Opinion

A fund administrator's perspective on navigating the wave of tokenisation

Tokenisation WideKevin Monserrat, CEO of TokenSphere, discusses the evolving role of tokenization in finance, highlighting its challenges, potential benefits, and the need for fund administrators to adapt to this technological shift.

Despite the initial excitement surrounding tokenisation for the past six years, its implementation in the world of finance has been met with obstacles and has made only limited progress. On the other hand, a resurgence of interest, in conjunction with improved fundamentals of the business and structural shifts, is currently painting a different picture. This resurgence is not simply a repetition of what has happened in the past; rather, it is an opportunity for fund administrators to interact with a more robust technological landscape that shows promise.

Within the context of a changing financial landscape, tokenisation bankruptcies, fraud cases and regulatory actions have contributed to the volatile nature of the past year for digital assets and Web3. These developments have helped to dampen the enthusiasm of the general public. Still, industries such as the financial services sector are continuing to investigate the possibilities presented by Web3 and tokenisation. In this ever-changing environment, fund administrators are increasingly concentrating their attention on the potential of tokenisation. Tokenisation is a process that involves digitising traditional assets using blockchain technology. This process is distinct from the more general narrative surrounding cryptocurrency.

The potential of tokenisation in the administration of funds

  • Improved capital efficiency: Settlement times can be significantly reduced through tokenisation of assets, resulting in capital savings. This is an essential aspect in the current environment, which is characterised by high interest rates.
  • The democratisation of Access: Tokenisation can reduce entry barriers and make it possible for smaller investors to participate in previously inaccessible markets. However, regulatory limitations may be applicable.
  • Automation and error reduction: Through the programmability of tokenised assets, it is possible to automate a large number of manual processes, thereby reducing the number of errors and the involvement of intermediaries, ultimately resulting in cost savings.
  • Enhanced compliance and transparency: Tokenisation has the potential to simplify compliance checks and provide real-time, auditable accounting, both of which are exceptionally important for fund administrators in terms of maintaining regulatory standards and preserving investor confidence.
  • Infrastructure Efficiency: The open-source nature of blockchain technology enables continuous innovation and cost-effective operation. Blockchain technology is a distributed ledger.

Challenges and opportunities facing fund administrators

Despite these advantages, widespread adoption of tokenisation is threatened by a number of obstacles, such as the readiness of the infrastructure, the costs of implementation, the maturity of the market, and the uncertainty of regulatory policies. The successful navigation of these challenges calls for a cautious approach on the part of Fund Administrators, who must strike a balance between the potential benefits and the practical aspects of implementation.

Things that fund administrators should take into account regarding the tokenisation landscape:

  • As the tokenisation process approaches a potential tipping point, fund administrators should take the following steps:
  • Reevaluate Business Cases: It is important to reevaluate business cases and determine tokenisation's tangible benefits and implementation costs, particularly in light of the fact that interest rates are higher and markets are volatile.
  • Develop Technical and Risk Management Skills: To manage tokenised assets effectively, you need to have a solid understanding of the technology, its risks, and the governance aspects involved.
  • Establish Relationships Within the Ecosystem: To simplify the process of asset tokenisation and management, as well as to form strategic partnerships for the distribution of assets.
  • Participate in Standard Setting: To avoid fragmentation and ensure consistency, it is important to participate in the standard setting process. This involves engaging with regulators and industry players to develop and adhere to emerging standards.

Final thoughts

For those who are in charge of administering funds, the constantly shifting landscape of tokenisation presents both opportunities and challenges. Fund administrators can position themselves at the forefront of this technological shift by gaining an understanding of these changes and adapting to them.

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