faster.

Greater liquidity

Investments are made directly with your own funds in an investment property, instead of through closed funds. This results in greater room for manoeuvre both for issuers (larger liquidity pool) and for investors (expansion of the investment spectrum)

Transparency and traceability

Tokenisation reduces market manipulation, as every transaction is recorded transparently, in real time, redundantly, immutable, traceable and accessible at all times for all parties involved.

Big Banks and Tokenisation

The largest private banks in the world have been exploring new fintech solutions like security tokens and blockchain for the past few years. Most notably, 7 of the 10 largest banks have publicly announced initiatives. 

🇨🇳 Bank of China
$
Trillion in AUM
🇯🇵 MUFG
$
Trillion in AUM
🇬🇧 HSBC
$
Trillion in AUM
🇺🇸 JP Morgan Chase
$
Trillion in AUM
🇫🇷 BNP Paribas
$
Trillion in AUM
🇪🇸 Banco Santander
$
Trillion in AUM
🇩🇪 Deutsche Bank
$
Trillion in AUM
🇨🇦 Bank of Canada
$
Trillion in AUM
🇳🇱 ING Group
$
Trillion in AUM
🇨🇭UBS
$
Billion in AUM

Source: Stomarket.com & Wikipedia, Status December 2020  

Is tokenisation important for established financial institutions?

Why should established financial institutions care about tokenisation? 

It is important that banks and asset managers in particular observe where things are going and define their role in the new ecosystem. 

Young and digitally savvy customers are showing great interest in tokenisation. 

If you are not ready to develop your own products, you should consider connecting to third-party providers. 

This promotes one’s own competitiveness, customer satisfaction and the development of a healthy ecosystem for digital assets. Given how fast the market is developing, it is only a matter of time before all financial institutions integrate tokenisation in their offering.