Can tokenizing real-world assets power the future of connected experiences and streamline global payments?
Proponents of Web3 technologies say it can, while other tech-centric observers believe that if an innovation isn’t useful, it won’t be able to scale.
But as tokenizing various assets on blockchains using the underlying technical architecture of distributed ledger technology (DLT) begins to find real-world applications beyond just cryptocurrencies, digital asset sector observers and insiders alike are starting to come more fully around to the idea that there could be some promise to the technology’s innovative capability for storing and moving value — particularly when applied to the regulated and traditional financial system.
After all, during the past decade, and even more so since the turn of the century, the way that money moves, payments settle, and value gets defined has become increasingly digitized.
The stage has hypothetically been set for a new leading-edge payments system that is resilient, adaptive and accessible.
Still, the bottleneck around scalable adoption of tokenized digital assets continues to be centered around whether the use cases of tokenized assets can perform better than the options that already exist today — and whether that performance warrants a rug-pull investment into an all-new and unproven infrastructure.
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Tokenized deposits are being more widely considered and championed across far-flung corners of banking, and 93% of central banks across the globe are in at least some development stage of their own central bank digital currencies (CBDCs), which rely on blockchain-based architectures and are themselves a form of tokenized digital assets.
“There’s a huge global trend going on right now into exploring the intricacies, complexities, difficulties and benefits of leveraging the properties of DLT for the financial system,” Daniel Field, global head of blockchain at UST, told PYMNTS in July.
Major money movement areas like cross-border payments and remittances, trade finance, supply trade finance insurance, and capital markets are all seen by proponents as use cases where tokenization can provide fluidity, transparency and improved transaction experiences.
But they haven’t taken off yet in a major way.
“The true intrinsic value of blockchain, which is around programmability of transactions, immutability of transactions, and the ability to do delivery versus payment and always-on types of payments, has yet to be unlocked,” Mastercard Chief Digital Officer Jorn Lambert told PYMNTS in July.
Mismatches around regulation of the technology make up the 800-pound elephant in the room.
“Until there exists the ability to actually develop financially regulated applications on the blockchain, the benefits will never go mainstream,” Lambert said. Regulated financial institutions are crucial for [tokenized blockchain money movement vehicles] to truly scale.”
See also: Will Private Blockchain and the Fed Make Tokenized Deposits Mainstream?
Another reason blockchain-based benefits and tokenization value-adds haven’t taken the world by storm is the absence of a widely interoperable infrastructure that spans both the private and public payment sectors.
“I look at tokenization being key to portability and integrating the FI more into the consumer’s lifestyle,” Ron Bergamesca, general manager of banking and FinTech Solutions at Paymentus, told PYMNTS in August. “By definition, you can’t provide a great user experience … with outdated technology.”
“[C]ontinuous innovation [supported by] underlying technology that is modern, flexible and open is something you need,” he added.
And while present-day systems might be inflexible, inefficient and challenging to update, organizations are more likely to stick with what they know and already have in place, than invest in a change-the-game moonshot architecture, particularly as the realities of balancing their day-to-day working capital needs continue to be sharpened by the macro environment.
Still, there are “many technical benefits you have with a digital currency that you just can’t do with traditional money,” James Wallis, vice president of central bank engagement at enterprise crypto solutions provider Ripple, told PYMNTS this month.
“One of the absolute key reasons to do blockchain is the ability to add additional functions and capabilities, relatively easily, on top of the core infrastructure,” he added. “… The list is almost as big as the imagination.”
But old habits die hard, and while the technology to power tokenized assets exists today, until they can operate seamlessly within the existing world and its existing payment schemes, they may continue to only exist in the imagination.
What is needed now is regulation, education and the social, political and international consensus around how tokenized assets will impact financial systems. Stakeholders need to know why bringing the power of 24/7 operations, programmability and immutability to all aspects of the economy holds the potential to deliver a true and ongoing transformation in the way money moves.
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