Author: Li Xiaoyin, Wall Street Insider
Widely regarded as the "2.0 version" of the asset management industry due to its transparency and flexibility, ETFs now hold the promise of ushering the industry into the "3.0" era, as token-compatible decentralized platforms emerge.
A recent column article published in Sherwood News suggests that the future will see the convergence of cryptocurrencies and traditional finance, and analysts predict this will unlock a multi-trillion dollar tokenized securities market.
Specifically, what are the industry prospects for the "tokenization" of traditional finance?
The article states that this means all assets such as stocks, bonds, and commodities will be converted into tokens (digital assets representing value or ownership in a decentralized system), which can be tracked on a unified digital ledger and managed through automated back-end processes, operating 24/7 with real-time transactions.
Will Peck, the digital asset head at financial innovation company WisdomTree, which has launched over 10 tokenized investment funds, says tokenization allows anyone to "get the money when you need it and confirm the transaction":
"Imagine if investing and payments were more tightly integrated. Or you might think the idea of 'more seamlessly transferring assets and value' is appealing."
Looking at WisdomTree's process of "tokenizing" securities trading, the user entry barrier and operational difficulty are almost zero: after registering the WisdomTree app, users can directly trade tokenized funds via debit card.
The Prospects of Asset Management "Tokenization": A Mixed Bag?
In fact, well-known hedge funds like Blackrock and Janus Henderson have already started experimenting with "tokenization", collaborating with cryptocurrency platforms to launch tokenized US bond fund products, though the entire industry is still in a very early stage.
Currently, the prospects of asset management "tokenization" appear to be a mixed bag.
Lucas Vogelsang, co-founder of the tokenization platform Centrifuge, says asset "tokenization" has the potential to make financial products more accessible to ordinary investors, helping to promote fairness in the financial system:
"Think about IPOs, private credit, hedge funds... maybe this will make the financial system a bit fairer."
Klaas Knot, the chair of the Financial Stability Board, also stated that asset "tokenization" will improve trading efficiency and provide investors with access to new markets, but he also warned that "it will also amplify many of the same vulnerabilities in traditional finance".
A related study by Deloitte suggests that "tokenization" may bring greater accessibility, faster settlement, higher transparency, and lower operating costs. But it could also lead to faster financial crises, faster transmission of financial fraud, and smaller windows of opportunity for monetary policy decisions.
Currently, a specific dilemma for asset management "tokenization" is that while tokens trade 24/7, their underlying assets are still linked to traditional financial operations, so investors still need to wait at least T+1 to complete transactions.
Additionally, some in the cryptocurrency community are skeptical about tokenization.
Meltem Demirors, founder of Crucible Investments, believes that tokenizing bad assets does not make them any better - for example, "tokenizing" real estate has not made it more liquid or attractive.
Demirors also believes that "tokenization" is not fundamentally innovative for the crypto industry:
"Taking $50 billion of Bitcoin out of circulation and giving it to a financial institution that will charge you 20 to 250 basis points to hold your Bitcoin, that's not crypto innovation, that's asset management innovation."
WisdomTree's Peck similarly believes that financial firms are not seeking to promote cryptocurrencies through tokenization, but rather seeking a new way and channel for asset management:
"I still believe tokenization will be the future of asset management, I just think the path to getting there may be different than we initially thought."
