Four ways JPMorgan, BlackRock and others are targeting the $14tn tokenisation opportunity

Tokenisation, or technology that pairs real-world assets with digital tokens on a blockchain, will likely take years to develop, according to Deloitte.

And any significant breakthroughs are likely to come from multiple parties instead of deriving from a single entity, the accounting giant wrote in a recent report.

However, ongoing trials with the technology and the emergence of regulations are promising signs. That could help bolster existing financial products, it said.

The report highlights how tokenisation has become a big theme in 2024, with BlackRock and Franklin Templeton pushing further into this space.

Research firm Bernstein recently suggested it would be one of the key driver behind the crypto sphere’s rally over the next year.

No wonder, consultant Oliver Wyman estimates that tokenised assets could top $14 trillion by 2030.

Deloitte identified four near-term opportunities for tokenisation use cases that could provide value for early adopters over the next few years.

Bond issuance

“Issuing bonds as tokenised assets via blockchain protocols carries the advantage of improved transparency and faster settlement times,” Deloitte wrote.

“As secondary markets develop, tokenised bonds could also help improve liquidity and accessibility.”

The European Investment Bank issued tokenised bonds using platforms provided by banks including HSBC and Goldman Sachs, Deloitte said. “More opportunities are sure to be found in the field of fixed income.”

Intra-day repo transactions

Repo transactions involve selling securities with an agreement to repurchase them at a higher price on a later date, typically used for short-term financing.

The accounting giant pointed to JPMorgan’s $300 billion in intraday repo transactions via asset-tokenisation platform Onyx as evidence of early success.

It also highlighted as early adopters Goldman Sachs, Singapore’s DBS Bank, and Broadridge’s Distributed Ledger Repo platform. The latter captures some $1 trillion in monthly volumes.

Exchange-traded products

Tokenising exchange traded funds offers faster settlement times, greater efficiencies for issuers, with improved transparency and broader access for traditional investors.

In DeFi, some firms have launched tokens on permissionless blockchains that track ETFs, while major ETF issuers including State Street plan to explore tokenisation of their funds for stocks and bonds.

Commodities

Startups have issued more than $1 billion in tokens that represent ownership in physical gold, “and traditional commodities traders are following suit,” Deloitte said.

Meanwhile, a Santander Bank pilot issued loans to Argentinian farmers that were collateralised with tokenised commodities including soybeans, corn, and wheat.

Other possibilities will probably soon emerge with mutual funds, private equity, cross-border payments, and cash deposits, Deloitte said.

Risks

Regulatory challenges stem from the need for clear guidelines for tokenised securities, which create significant compliance complexities that vary by jurisdiction, Deloitte said.

Technological and operational risks also arise as tokenisation integrates into existing financial infrastructures, bringing potential cybersecurity threats and governance issues.

Market volatility, meanwhile, may increase due to the faster transaction speeds and automation of tokenisation, leading to quicker market corrections and heightened financial instability.

Strategic shifts in business models to accommodate tokenisation could also disrupt traditional financial roles and revenue streams, Deloitte said.

At the same time, interoperability concerns, privacy issues, effective key management, and the sustainability of asset values pose additional significant challenges, it said.

Trista Kelley is DL News’ Editor-in Chief. Sebastian Sinclair is a markets correspondent for DL News. Have a tip? Contact them at trista@dlnews.com and sebastian@dlnews.com.