The (f)utility of blockchain asset tokenisation

FOLLOWING the summer crypto meltdown, Singapore came under some criticism for its early embrace of the crypto industry, especially as a number of the firms that went under, such as Terraform Labs and Three Arrows Capital, had touted themselves as being based in Singapore. As a result, the Monetary Authority of Singapore (MAS) has re-emphasised that crypto products are unsuitable for retail investors. However, the MAS has kept faith with the underlying technology, especially in relation to asset tokenisation. In light of the failure of FTX, it would be timely to evaluate its faith in doing so.

What is tokenisation? It helps to begin with data security, from which the term originated. In data tokenisation, sensitive data is substituted by a non-sensitive equivalent, commonly referred to as a token. The process is at work when you use a credit card to make an online purchase – instead of transmitting your credit card details online, what is transferred is a token of the data, with no exploitable value.

However, asset tokenisation works differently and refers to having blockchain ledger entries “substitute” for real world assets. Simply put, it is a fancy term for a ledger. Tokenisation supposedly carries various benefits and will revolutionise all manner of industries. The benefits include fractionalisation, creating access to otherwise expensive assets such as art or real estate; disintermediation, so that costs can be saved by removing unnecessary middlemen; security as the blockchain is a secure decentralised ledger; automation because smart contracts can be deployed on the blockchain; and transparency because all on-chain transactions are immutably recorded on the blockchain.