Tokenization Offers ‘Enhanced Liquidity,’ but Faces Major Hurdles, BofA Says

Tokenization is the adjacent large measurement successful however fiscal assets are housed, and offers advantages implicit existing accepted structures, Wall Street steadfast Bank of America (BAC) said successful a Friday report, noting that it besides brings risks.

At its core, tokenization is the process of converting ownership of real-world assets, from stocks and bonds to existent estate, backstage equity, and adjacent art, into integer tokens recorded connected a blockchain.

Tokenization follows a lineage that began with communal funds and expanded done separately managed accounts, corporate concern trusts, and exchange-traded funds (ETFs), and according to the bank's analysts, this exemplary could reshape the mode investors entree and negociate assets by offering a fig of advantages implicit accepted structures.

Among the astir important benefits are enhanced liquidity, analysts led by Craig Siegenthaler wrote, adding that 24/7 trading could unfastened up secondary markets for antecedently illiquid backstage assets, and faster, frictionless settlements that destruct the multi-day delays communal successful today’s fiscal markets.

Tokenization besides allows for fractional ownership, the analysts said, reducing concern minimums and broadening entree to portfolios. Transparency is different advantage, arsenic blockchain ledgers supply immutable and publically accessible records of ownership and transactions.

Lower fees are imaginable by cutting retired intermediaries, and smart contracts tin automate cardinal processes specified arsenic dividend payments, coupon distributions, and voting rights, portion besides helping to navigate regulatory requirements and adjacent the complexities of backstage equity superior calls, the study noted.

According to information supplier RWA.xyz the worth of real-world assets represented on-chain exceeds $28 billion.

Tokenization risks

Still, Bank of America cautioned that tokenization faces important hurdles earlier it tin execute wide adoption.

Regulatory uncertainty remains the biggest challenge. While U.S. policymakers person signaled support, aboriginal administrations could reverse course, and galore jurisdictions are inactive successful the process of penning rules.

The slope said custody is different concern, arsenic investors hazard losing entree to assets if backstage keys are misplaced, and institutional-grade custody solutions are inactive developing.

On the exertion side, vulnerabilities successful astute contracts oregon blockchain platforms permission country for exploitation, and integration with bequest fiscal infrastructure presents further obstacles, fixed the reliance of astir institutions connected accepted systems.

And erstwhile it comes to publically traded assets, existing U.S. markets already connection heavy liquidity, debased fees, and beardown capitalist protections, making the lawsuit for tokenized versions little compelling, the study added.

Read more: Ondo Finance Rolls Out Tokenized U.S. Stocks, ETFs arsenic Equity Tokenization Ramps Up