At a recent event in London, Sir Jon Cunliffe, a former Deputy Governor for Financial Stability at the Bank of England, compared the current payment systems to piston and propellor engines, stating that they have reached their performance limits. He believes the future lies in tokenisation, where real-world assets become digital tokens, enabling fractional ownership and efficient transactions through decentralized finance. This shift towards tokenisation is expected to revolutionize financial services by enhancing asset mobility, payments, and distributions, benefiting markets across transaction lifecycles.
Tokenisation, as a concept, is gaining mainstream acceptance within the financial sector, with organizations like the Bank for International Settlements envisioning a future “Finternet” where various financial ecosystems are interconnected, allowing for cheap and near-instantaneous digital asset transfers worldwide. The London Stock Exchange Group has also recognized the potential of tokenisation, introducing plans for a new digital markets business aimed at using digital technology to improve traditional asset buying, selling, and holding processes. Through tokenisation, the industry is expected to achieve greater efficiency, transparency, and cost-effectiveness.
The shift towards tokenisation represents a revolution in the way assets are stored and transacted, offering solutions to longstanding issues such as slow transaction speeds, high costs, and lack of transparency in traditional financial systems. With tokens being able to be exchanged in real-time and minimal costs associated with data swapping on smart contracts, the potential for efficiency and transparency in financial markets is significant. While regulatory, technical, and trust barriers may pose challenges to widespread tokenisation adoption, industry experts believe that overcoming these obstacles will unlock opportunities for driving efficiencies in capital markets, shortening value chains, and improving cost and access for investors.
At Euro Banking Association EBAday 2024 in Lisbon, a challenge speech on “Digital Money, Digital Assets, Digital Identity: The Future of Banking” emphasized the dominance of decentralized finance in shaping the future of banking. The speaker highlighted the role of tokens in future transactions and stressed that tokenisation will be driven by financial experts rather than technologists. The adoption of tokenisation in financial services is seen as a significant technological advancement that aligns with the industry’s goals of improving transaction speed, reducing costs, and enhancing transparency.
Experts in the financial industry, such as Sir Jon Cunliffe, support the view that tokenisation will act as the jet engine of performance improvements in payment systems, enabling the development and deployment of digital assets through decentralized finance. By utilizing shared ledger technologies, smart contracts, and tokens, the industry aims to enable illiquid asset fractionalisation and enforce transaction rules programmatically. The shift towards tokenisation is expected to benefit markets by facilitating mobile asset ownership and introducing various financial benefits throughout transaction lifecycles. As tokenisation gains momentum, the financial sector looks towards a future characterized by efficient, transparent, and inclusive financial services.
