The discussion around tokenised assets and their use cases has surged in the past year. A recent study from BNY Mellon showed that 97% of institutional investors think that tokenisation is set to revolutionise asset management. Boston Consulting Group also estimates global illiquid asset tokenisation alone will be worth $16tn by 2030.
As a result, many institutions are now looking to tokenisation as a way to create new markets, solve longstanding inefficiencies and overcome liquidity challenges. This interest is particularly strong across markets that are characterised by complex processes with many different transacting counterparties, such as securities post-trade settlement.
The interoperability challenge
As tokenisation gathers pace, the need to avoid fragmentation has become even more apparent. This is particularly important when we consider the underlying technology that tokenisation is built on. Still in its relative infancy, blockchain has potential to bring new levels of trust and assurance to processes that incorporate numerous counterparties looking for improved transparency over a particular transaction lifecycle.
But blockchain is not a silver bullet. In order to create an interconnected global market, a common connectivity layer is critical to eliminating friction and enabling interoperability between the existing financial system and various emerging blockchain networks hosting tokenised assets.
This need for interoperability extends to collaboration between blockchains and other infrastructures, as well as between different blockchain platforms themselves. In the absence of well-defined legal and regulatory guidelines concerning different blockchains’ coexistence, the onus is on the industry to prioritise interoperability.
Building on existing infrastructure
Fortunately, it is possible for firms to leverage their existing infrastructure, message implementations and proven business processes to connect to blockchain ledgers, where tokens are recorded in a way that is both compliant and secure.
This was the finding of our recent collaborative experiments to help the industry in its effort to make tokenised assets work in concert with existing financial infrastructure.
Our tokenisation journey started in 2022, with a set of experiments that demonstrated the ability for Swift to act as a single access point, linking up multiple tokenisation platforms and providing access to multiple payment options. Then in 2023, we went much further, collaborating with more than a dozen major financial institutions to test how firms can leverage their existing Swift infrastructure to efficiently instruct the transfer of tokenised value over a range of public and private blockchains.
Moving forward, we’ll continue working with the financial community to understand the most comprehensive use cases for tokenised asset adoption and invest in the relevant capabilities to support the transfer of tokenised assets over the Swift network.
As interest in digital assets grows, we must innovate with a global mindset to avoid fragmentation. The future of tokenisation is not yet fully defined but is expected to be ‘multi-chain’. It’s therefore vital to enable secure interoperability to ensure global reach.
Jonathan Ehrenfeld is Head of Securities Strategy at Swift.
This article was originally published in the Digital Monetary Institute Annual. Download here.
