Tokenisation of traditional financial assets has the potential to become a significant development in mainstream financial markets, but still face hurdles with mainstream deployment, according to a Dubai Financial Services Authority (DFSA) report.
Tokenisation is the process of converting real-life assets – like stocks, cryptocurrency, or cash – into a digital version on a shared, digital ledger known as a blockchain. It offers greater market access, increased efficiency for issuers and intermediaries, and reduced risk in certain areas.
In its whitepaper, ‘Scaling Tokenisation: The Road Ahead’, the DFSA, which regulates financial services in the Dubai International Financial Centre (DIFC), detailed the main barriers facing the widescale adoption of tokenisation, a technology that is viewed as still in its infancy.
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Coinbase, the largest US-based crypto exchanged, announced in August it will make Abu Dhabi its international tokenisation hub. The Abu Dhabi Global Market, where Coinbase’s tokenisation hub is based in, also issued one of the world’s first regulatory frameworks for virtual assets eight years ago.
The DFSA itself has its own Tokenisation Regulatory Sandbox – an initiative meant to support businesses that are exploring tokenised investment opportunities within the DIFC.
Challenges to widescale tokenisation
The main challenge with deploying tokenisation at scale lies with how investors view the associated risks, including weaknesses in the bridges linking blockchains and bad actors taking advantage of them.
Regulation, although it won’t remove the risks altogether, can help institutions manage exposure.
Access to digital cash during times of uncertainty
Having a widely accepted and trusted form of digital cash on-chain is an important prerequisite for tokenisation to deliver benefits, according to the DFSA whitepaper. This means it would allow them to trade safely during times of uncertainty without waiting for traditional exchange operating hours.
If tokenisation comes to represent a significant share of global bond and equity market capitalisation, trillions of dollars’ worth of digital cash may be needed to facilitate trading and maintain liquidity.
Based on the Securities Industry and Financial Markets Association’s end-2025 figures, 10 per cent of global securities would amount to around $32 trillion. The requirement for tokenised cash in settlement would depend on underlying debt and equity market volatility and turnover, but would likely require a combination of settlement assets, rather than reliance on a single form of digital cash.
Limited interoperability an extra barrier
Many regulated financial firms have undertaken significant work on tokenised cash and securities on private, permissioned blockchains through their own proprietary systems or as part of a consortium. However, many market participants are concerned that limited interoperability between these platforms – regardless of whether they are public or private – is a barrier to liquidity and adoption at scale.
To achieve institutional-scale adoption, industry participants argue that financial firms must enhance interoperability to allow tokenised assets, digital cash, and financial market infrastructures to operate seamlessly across different blockchain networks, institutions, and jurisdictions.
Widespread adoption is therefore likely to require greater interoperability between blockchains, between trading platforms – including traditional exchanges and regulated digital asset platforms – and between tokenised and traditional market infrastructure.
Source: Khaleej Times