More than digital money: how tokenisation is changing financial markets
The discourse on tokenisation has entered a new phase. Whereas the focus was mainly on digital means of payment in recent years, the tokenisation of assets is increasingly coming to the fore. This year’s Point Zero Forum in Zurich showed that the importance of distributed ledger technology (DLT) extends far beyond payments and has the potential to bring about a structural transformation of financial markets.
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This year’s Point Zero Forum in Zurich marked a turning point in the discourse on digital assets. Buoyed by political and regulatory support from the US, in particular via the GENIUS Act, stablecoins predictably attracted a lot of attention. At the same time, however, it was clear that digital means of payment represent just one component of a more comprehensive tokenised financial system. The future probably lies in a “multi-rail” digital financial system in which central bank digital currencies (CDBCs), stablecoins and tokenised deposits and assets exist in parallel and interact with each other. The decisive factor here is building a functioning bridge between the traditional financial system and new DLT-based infrastructures.
Tokenised assets: the next growth driver
Many discussions centred on the question of how tokenisation can make the leap from pilot projects to widespread use. The tokenisation of classic financial instruments in particular was identified as the next logical step. One bank head stressed that tokenised bonds offer an important and obvious point of entry to a new phase of tokenisation and noted his surprise that this market has not developed more quickly up to now. Agustín Carstens, former General Manager of the Bank for International Settlements (BIS), does not expect today’s traditional financial market instruments and infrastructures to be replaced but instead to coexist with their digital counterparts.
The Point Zero Forum is a joint initiative of the Global Finance & Technology Network (GFTN) and the State Secretariat for International Finance (SIF) to promote a policy and technology dialogue in financial services. Held annually in Zurich, Switzerland, the Forum convenes central bankers, regulators, policy makers and industry leaders to address the latest developments in financial technology and the future of finance.
More efficient, around-the-clock capital markets
The potential for efficiency gains is one of the key drivers of development. Many parts of the current financial market system are still based on technology dating back to the period from the 1970s to the 1990s, before the internet as we know it even existed. DLT, which distributes an electronic transaction register across a network of many computers and most commonly takes the form of a blockchain, could thus establish itself as a new standard. Using this technology could make issuance, trading and settlement more efficient, reducing processing times and costs on capital markets. DLT enables more extensive automation using smart contracts and could theoretically allow financial markets to operate around the clock, spelling the end of fixed trading hours on our exchanges. The decentralised nature of DLT could also eliminate the cluster risk associated with a single point of failure, although new points of failure could arise as a result of implementation choices, for example concerning the consensus mechanism.
Trust and regulation provide the foundation
The importance of trust was a common thread at the Point Zero Forum. Right at the outset, attending ministers emphasised how critical it is for the financial system. This means that tokenised financial markets need not only security and resilience to manipulation at the technological level, but also clear governance structures and legal frameworks. Central challenges remain, namely legal certainty (especially as regards ownership and settlement finality), regulatory clarity (as evidenced by the EU’s ongoing review of its Markets in Crypto-Assets Regulation (MiCAR)), and interoperability between different platforms and blockchains.
Switzerland caught between leadership ambitions and competitive pressure
It is now vital for everyone to press ahead with targeting efficiency gains and moving financial markets forward to the next stage of evolution. Europe is increasingly looking to capital markets to promote investment in innovation and growth. There was also a consensus among the high-level representatives of the Swiss government that innovation must primarily come from the market, with regulation setting the parameters. Striking the right balance will determine whether Switzerland can maintain its strong position in the next phase of tokenisation. Swiss finance minister Karin Keller-Sutter summed it up by urging those present to “just do it”: innovation requires a responsible approach to risks, not incentives from the government.