Digital assets, digital securities and blockchain-enabled asset tokenisation are slowly but surely gathering pace within traditional financial institutions. We have a look at the benefits and opportunities driving this and the associated challenges holding back mass adoption.
The Talos Trading platform is designed to help institutions manage the full trade lifecycle, including: liquidity sourcing, direct market access, price discovery, algorithmic trade execution, transaction cost analysis (TCA), reporting, clearing, and settlement.
Digital Assets: The Opportunities and Great things about Tokenisation
The opportunities and great things about digital assets and tokenisation are hard to ignore. Although the most movement has been around financial services other industries are being attentive to some of the transferable benefits outlined below:
Tokenisation opens the trading floor to assets that were previously too illiquid to trade, such as non-listed shares. It has the benefit for allowing investors, particularly retail investors, to get usage of asset classes and risks which may otherwise have been beyond their capacity, for example, participation in private equity funds and real estate industries.
At the same time, digital assets can serve as a fraction of any stock, which you can trade directly peer-to-peer. This permits investors to hold fractional ownership of assets or affinity for funds, permitting them to take part in capital markets with lower minimum tickets or portfolio sizes. Improving liquidity works in order to avoid the issue of traders offloading illiquid assets for less than they are simply worth, which in turn typically bolsters investment activity.
TRANSACTION COST AND SPEED
Digitalisation of assets enhances the efficiency of related processes by removing the need for some types of infrastructure. Meanwhile, the potential to remove intermediaries such as banks, brokers and exchanges from the value chain can substantially reduce or even remove costs relating to issuance and trading.
The time and cost savings at different stages of the asset lifecycle, from the execution of transactions to their clearing and settlement, through the custody of assets and the management of rights associated with them, can be substantial. Consultancy firm Deloitte estimates that transaction charges for cross-border payments, for instance, could be cut by 40-80% thanks to blockchain.
A distributed ledger of transactions secures traceability of each transaction and becomes the “single version of the truth” on which an extremely large sample of participants can rely but which none of whom can unilaterally control. In an exceedingly long chain of partners, intermediaries and competitors, this leads to absolute proof of ownership and fosters confidence in the info that is being shared.
While manual processes are at the mercy of human error, the distributed ledger technology that underpins digital assets and securities means that transactions that meet all required conditions “must be” executed and are registered in a tamper-proof ledger. That is turn simplifies the associated administrative process by automated things such as share registry updates and even reporting and taxation and can, for instance, ensure creditors receive payment for coupons and help them verify the payments. Such transparency could also be put in the hands of regulators, who could reap the benefits of a privileged viewpoint on transactions.
Connecting actors from around the globe grants issuers usage of a wide investor audience. Unlike many traditional financial vehicles, digital assets are under the complete control of their holders and providing you hold the private keys to your assets, you can certainly do with them what you please. You’re not limited to certain trading hours or restricted with a controlling centralised entity.
With this autonomy comes great responsibility. Lost keys, mistyped addresses, forgotten passphrases – investors are inadvertently parting ways using their digital assets every day. Fortunately, custodial solutions are gaining ground, helping investors of all types to store their digital investments securely.