Much has been written recently about the tokenisation of assets and blockchain. However, clients – the people that buy your services, don’t care that under the hood it’s a blockchain. The things that they care about include:
Velocity: Less time taken to complete a process – T+0.x settlement for example, is a good thing.
Scope: The range of products that can be rendered and supported by a single technology platform. The more the better because this drives down complexity and therefore cost.
Fractionalisation: Whether an asset can be endlessly carved up. The more it can be fractionalised the lower the cost of entry for the client base in terms of capital.
Transparency: Providing a single ledger for counterparties to share a view of the assets means reduced rec breaks and a reduced requirement for reconciliation between them. If the chain becomes the single point of reference for both counterparties and all of their internal systems then the reconciliation requirements collapses to zero. This reduces the overarching complexity and therefore cost.
These points all boil down to doing things faster, cheaper and for a broader client base. Feel free to comment if there are others – I’m not claiming that this list is canonical.
Providing you choose a tractable consensus algorithm, blockchain is an enabling technology that offers benefits in each of these categories provided there are standards in place to facilitate interoperability between vendor offerings*. So I'm a convert but equally a pragmatist.
There remains the issue of processes collapsing to the lowest common denominator – ie if asset X settles at T+2 some of your processes will be blocked by it, even if 99.9% of your portfolio settles within a minute, so there is a considerable body of work to get through to iron out the wrinkles. However, that’s not an argument against tokenisation, it’s an example of why it’s necessary.
It feels like we are past the peak blockchain hype point of the Gartner hype-cycle now, so perhaps it’s time we delivered on the potential benefits. Nonetheless, I’m mindful of a blog I posted 5 years ago entitled “New improved Fintech, now with added AI+ML!” (https://financialreasoning.com/new-shiny-fintech-now-with-added-aiml/), which presented a critique that sadly still largely holds true today. We will be measured by the business benefits we derive not by the fun we had building the systems.
* Thanks https://www.linkedin.com/in/bcyprian/ for that observation.