Financial Institutions prioritise cutting out intermediaries over liquidity when tokenising real-world assets, new study reveals
SINGAPORE, 10 November 2023 – Financial institutions cite axing the number of traditional financial intermediaries as the primary benefit of tokenising real-world assets, according to research by SBI Digital Assets Holdings (SBI DAH).
In a survey with leading institutions interested in digital assets, almost half of the respondents cited disintermediation of traditional parties that act as go-betweens on financial transactions, as the main benefit of tokenising real-world assets like real-estate.
The results come as the high rate and low return landscape forces financial institutions to seek out new ways to slash fees. Fewer intermediaries mean reduced transaction costs, as each firm typically charges fees for their services.
While the reduction of intermediaries took the top spot, other advantages of tokenisation also garnered substantial support. The findings underscore the multifaceted appeal of tokenisation, with respondents ranking faster settlement, enhanced transparency and cost efficiency after disintermediation.
“These findings showcase the evolving perspectives and priorities of financial institutions regarding the tokenisation of tangible assets such as real estate,” said Fernando Luis Vázquez Cao, CEO of SBI DAH.
“While reducing traditional intermediaries is the top priority in these cost-conscious times, faster settlement, enhanced transparency, reduced costs, better liquidity and the potential for safer digital asset transactions can only become a reality with a trusted ecosystem. As the digital asset ecosystem continues to mature, institutional-grade infrastructure coupled with regulatory certainty will be pivotal to shaping the future of financial markets.”
Participants were also asked to rank their preferred real-world assets for tokenisation. Real estate emerged as the top choice, signalling the potential for this industry to benefit greatly from blockchain-based tokenisation. Funds, physical infrastructure, bonds, and collectibles followed, while equities and precious metals lagged behind. When it came to the safety of tokenised securities, over two-thirds (62%) of respondents expressed that they would consider them safer if there were a trusted ecosystem ensuring end-to-end digital asset transactions.
Despite the so-called “crypto winter”, 60% of respondents reported an increased exposure to digital assets over the past 12 months, with two-thirds noting increased client demand for tokenised securities. However, the transition to digital assets remains gradual, with less than 20% of the market expected to be in digital assets by 2026. Less than a quarter of respondents believe that 20-40% of their market will involve transactions in digital assets within the same timeframe. The lack of institutional-grade market infrastructure, lack of wider market adoption and regulatory clarity were also cited as key barriers restricting institutions from investing in digital assets.
SBI DAH’s Head of Capital Markets Centre of Excellence and CEO of SBI Digital Markets, Winston Quek said, “The financial industry is at a point of inflection – the findings reflect the interest we are seeing from our partners as they explore ways to leverage blockchain technology and smart contracts to achieve capital and operational efficiencies while ensuring strong governance. With the industry demand for a trusted ecosystem, we are well-poised to offer an institutional-grade digital asset solution for capital markets.”
CEO of AsiaNext, Chong Kok Kee said, “This focus on disintermediation aligns with the financial industry’s need to ensure customer demands for efficiency and lower transaction costs are met; a perennial challenge in a well-established and mature sector.”
SBI DAH’s Head of Cryptocurrencies Centre of Excellence and CEO of SBI Zodia Custody, Koichi Kano said, “The findings reaffirm our understanding that the market is still underwhelmed by the current offerings when it comes to the safety of their digital assets. SBI Zodia Custody will look to provide a truly institutional grade custody offering, under Japan FSA regulatory guidance, and become a safe harbour for clients operating within the SBI DAH ecosystem.”
Close to two-thirds of respondents envision that less than 20% of their market will be in digital assets by 2026, while less than a quarter believe that 20-40% of their market will be transacting in digital assets.
Of those actively investing or transacting in digital assets, cryptocurrencies are the current digital asset of choice, with 7 in 10 respondents currently transacting or investing in cryptocurrencies, followed by security tokens, CBDCs and NFTs respectively. In terms of priority, respondents ranked cryptocurrencies as the main focus for investment, followed by Security Token Offerings (STOs), stablecoins, CBDCs and NFTs.
Two-thirds of institutional investors surveyed saw an increase of exposure to digital assets in the last 12 months, with 60% observing increased client demand for STOs. Of the organisations actively transacting or investing in digital assets, 38% plan to maintain status quo in the next 12 months, with only 26% planning to increase volumes significantly over the next year.
The lack of institutional-grade market infrastructure, lack of wider market adoption and regulatory clarity are key barriers restricting institutions from investing in digital assets.
In terms of tokenised securities, factors that have influenced organisations’ decisions to invest include, primarily, the lower cost of issuance and post-trade costs, access to new/global capital and a shortened settlement period which reduces counterparty risk.
Respondents stated that tokenised securities would be deemed safer if there were a trusted ecosystem to take digital asset transactions from end to end (62%), and comprehensive regulatory standards (17%), while 19% felt that cyberthreats were a key obstacle.
When asked about the main benefit of tokenising real world assets (RWA), close to half of respondents stated that reducing the number of intermediaries was the most beneficial, followed by faster settlement, enhanced transparency, cost efficiency, increased liquidity and fractional ownership.
In ranking RWAs that respondents wanted to see tokenised most, real estate took the top spot followed by funds, physical infrastructure, bonds and subsequently, collectibles, while equities, and precious metals lagged behind.
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About SBI Digital Asset Holdings (www.sbidah.com)
SBI Digital Assets Holdings (SBI DAH) oversees and operates digital asset-related businesses under the umbrella of SBI Holdings, Inc. Some of the key assets under its umbrella are SBI Digital Markets, AsiaNext (JV), SBI Security Solutions and SBI Zodia Custody (JV). The company also has investments into key portfolio companies including Sygnum, Boerse Stuttgart Digital Exchange, Everspin, ClearMarkets, Modernity Financial Technologies, and Tangem among others. SBI DAH endeavours to bring innovation to the financial industry by building an ecosystem for issuance, custody, management, and liquidity for digital assets. SBI DAH, via SBI group companies, has strong links with other group investments such as Ripple, R3, B2C2, Securitize and has inroads to banking and securities infrastructure across Asia with businesses in Thailand, South Korea, Hong Kong, Malaysia and Cambodia.