As investment in crypto assets grows, blockchain applications and especially the use case of tokenisation are coming into focus. Institutions face the challenge of adopting this new technology.
The concept of tokenisation persists. Several analysts wrote it off previously. With growing regulatory clarity, an increasing number of leading banks and institutions are conducting tokenisation projects that point to a new financial system with new infrastructure.
Interestingly tokenisation is being approached from two different sides: while financial institutions are building up blockchain infrastructure and conducting tokenisation projects such as a digital Swiss Franc or tokenised bonds and shares, an abundance of tokenisation use cases in the so-called “Decentralised Finance” space use a more bottom-up approach. Fact is, tokenisation is happening, and the question is just how fast it will move and who will be ready when it takes off.
Tokenisation is here to stay
While the basic principles of tokenisation can be framed easily, their concrete forms and applications can have many different faces. In short, tokenisation is the cryptographic depiction of digital or real-world assets on a decentralised ledger or blockchain. This leads to more efficiency, transparency, and accountability in the creation and settlement of tokenised assets.
While some institutions have been gaining experience with blockchain applications for several years and are getting ready to deploy them on a bigger scale, others are just getting started. The first-mover phase is well under way; and considering the opportunities along the technology adoption curve, first followers will reap big rewards too. It becomes clear that staying on the sidelines is no longer an option.
The challenges of tokenisation for institutions
While the theoretical concept of tokenisation and its potential are clear to many, implementation poses several challenges. How should institutions approach a tokenisation project, how can the benefits and risks be framed accurately, and what public or private infrastructure should be embraced?
Although the potential of tokenisation has raised institutions’ interest, for many institutions even starting to build up the required knowledge can pose the first challenge. Instead of taking the risk and investing tremendous resources into building tokenisation solutions, there is a more elegant and feasible method: conducting a proof of concept.
The case for a proof of concept
When it comes to blockchain applications – or any new technology – institutions are best off using an iterative approach: starting small with a proof of concept (PoC) allows institutions to develop successful pilot projects that can be applied to working products at a later stage. In a pilot project, tokenised assets are issued and managed in a safe environment – keeping risks at a minimum and enabling a steep learning curve. A PoC allows institutions to learn from expert partners and build their own expertise.
When running tokenisation pilots, institutions rely on experts’ knowledge for both regulatory and technological aspects. More information on the topic can be found here.