Tokenisation Revolutionizes Finance, But Traditional Banks May Dominate

Tokenisation is at a critical juncture, with growing recognition outside the crypto sphere that it could revolutionize finance. Traditional banking giants are actively exploring how to leverage this potential, while governments in key financial hubs are establishing regulatory sandboxes to support blockchain-based capital markets infrastructure.

Recent successful pilots, such as Siemens’ $330 million digital bond issued as part of the European Central Bank’s trial, have highlighted the potential of tokenisation. However, many of these successes are essentially traditional finance (TradFi) transactions disguised as tokenised assets. For instance, the Siemens bond, while proving the efficiency of digital bonds, was issued on a private blockchain and required Deutsche Bank for settlement, lacking mechanisms for self-custody.

True tokenisation should embody disintermediation, empowering users by streamlining outdated parts of the capital markets ecosystem. It should replace the roles of transfer agents, central depositories, clearing systems, custodians, and compliance reporting with cheaper, faster, and more transparent on-chain solutions. This approach offers investors greater flexibility, including lower entry points compared to traditional markets.

There is a risk that tokenisation could be co-opted by TradFi behemoths seeking to create innovative products for their clients, potentially leading to a regulatory environment that benefits traditional finance players. This could result in a scenario where blockchain technology is used to improve the bottom lines of large banks while maintaining the status quo of current capital markets.

Tokenisation presents an opportunity for investors to regain control over their assets. Technologies like Blockstream’s Liquid Network enable peer-to-peer trading, asset movement across platforms, and self-custody. Future developments could include more granular voting and dividend payments, as well as integration with USDt and BTC to facilitate a low-friction flow of funds between conventional, real-world asset (RWA), and crypto markets.

Our current capital markets are designed for a select few, but tokenisation can democratize access to capital. It allows small businesses to raise funds without engaging banks, all within regulatory and compliance frameworks. For investors, even those with as little as $1, tokenised U.S. treasuries offer a pathway to grow wealth. Examples like El Salvador’s NexBridge USTBL product illustrate this potential.

To prevent a TradFi takeover of tokenisation, regulators must understand its broader promise. While regulating tokenised sophisticated investment products is crucial, it is equally important for all major jurisdictions to provide clarity on how tokenised products can be made accessible to any retail investor, regardless of their investment amount. Tokenisation represents a once-in-a-generation opportunity to democratize access to capital, and it is essential not to lose sight of this potential for the millions of underbanked people and businesses worldwide.