Well-known hedge funds such as BlackRock and Janus Henderson have begun to experiment with "tokenization."
Written by: Li Xiaoyin
Source: Wall Street Journal
With their transparency and flexibility, ETFs are generally considered to be the "2.0 version" of the asset management industry. Now, tokens compatible with decentralized platforms are expected to drive asset management into the "3.0" era.
A recent column published in Sherwood News stated that in the future, cryptocurrencies and traditional finance will merge together, which according to analysts' predictions will unlock a trillion-dollar tokenized securities market.
Specifically, what will be the industry prospects for the “tokenization” of traditional finance?
The article states that this means that all assets such as stocks, bonds and commodities will be converted into tokens (digital assets that represent value or ownership in a decentralized system), which can be tracked on a unified digital ledger and managed through automated back-end processes. The platform can operate 24/7 and all transactions can be completed in real time.
Will Peck, head of digital assets at WisdomTree, a financial innovation company that has launched more than a dozen tokenized investment funds, said that tokenization enables anyone to "get funds and confirm transactions exactly when you need them":
“Think about what it would be like if investing and payments were more closely tied together. Or maybe you think it’s a good idea to be able to transfer assets and value more seamlessly.”
Judging from the process of "tokenization" of securities trading by Zhihu, the user's entry threshold and operational difficulty are almost zero: after registering for Zhihu's application, users can directly trade tokenized funds through debit cards.
The prospects for asset management tokenization: mixed?
In fact, at present, well-known hedge funds including BlackRock and Janus Henderson have begun to try "tokenization" by cooperating with cryptocurrency platforms to launch U.S. Treasury fund token products. However, as far as the entire industry is concerned, it is still in a very early stage.
At present, the prospects for the “tokenization” of asset management are mixed.
Lucas Vogelsang, co-founder of the tokenization platform Centrifuge, said that asset “tokenization” is expected to make financial products more accessible to ordinary investors and help promote fairness in the financial system:
“Think about IPOs, private credit, hedge funds… maybe this will make the financial system a little fairer.”
Klaas Knot, chairman of the Financial Stability Board, also said that asset "tokenization" will improve transaction efficiency and provide investors with opportunities to enter new markets, but he also warned that "it will also amplify many of the same vulnerabilities in traditional finance."
A related study from Deloitte shows that "tokenization" may bring greater accessibility, faster settlement, higher transparency and lower operating costs. But it may also lead to faster financial crises, faster transmission of financial fraud and smaller windows of opportunity for monetary policy decisions.
At present, a specific dilemma of the "tokenization" of asset management is that tokens are traded 24 hours a day, 7 days a week, but their underlying assets are linked to traditional financial services, and investors still need to wait until at least T+1 to complete the transaction.
In addition, some in the cryptocurrency space are skeptical of tokenization.
Meltem Demirors, founder of Crucible Investments, believes that “tokenizing” distressed assets does not make them better - for example, “tokenizing” real estate does not make it more liquid or attractive.
Demirors also believes that “tokenization” is essentially not innovative for the crypto industry:
“Taking $50 billion of Bitcoin out of circulation and handing it over to a financial institution that charges 20 to 250 basis points in fees to hold Bitcoin for you is not cryptocurrency innovation, it’s asset management innovation.”
Peck of WisdomTree also believes that financial companies are not trying to promote cryptocurrencies through tokenization, but are looking for a new way and new channel for asset management:
“I still believe tokenization is the future of asset management, I just think the path to get there may be a little different than what we originally thought.”