The quiet road to tokenisation
Tokenisation is everywhere.
Bonds, funds, deposits, real estate and other assets can be tokenised. Around them sits the promise of faster settlement, greater automation and new ways for assets to move and interact.
It can sound like the beginning of an entirely new financial system.
But the more I try to understand tokenisation, the more I find myself coming back to a few simple questions.
Weren’t we already digital?
In many ways, yes.
Securities moved away from paper certificates long ago. Markets trade electronically. Money largely exists as electronic records. Payments move digitally and processes that once depended on paper and manual intervention have been automated over decades.
The move towards digital finance has been underway for a long time.
Take a bond. For most investors today, it is already an electronic record. Yet behind that record, different organisations and systems can still be responsible for different parts of the transaction. Instructions move between them, records need to remain aligned and eventually the asset and the money need to reach the right places.
We made the asset digital. That did not necessarily make everything around it work as one.
What actually changes with tokenisation?
Tokenisation does not make an asset digital for the first time. It changes how that asset can be represented, transferred and used.
A token can represent rights to an asset on programmable infrastructure. Ownership can be recorded there, rules can govern how the token moves and certain actions can happen automatically when predefined conditions are met.
More importantly, different parts of a transaction can potentially interact more directly. Delivery and payment can be coordinated more closely, processes can be automated and some of the reconciliation required between separate systems can be reduced.
The asset itself may not have changed very much.
The way it can move has.
So are we changing the rails?
That may be the simplest way to think about it.
Most of us rarely think about the infrastructure underneath finance. We care that a payment arrives, a trade settles or an asset appears in the right account.
If tokenisation changes how those transactions can move and settle, then the bigger story may not be the token at all. It may be the infrastructure underneath it.
And this is already moving beyond theory. Central banks, financial institutions and market infrastructures are experimenting with tokenised securities and money, as well as ways of connecting new platforms with existing settlement infrastructure.
Which raises another question.
And if we are changing the rails, should we change all of them?
Probably not.
Tokenisation has to do more than show that an asset can exist on new infrastructure. It has to make something genuinely better.
That may be easier to see where existing processes remain fragmented, require repeated reconciliation or could benefit from greater automation. In other areas, the infrastructure we already have may work perfectly well.
New does not automatically mean better, just as existing does not necessarily mean outdated.
The question is not where we can use new rails, but where we actually need them.
And what’s the end game?
Will tokenisation eventually reshape large parts of financial-market infrastructure? Or will it prove most valuable in particular assets and processes while much of today's system continues alongside it?
Nobody knows yet.
But its success should not be measured by how much of finance we manage to tokenise.
It should be measured by what becomes genuinely better because we did.