Are we on the cusp of a financial revolution? In the background, a quiet metamorphosis is unfolding, poised to reshape the financial services landscape. Asset tokenisation - the process of converting real-world assets into digital tokens on a blockchain - is steadily gaining traction, offering unprecedented opportunities for asset managers to enhance liquidity, attract a broader and larger investor base and streamline operations.
According to an EY-Parthenon survey, 37% of institutional investors and 61% of high-net-worth investors planned to invest in tokenised assets in 2023 or 2024. Within this category, private equity and real estate emerged as the top preferences, highlighting the potential for tokenisation to unlock value in traditionally illiquid assets.
Asset managers are increasingly prioritising the operational and cost efficiencies of blockchain-based asset classes, which programmatically govern underlying assets. These innovations reduce errors, cut intermediary reliance and lower clearing and settlement costs. They also promise to transform financial markets by enhancing transparency, security, efficiency and transaction speed.
The evolution of asset tokenisation
Asset tokenisation refers to the process of converting real-world assets into digital tokens that can be traded on a blockchain. While this concept has gained traction in recent years, its roots lie in the evolution of distributed ledger technology (DLT).
Early developments (2010-2020):
- Blockchain technology was popularised with the advent of Bitcoin in 2009. Initially, its primary use case was cryptocurrency, but platforms like Ethereum expanded the possibilities by enabling smart contracts and decentralised applications (dApps).
- Tokenisation began to emerge as an application of blockchain, with the launch of projects addressing digital assets, decentralised finance (DeFi), and initial coin offerings (ICOs).
Market expansion (2020-2025):
- The focus shifted to tokenising real-world assets, such as real estate, art and securities, with McKinsey projecting that the total tokenised market capitalisation could reach around $2 trillion by 2030, driven by the adoption in mutual funds, bonds and other financial instruments.
- Large financial institutions started investing in infrastructure to support tokenisation, paving the way for broader adoption.
Mainstream adoption (2025-2030):
- Tokenisation is expected to become standard practice, with mid-market banks, corporates and asset managers embracing the technology to enhance operational efficiency and reach new markets.
Unlocking digital assets: Why asset managers should take notice
The advantages of asset tokenisation go beyond simple digitisation. Here are some of the key benefits:
- Enhanced liquidity:
By fractionalising high-value assets, tokenisation enables greater market liquidity. Investors can trade smaller portions of an asset, opening up opportunities for those previously priced out of certain markets. - Broader investor base:
Tokenisation democratises access to investments, reshaping the financial landscape and making it more inclusive and efficient for everyone. By lowering entry thresholds, it attracts a more diverse and wider group of investors, including retail participants and those in emerging markets. This enables tapping into larger liquidity pools, as more potential buyers mean more money raised. - Efficiency gains:
Blockchain’s transparency and immutability eliminate the need for intermediaries and reduce the complexity of processes like settlement and reconciliation. Transactions can be executed and settled in real time. - Cost reduction:
By streamlining processes and reducing the reliance on third parties, tokenisation can significantly lower costs associated with asset management, trading and compliance. - Improved security and trust:
Blockchain’s cryptographic security ensures that records are tamper-proof. This builds trust among investors and mitigates risks associated with fraud or data breaches.
Navigating the maze: Key challenges for asset managers in a tokenised world
Despite its promise, asset tokenisation is not without hurdles. Asset managers must consider the following challenges:
- Regulatory uncertainty:
The regulatory landscape for tokenised assets is still evolving and governments are paying more attention to how tokenised assets are managed and traded. Different jurisdictions have varying rules, making compliance a complex and often daunting task.
As an example, the recent election of President Donald Trump introduces additional variables to the US market which could also influence other markets, as he has expressed intentions to reduce regulations on cryptocurrency. While this pro-crypto stance may encourage innovation, it also raises concerns about market volatility and the adequacy of oversight mechanisms. As another example, in Europe, the Markets in Crypto-Assets (MiCA) regulatory framework created by the European Union, brought clarity.
Asset managers must stay informed about global developments and the roles of different regulatory bodies to navigate the shifting regulatory environment effectively and ensure compliance with the law.
- Technology integration:
Adopting blockchain technology requires integrating it into existing systems and processes. This involves overcoming technical challenges and ensuring compatibility with legacy infrastructure. With technology still evolving there are also challenges with scalability and security risks.
- Trust and education:
While blockchain technology is theoretically secure, it is still met with scepticism by some stakeholders. Asset managers must educate investors and partners on its benefits and address concerns around transparency and reliability. They must also be aware that practical implementation can still be flawed and require mitigation strategies.
- Liquidity constraints:
While tokenisation enhances liquidity, achieving sufficient trading volume in nascent markets remains a challenge. Asset managers must work to foster active marketplaces. There is the additional challenge of secondary markets, where assets are tied to their primary markets. This restricts the number of primary/secondary markets and assets you can trade in or creates a technical and legal challenge in connecting to multiple markets or chains.
- Cost of transition:
Implementing tokenisation solutions involves upfront costs for technology development, compliance and operational changes. Asset managers need to evaluate the return on investment carefully, although savings in operational overhead help with business case justification.
5 steps to tokenisation
The world of asset tokenisation is complex, with many participants and services. Aside from requiring a deep understanding of blockchain technology, there are regulatory landscapes to comply with and the intricacies of integrating decentralised systems into existing infrastructure.
- 1. Ecosystem insight and collaboration:
- Asset tokenisation isn’t just about technology; it’s about understanding the broader ecosystem. Issuers, custodians, exchanges, regulators and investors all play critical roles. It’s essential to have a holistic view of these interconnections to foster seamless collaboration across the value chain.
- 2. Shaping customised strategies:
There’s no one-size-fits-all approach to tokenisation. Every asset manager has unique objectives, whether it’s expanding investment opportunities, enhancing operational efficiency, or complying with specific regulations. This means making sure you align with your vision and long-term goals, ensuring technology becomes an enabler rather than a hurdle. - 3. Navigating regulatory complexity:
Managing the regulatory frameworks surrounding tokenisation is one of the most significant challenges facing asset managers. From compliance standards such as MiCA, MiFID and the EU DLT Pilot Regime, it’s essential to future-proof your operations with these regulations in mind while maintaining the highest standards of integrity and trust. - 4. Scaling for the future:
Scalability is critical in the tokenisation journey. This means looking ahead to implement enhancements such as Layer 2 solutions, which enhance blockchain performance without compromising security or decentralisation. These solutions reduce congestion, lower transaction costs and ensure your systems are ready to handle increased demand as the market evolves. - 5. Building confidence in the digital shift:
For many asset managers, trust is the cornerstone of their relationships with investors. Tokenisation, while revolutionary, introduces new questions about security, transparency and reliability. Only through clear communication, robust educational initiatives and a commitment to operational excellence can you overcome concerns.
The road ahead
Asset tokenisation represents a paradigm shift for asset managers, offering opportunities to innovate and grow in an increasingly digital world. However, navigating this transformation requires careful planning, strategic investment and a deep understanding of the ecosystem.
Endava is here to help. With our expertise in blockchain, finance and technology integration, we provide the tools and insights asset managers need to capitalise on the tokenisation revolution. Together, we can transform challenges into opportunities and position your organisation at the forefront of the digital asset era. This work can already begin while you are determining your regulatory and legal positioning.
To learn more about how Endava can support your tokenisation journey, get in touch with us today.