The Double-Edged Sword of Tokenization: A Closer Look
The Trend and Its Debates
Tokenization, the process of linking crypto tokens to traditional financial assets, is sparking debates in the finance world. While some see it as a revolutionary step, others warn of potential pitfalls. The global securities regulator, IOSCO, recently highlighted these concerns in a report.
What is Tokenization?
The idea behind tokenization is to create digital tokens on a blockchain that represent real-world assets like stocks or bonds. This process has gained traction this year, with new tokenized products hitting the market through online brokers.
Risks Highlighted by IOSCO
However, IOSCO points out that this trend comes with risks:
- Uncertainty around ownership: Investors might not always be clear if they own the actual asset or just the token.
- Counterparty risks: Relying on third-party token issuers introduces additional risks.
- Market volatility: Tokenization could be affected by the volatility of the broader crypto market.
Big Players Dive In
Despite these risks, some big players like Nasdaq are diving into tokenization. Proponents argue that blockchain can:
- Reduce trading costs
- Speed up settlements
- Attract a younger crowd to investing
However, IOSCO notes that these efficiency gains are not always clear or consistent.
Adoption and Evidence
The report also mentions that while interest in tokenization is growing, actual adoption is still limited. Market participants often still rely on traditional infrastructure, rather than fully embracing blockchain technology. Moreover, issuers rarely disclose concrete evidence of the efficiency gains they claim.
