Panel says there’s room to potentially tokenise all assets, given benefits of blockchain

[ABU DHABI] There is likely to be room to tokenise all investment instruments, given the benefits of blockchain technology such as increased liquidity, wider access and higher efficiency, said the members of a discussion panel on Wednesday (Nov 16).

Dan Doney, chief executive and co-founder of financial and regulatory technology company Securrency, said: “The challenge with liquidity is that you have to go to so many different venues to conduct transactions. In the not-too-distant future, you will see a unified marketplace for any kind of asset.”

He was speaking on a panel on how multi-trillion dollar funds and banks are testing and applying blockchain-based technology, at the Abu Dhabi Finance Week 2022.

The other contributors to the discussion were:

• Chan Xian, global head of digital assets at HSBC;
• Herve Francois, partner of private equity, blockchain and digital assets at private equity firm Investcorp; and
• Gautam Sharma, chief executive of BH Digital, the crypto-focused division of investment management platform Brevan Howard.

The panel was moderated by Gabrielle Inzirillo, the head of ecosystem development the Financial Services Regulatory Authority at Abu Dhabi Global Market (ADGM), an international financial centre and free zone in Abu Dhabi, the capital of the United Arab Emirates. 

Doney noted that his clients are already beginning to tokenise cash, commodities and securities. These assets use the blockchain ledger system, which records blocks of transactions and is secured by cryptography.

Creating universal “rails” that can be applied across all tokenised assets can reduce market fragmentation from having separated markets, and increase liquidity.

“What’s exciting about developments in the blockchain space is the fact that there is ultimately no difference in the fundamental mechanism between retail investors and institutional investors,” he said.

But HSBC’s Chan said universal tokenisation of assets would likely take time, and will open up investment access by potentially lowering minimum entry points for asset classes that typically have higher entry points, such as venture capital and real estate.

Tokenisation should also increase efficiency, although Chan said traditional capital markets are already rather efficient – even though they are more complex.

He said he has noticed an uptick in interest in the digital-asset space among HSBC’s clients, so the bank has moved to cater to the demand.

Chan said he is positive on the scalability of tokenisation, and noted that it is only a matter of time before the idea is applied to more asset classes.

“The good news is a lot of the infrastructure rails around tokenisation are quite common across the piece. So you could tokenise different kinds of assets and use the same infrastructure,” he said.

Tokenisation benefits both investors and asset managers, said Investcorp’s Francois. For investors, the bar to owning real assets is likely lower, as tokenisation enables investors to own assets fractionally. For asset managers, he added, tokenisation reaches more accredited investors.

BH Digital’s Sharma said tokenisation opens up new classes of potential assets, such as non-fungible tokens, to investors. However, he added, issuers should consider making transactions reversible, so that investors can reverse bad or flawed smart contracts.