Asset tokenization is increasingly being explored by the financial industry to leverage benefits such as the removal of intermediaries. Despite the efforts, scale has yet to be achieved, according to the Monetary Authority of Singapore’s Leong Sing Chiong.
There is much promise behind the benefits of asset tokenization. According to Leong Sing Chiong, the Monetary Authority of Singapore’s (MAS) deputy managing director of markets & development, they include the elimination of settlement risk, duplicative reconciliation and increased efficiency of transaction processing.
«We saw the potential for tokenization in financial services, where tokenized financial assets, can be exchanged directly on a programmable platform without the need for intermediaries,» said Leong in a speech at the «Layer One Summit».
«With a programmable platform that allows for pre-determined conditions to be encoded with the tokenized asset, this can also facilitate greater straight-through processing in capital market transactions, and greater efficiency in asset servicing.»
«Inflection Point»
Leong highlighted a number of ongoing developments such as Ant International's use of tokenized deposits with partner banks like HSBC and DBS to initiate and receive real-time payments seamlessly or UBS and Swift’s collaboration with Chainlink on an end-to-end payment capability to automate fund subscription and redemption processes.
«However, my sense is that we have reached an inflection point. Notwithstanding the significant efforts of various players to push the boundaries of tokenization in financial services, no one has really succeeded in achieving scale,» he said. «Many promising use cases have not yet gained industry wide traction. Further, there is a need for supporting infrastructure to enable good use cases to scale beyond individual networks.»
«Four Jigsaw Puzzle Pieces»
In order to achieve this scale, Leong said that there are «four jigsaw puzzle pieces» required to support industry-wide deployment of tokenized assets: liquidity, foundational infrastructure, standardized frameworks and protocols, and common settlement assets. The MAS announced a detailed plan to support these goals through various initiatives between regulators and the financial industry.
«For tokenization to scale and achieve industry wide adoption, we need to see tokenized activity span across assets, across key currencies, across networks, and also to interoperate with existing systems,» Leong added. «This will not be an overnight phenomenon and will require a whole-of-industry effort and commitment. It will also require close collaboration with policymakers.»
