June 2019
Capital markets are still in the early phases of the adoption of blockchain and distributed ledger technologies (DLT) and the industry continues to seek viable use cases. One broad category of such use cases is the creation of digitally tokenized assets, in which the token either represents a property interest that exists only in the Blockchain (such as non-certificated securities) or represents an asset existing off the Blockchain.
The tokenization of real-world assets continues to gain momentum, and investments are being made across the industry.
While not new to the blockchain world, the tokenization of real-world assets is now attracting industry attention. Fundamentally, tokenization is the process of converting rights – or a unit of asset ownership – into a digital token on a blockchain. Tokenization can be applied to regulated financial instruments such as equities and bonds, tangible assets such as real estate, precious metals, and even to Tokenization of Copyright to works of authorship (e.g., music) intellectual property. The benefits of tokenization are particularly apparent for assets not currently traded electronically, such as works of art or exotic cars, as well as those needing increased transparency in payment and data flows to improve their liquidity and tradability.
The tokenization of physical assets brings a range of benefits to market participants:
Leading financial institutions understand the opportunity that tokenization of financial assets represents. When it comes to turning legacy asset classes, such as corporate securities, into vibrant digital markets, we are witnessing several initiatives, notably by incumbent U.S. and European exchanges that are all developing tokenization offerings. From the origination of trading assets to Corporate Trust, the value chain is evolving.
We are still early on the journey towards the tokenization of assets, but it certainly has the potential to dramatically change the dynamic for investors and owners of numerous asset classes.
The views expressed herein are those of the authors only and may not reflect the views of BNY Mellon. This does not constitute Asset Servicing advice, or any other business or legal advice, and it should not be relied upon as such.
©2019 The Bank of New York Mellon Corporation.
Asset Servicing Global Disclosure
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole and/or its various subsidiaries generally. Products and services may be provided under various brand names and in various countries by subsidiaries, affiliates, and joint ventures of The Bank of New York Mellon Corporation where authorized and regulated as required within each jurisdiction. The material contained in this document, which may be considered advertising, is for general information and reference purposes only and is not intended to provide or construed as legal, tax, accounting, investment, financial or other professional advice on any matter, and is not to be used as such.
BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material. This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon. Trademarks, logos and other intellectual property marks belong to their respective owners.
This document, and the statements contained herein, are not an offer or solicitation to buy or sell any products (including financial products) or services or to participate in any particular strategy mentioned and should not be construed as such.
The views expressed within this article are those of the author(s) only and not those of BNY Mellon or any of its subsidiaries or affiliates.
© 2019 The Bank of New York Mellon Corporation. All rights reserved.