April 12, 2022 | Stamford, CT — Nearly a quarter of buy-side firms are investing in digital securities / security tokens and about another 40% of other institutions are conducting research to assess opportunities and risks in the nascent sector.

These results, from a recent Coalition Greenwich study of 108 executives globally at financial institutions and technology firms, suggest that the tokenization of traditional financial assets is beginning to attract institutional investors into an emerging ecosystem that already includes broker-dealers, alternative trading systems (ATSs), transfer agents, technology firms, and custodians.

While blockchain technology is best known for its ability to support the issuance of new digital assets like Bitcoin and Ether, it also allows for the tokenization of traditional but illiquid assets such as real estate, venture capital and private credit, and even liquid assets such as public equity and some bonds.

Asset tokenization allows traditional capital markets participants to harness the benefits of blockchain technology—such as an immutable ledger of ownership, transaction history and rapid settlement. Other benefits include the use of smart contracts, which can bring programmatic compliance to these traditional financial assets, so that issuers and agents of securities-backed tokens can ensure compliant features such as transfer restrictions, lock-ups, and holding periods. 

“Furthermore, we believe asset tokenization of regulated securities is not a solution in search of a problem, but rather an enabler of a new path forward,” says David Easthope, Senior Analyst Coalition Greenwich Market Structure & Technology and author of Digital Asset Securities: Prepare for Launch.

Regulatory Clarity Will Unlock Digital Asset Growth 
Today, regulatory uncertainty is the biggest barrier to institutional interest and engagement in digital securities. When regulatory clarity is further advanced, the next biggest challenge will be the shift in middle- and back-office processing activities. 

“While a change of this magnitude would be significant and costly to incumbents, we believe that tokenized securities adoption will inevitably lead to a reinvention of post-trade processes, ultimately to the benefit of the industry as a whole,” says David Easthope.