ValueExchange report emphasises importance of tokenisation preparation
01 November 2022 UK
Image: Brian Jackson
The ValueExchange has published a report on ‘Doing Tokenisation Right,’ offering insights and advice to market participants who are unsure how, or why, to start their tokenisation journey.
According to the report, moving to a tokenisation model across the ecosystem will be universally beneficial. Issuers will see reduced settlement risk, faster information relay and a ‘golden source’ of information, and intermediaries will be able to operate at lower costs and benefit from the convergence of cash and crypto, simplifying operations.
For investors, trade execution will be improved and passive valuations will be replaced by active, data-driven management. Liquidity in fund trading will be increased, and yields will be higher overall.
Considering how market participants can implement tokenisation into their operations, the report highlights that preparation and platform design need to be considered before execution.
Preparing for tokenisation will require the convincing of stakeholders, who may be unaware of the benefits of the system. Similarly, those within the company must be educated as to how the shift will impact them, and what the company’s future will look like.
“This is no overnight journey — nor can it be done passively,” the report warns. Tokenisation will not be a quick fix, but will require careful planning and execution.
As a part of this planning process, businesses must consider exactly what their clients need from tokenisation, rather than following a generic or flashy route. Working out exactly what is needed, what needs to be prioritised and what will be most beneficial to client and company is essential.
Once these questions have been answered, the report says that platform design is the next area to address. The ValueExchange advises that firms tokenise existing securities before issuing natively digital offerings.
Connecting digital assets to legacy systems will be a challenge, in terms of both cost and practicality. Whether private or public blockchains are used is a further consideration that firms must face, with data privacy an increasingly vital issue.
Interoperability will be a further concern, one that will require significant cooperation between market participants as digital asset tokenisation is more widely adopted.
When executing tokenisation, the report emphasises the importance of cooperation, talent identification and expecting slow and steady progress rather than an immediate change.
According to the report, moving to a tokenisation model across the ecosystem will be universally beneficial. Issuers will see reduced settlement risk, faster information relay and a ‘golden source’ of information, and intermediaries will be able to operate at lower costs and benefit from the convergence of cash and crypto, simplifying operations.
For investors, trade execution will be improved and passive valuations will be replaced by active, data-driven management. Liquidity in fund trading will be increased, and yields will be higher overall.
Considering how market participants can implement tokenisation into their operations, the report highlights that preparation and platform design need to be considered before execution.
Preparing for tokenisation will require the convincing of stakeholders, who may be unaware of the benefits of the system. Similarly, those within the company must be educated as to how the shift will impact them, and what the company’s future will look like.
“This is no overnight journey — nor can it be done passively,” the report warns. Tokenisation will not be a quick fix, but will require careful planning and execution.
As a part of this planning process, businesses must consider exactly what their clients need from tokenisation, rather than following a generic or flashy route. Working out exactly what is needed, what needs to be prioritised and what will be most beneficial to client and company is essential.
Once these questions have been answered, the report says that platform design is the next area to address. The ValueExchange advises that firms tokenise existing securities before issuing natively digital offerings.
Connecting digital assets to legacy systems will be a challenge, in terms of both cost and practicality. Whether private or public blockchains are used is a further consideration that firms must face, with data privacy an increasingly vital issue.
Interoperability will be a further concern, one that will require significant cooperation between market participants as digital asset tokenisation is more widely adopted.
When executing tokenisation, the report emphasises the importance of cooperation, talent identification and expecting slow and steady progress rather than an immediate change.
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