Learning Objectives:

  • Define tokenisation and understand its key features.

  • Explain the benefits of tokenisation: liquidity, fractional ownership, transparency.

  • Analyse applications: real estate, commodities, private equity, and securities.

  • Understand the challenges of tokenisation.

6.1 What is Tokenisation?

Tokenisation is the process of representing real-world assets as digital tokens on a blockchain. The World Economic Forum notes that “Tokenization pilots are now in production” as part of the “systems phase” of financial infrastructure evolution . First Citizens Group provides a comprehensive definition: “Tokenization is the process of converting rights to an asset into a digital token on a blockchain. These assets can include real estate, stocks, bonds, commodities, fine art, and private equity” .

Key Benefits of Tokenisation:

  • Increased Liquidity: Tokenisation enables fractional ownership, making illiquid assets more accessible. First Citizens Group notes: “Tokenization has the potential to reshape capital markets by increasing liquidity and reducing transaction friction. Through fractional ownership, investors could gain exposure to assets that were previously inaccessible due to large capital requirements” .

  • Fractional Ownership: First Citizens Group notes that “instead of purchasing an entire commercial property or large investment stake, individuals could own smaller portions represented by digital tokens on a blockchain network” .

  • Near-Instant Settlement: First Citizens Group notes that “traditional securities settlement systems are often slow and operationally complex because multiple intermediaries must reconcile transactions before settlement is finalized. Blockchain technology can streamline this process by enabling near-instant settlement, automated recordkeeping, and transparent ownership tracking” .

  • Programmability: Smart contracts can automate rights and obligations associated with asset ownership.

6.2 Applications in Banking

The WEF notes that “Tokenization beyond dollars is the next frontier,” with “tokenization pilots… now in production” as institutions recognise its value “not for novelty, but for operational speed: instant transfer and programmability” . First Citizens Group notes that for banks, tokenization “presents enormous possibilities” .

Key Applications:

  • Capital Markets: Tokenising stocks, bonds, and other securities.

  • Real Estate: Tokenising property for fractional ownership and investment.

  • Commodities: Tokenising gold, oil, and other commodities.

  • Private Equity: Tokenising private company shares and fund interests.

  • Securities: Tokenising traditional securities for more efficient trading and settlement.

6.3 Challenges of Tokenisation

  • Regulatory Uncertainty: The legal status of tokenised assets remains unclear in many jurisdictions.

  • Cybersecurity Risks: The Frost & Sullivan analysis notes that “blockchain transactions are generally irreversible, meaning errors or fraud can be extremely costly” .

  • Infrastructure Gaps: Lack of interoperability between tokenisation platforms.

  • Valuation: Determining the value of tokenised assets.

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