Risks of traditional assets moving to tokenisation – what are they? Response from analysts at the Bank for International Settlements
Analysts at the Bank for International Settlements (BIS) have released a report on the situation with tokenisation of real assets – i.e. their gradual transfer to blockchain, as well as the impact of this process on the traditional financial landscape. The document stresses that tokenisation is able to significantly reduce transaction costs and increase the speed of transactions, which attracts institutional investors. However, the BIS warned that these benefits come with certain risks and challenges.
Tokenisation of traditional assets is a trend in the world of finance. The fact is that the use of blockchain can significantly reduce the company’s costs when conducting transactions. At the same time, settlements are much faster, and the transparency of the distributed database is also beneficial.
The topic of tokenisation is supported by major industry players. For example, Larry Fink, the head of the world's largest investment company BlackRock, said earlier that tokenisation will be the next step in the development of financial markets. And according to him, almost all traditional instruments will end up on the blockchain.
BlackRock CEO Larry Fink
And here is a table from a recent study by investment platform Bitwise, which shows the level of adoption of crypto by various companies. The last row falls precisely on tokenisation.
Bitwise’s analysis of cryptocurrency and blockchain popularisation among the world’s largest financial companies
As you can see, giants like BlackRock, BNY Mellon, Citi, Deutsche Bank, JPMorgan, PayPal and Visa are engaged in this process. Accordingly, the topic is indeed of interest to the biggest players in the market.
However, BIS representatives are clearly not happy with what is happening.
How blockchain helps the world of finance
A study by experts at the Bank for International Settlements identified a number of risks associated with tokenisation, including potential governance and legal framework problems. These challenges may manifest themselves differently from those faced by traditional market infrastructures.
Accordingly, the process requires careful assessment by central banks. Here is an analysts’ commentary on what is happening, as quoted by The Block.
Central banks need to assess the trade-offs and appropriate balance between different types of settlement assets in tokenisation mechanisms.
The BIS report also highlights the potential impact of tokenisation mechanisms on the implementation of monetary policy, particularly in relation to changes in the structure of regulated markets and the demand for central bank services for other banks. In other words, tokenisation has the potential to influence the activities of central banks around the world.
Top altcoins in the tokenisation sphere
The head of the BIS, Augustin Carstens, also drew attention to the overriding concern over tokenisation. Regarding this, the report has the following lines.
As for problems with tokenisation, these can arise where the application of existing laws to the concept of the technology itself is unclear. For example, in the US, repo transactions enjoy automatic bankruptcy protection, and this benefit may not apply to tokenised versions of such transactions.
BIS CEO Augustin Carstens
That said, a growing number of global financial institutions are exploring the use of tokenised deposits to improve settlement efficiency and enable programmable payments. For example, in September, the UK Treasury published the results of the pilot phase of the Regulated Liability Network (RLN) project, which is being used to explore the potential of tokenisation.
The trial addressed key questions on the topic of tokenisation, including the benefits received, associated costs and potential revenue opportunities. The report states that a wider range of tokenisation scenarios need to be developed for commercial success.
Crucially, industry giants such as Barclays, Citi UK, HSBC UK, Lloyds Banking Group, Mastercard and others have been involved in the project.
The technical advantages of blockchain settlement are often ignored by financiers due to crypto fraud. A recent prime example of a malicious scheme is an artificial intelligence-generated video of Ripple co-founder and executive chairman Chris Larsen.
According to Cointelegraph’s sources, in the video Larsen allegedly announces a large-scale distribution of XRP tokens, and to participate in it, investors need to click on the link attached to the publication. The latter leads to a phishing site that promises to “double the tokens” sent to the specified cryptocurrency wallet.
Naturally, potential victims end up simply losing their money. Well, it is definitely not a good idea to send your own tokens to the addresses of strangers on the Internet, and there is no way to cancel the transaction and return the funds.
Fake video with Ripple co-founder Chris Larsen
The video is published on a YouTube page that does not appear in search results. This means that the channel can send out links to it via email or other relatively private ways. Such a thing is done to prevent the video from being detected by the YouTube team and removed.
In general, fraudulent videos generated by artificial intelligence are becoming a growing problem in crypto. Similar videos with Ilon Musk were broadcast online during the Bitcoin 2024 conference in Nashville at the end of July. Then the victims of the scam lost more than $79,000 worth of cryptocurrency. Such scams remain common, which somehow undermines the industry’s image in traditional finance.
As a table within a recent Bitwise survey showed, many giants from the world of finance are already actively pursuing the topic of tokenisation. Therefore, the transition of traditional assets to blockchain will continue to happen. And the arguments of BIS representatives are unlikely to stop this process, as the use of distributed ledgers allows companies to significantly improve their performance.
Related posts
