Most financial institutions are actively exploring asset tokenization with disintermediation as a top priority. They are at a «critical juncture» between balancing the upsides and downsides of adoption, according to SBI Digital Asset Holdings CEO Fernando Vazquez.
Various financial institutions are seeking to leverage blockchain technology to further efforts in asset tokenization. According to a recent survey by SBI Digital Asset Holdings (DAH), the desire to cut out middlemen in transactions was the leading motivator to adopt the new technology.
«Intermediaries or ‘middlemen’ have traditionally been present in the capital markets and […] they receive fees in return for facilitating the matching buyers and sellers among other functions,» said SBI DAH CEO Fernando Vazquez in an interview with finews.asia. «Blockchain technology, and more broadly distributed ledger technology (DLT), eliminates intermediaries in financial transactions through its decentralized and transparent nature.»
DLT Benefits
There are numerous benefits to DLT adoption for asset tokenization such as decentralized networks which eliminate the need for a central authority to validate transactions or intermediaries to facilitate peer-to-peer transactions. Blockchain technology also enables smart contracts to automatically execute terms that are written in code which can replace legal or escrow services.
«All in all, this brings greater transparency and immutability, global accessibility, as well as operational efficiency and cost savings as compared to the traditional processes of trading in securities and other assets,» Vazquez explained.
Downside Risks
Despite the upside in asset tokenization, there are still risks to consider. Vazquez highlighted potential downsides such as concerns surrounding the lack of institutional-grade infrastructure, a trusted end-to-end digital assets value chain and security issues.
«Institutional investors find themselves at a critical juncture – compelled to harness the benefits of blockchain technology and smart contracts to achieve capital and operational efficiencies but held back by perceived barriers,» he said, highlighting SBI DAH’s capabilities in institutional activities from origination to tokenization, listing and trading of digital assets, custody and security solutions.
Digital Asset Outlook
Nonetheless, Vazquez notes that the outlook for digital assets is positive and he anticipates a flurry of new developments in the near future.
This includes more diversity of assets through increased tokenization. Interoperability is expected to improve between exchanges, wallets, custodians and other platforms. Greater regulatory clarity will come to meet market needs. Focus on security measures will also be heightened, including advanced encryption methods, multi-factor authentication and continuous monitoring.
