While public interest in cryptocurrencies fluctuates, there is notable momentum towards institutional adoption of tokenisation. This aims to revolutionise how financial firms operate and engage with customers.
Distributed ledger technology (DLT) has become a cornerstone of digitalisation roadmaps and transformation plans, undeterred by evolving global regulations, speculation, or high-profile startup failures. With the industry’s maturation, the narrative has slowly shifted from “crypto-hype” to table stakes as a new era emerges for fund management.
Industry leaders and practitioners increasingly agree tokenisation’s scalable potential is real and within reach. There are few places you feel this more than in Asia, where the confluence of technological readiness, supporting regulatory frameworks, and market dynamics is poised to ensure the region participates and leads the race.
Asia leads the way
There is a desire to deliver on ambitious adoption roadmaps to unlock cost-savings, better customise client experiences, and reach new market segments that have traditionally been excluded from the financial system.
In a global survey of asset managers and industry service providers published by Calastone in partnership with securities services industry publication Global Custodian at the end of last year, we found that a majority (58%) of Asia-based respondents are already exploring the use of tokenisation technologies in their day-to-day activities — slightly ahead of peers in the US (56%) and UK and Europe (56%).
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Considering the healthy pipeline of international companies making headlines for new tokenisation projects and partnerships, this may not come as much of a surprise. Take, for example, Schroders’ efforts to explore opportunities for personalising and simplifying investments through the tokenisation of Variable Capital Companies (VCCs), a common Singapore fund structure.
Digging into the details a bit more reveals the makings of some nuanced differences. Despite the broad consensus toward exploring various tokenisation applications worldwide, clear divergences emerge between regions when considering their expected timelines for bringing tangible tokenised offerings to market and their perceived ability to manage the pace of innovation.
Asia excels in its determination to invest and its ability to execute, positioning the region for long-term leadership.
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Promising home-grown catalysts for innovation
An impressive 96% of Asian respondents expect to offer tokenised funds as part of their product range in less than three years, with 61% believing the timeline could be as short as just 12 months. Only 44% of UK and European firms said the same for the latter. Moreover, this relative optimism around implementation appears grounded in execution capability. 60% of Asia-based respondents feel confident they could meet their tokenisation goals with their existing technology and expertise.
This positivity speaks volumes to the vibrant innovation environment regulatory bodies like the Monetary Authority of Singapore (MAS), Hong Kong Securities and Futures Commission and Financial Services Agency of Japan have fostered, and the relative lack of legacy infrastructure issues that plague more mature Western markets.
Country-level developments like Singapore’s recent expansion of “Project Guardian,” a collaborative public-private initiative aimed at safely accelerating the adoption of tokenisation technologies, and MAS’s publication of “Orchid Blueprint” to consider the enhancement of digital money infrastructures showcase a consistent effort to maintain momentum.
Even beyond the shores of this city-state, the pressures to keep pace have spurred other markets to ratchet up their own policies in hopes of providing clear guidelines and support for further adoption.
Hong Kong, for example, outlined its ambitious vision for the future of the tokenisation ecosystem through a range of consultations and circulars in the last year. Most recently, the highly anticipated “DA Custody” and “Tokenised Product Offering” circulars published by the Hong Kong Monetary Authority at the end of last month have caught the attention of our partners as they look to bring new products to market.
Local governments should exercise proactive prudence, considering McKinsey & Company forecasts that US$4 trillion ($5.4 trillion) to US$5 trillion of tokenised digital securities could be issued by 2030. With Asia primed to make some of the biggest contributions to global wealth growth and the number of individuals accessing financial services for the first time, the spoils of being a first mover in the tokenisation race are hard to ignore.
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Driving greater connectivity and regulatory standardisation
While promising, advancing the rise of tokenisation technologies in the region is challenging. Among Calastone’s network of financial institutions and industry practitioners, the two biggest things we hear still standing in the way of broad adoption are continued regulatory uncertainty and a lack of central banking digital currencies (CBDCs).
The good news is that we are progressing on both these fronts. In some respects, regulatory uncertainty is addressed by closer international collaboration and standardisation among regulators. There is growing consensus that, if managed correctly, the move toward a financial system built on DLT will create significant benefits for all — it is not a “zero-sum game.” For instance, the G20’s Financial Stability Board (FSB) has repeatedly highlighted that tokenisation is a policy priority for them and has pushed for developing a global regulatory framework.
As for CBDCs, a rising number of leading nations — including the US, Canada, the European Union, the UK, Australia, China, India, and Singapore — are either developing or piloting the digitalisation of their fiat currencies. A fundamental shift to the traditional payment and currency infrastructure at the heart of the financial system could be the final catalyst needed for mass adoption.
Regulatory engagement is crucial for digital assets and tokenisation to thrive and expand. Asia leads by example, with a mature understanding of the public and private sectors. Firms in this region have a chance to outpace peers and potentially have a responsibility to do so.
Justin Christopher is the head of Asia at Calastone
