A recent survey from SIX Digital Exchange (SDX) took a deep dive into how asset managers and other executives view the progress of tokenization and blockchain. The results paint a clear picture. Smart contracts and automation (79%) top the list of areas poised for the biggest impact. This technology holds the key to streamlining processes, reducing errors, and unlocking a new era of operational efficiency.
Notably, regulatory compliance also stands to benefit from blockchain according to a significant portion (64%) of our survey respondents, while settlement and clearing (48%) is seen as an area that is ripe for improvement through blockchain’s secure and transparent recordkeeping capabilities.
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One response to those results came from Valerie Noel, head of Trading at Syz Group, as cited in the report: “I’m surprised by the top answer, as we already trade with automation, but blockchain technology is poised to offer significant benefits to various facets of traditional financial operations, enhancing efficiency, security, transparency, and cost-effectiveness. In the realm of settlement and clearing processes, blockchain’s capacity to facilitate near-instantaneous settlements can considerably reduce the time and cost involved, eliminating the necessity for intermediaries, diminishing counterparty risks, and bolstering transaction efficiency.”
Achieving widespread adoption hinges on overcoming key challenges: integrating with legacy systems, talent acquisition and addressing security concerns.
“Counterparty and settlement risks: In traditional finance, securities transactions often involve intermediaries that manage counterparty and settlement risks. In a blockchainbased system, these risks might be managed differently, raising questions about how to ensure transaction finality and mitigate counterparty risk. Furthermore, there is substantial effort involved in integration with traditional systems which remains a significant hurdle to overcome,” according to the report.
Despite these challenges, cautious optimism prevails among industry leaders. Half of respondents view blockchain-based solutions as moderately mature and accessible, suggesting that adoption is growing. This point of view is further backed up by the fact only a small minority (10%) consider these solutions to be in their infancy and difficult to implement.
The survey reveals a strong interest in tokenizing a variety of asset classes, from hedge funds to real estate. Transparency, improved market access and fractional ownership hold the keys to democratizing investments for a wider audience. However, security concerns, privacy considerations, and scalability issues need to be addressed to ensure the successful implementation of tokenization solutions.
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“I’m slightly surprised by these and I believe there might be a bit of a gap between aspiration and reality. It would be great to have hedge funds tokenized so anybody can buy the token but I think we are some way off that becoming a reality. I know that fixed income securities are happening right now. In terms of tokenization, I think that is way ahead of hedge funds,” said Jean-Marc Bonnefous managing partner at Tellurian ExoAlpha Digital Assets, as cited in the report.
According to the report, the missing piece is wholesale central bank digital currency (wCBDC). Without being issued by a central bank any form of stablecoins or tokenized deposits are insufficient replacements for central bank money as the riskless settlement in the tokenized context. SDX has been working in collaboration with the Swiss National Bank (SNB), the BIS Innovation Hub (Swiss Centre), and market participants to investigate the implications of wCBDC on the financial industry through a series of projects. In the latest phase, Project Helvetia 3, the SNB issued CHF wCBDC which was used to settle real transactions.