Emerging Applications of DLT in Financial Services
Three tokenization solutions attracting investment.
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Emerging Applications of DLT in Financial Services
Early expressions of distributed ledger technologies were so counterpoint to traditional financial services that they were seen as maverick. Today, the narrative is shifting, and the mainstream is beginning to see the value of these advanced technologies. We explore some contemporary examples below.
In 'Don't Call Me Crypto', an article published last year, Valentia Partners stressed the importance of using precise language when discussing digital assets. We argued that technology investments should be assessed based on the specific attributes of the solution in question and that broad generalisations should be avoided. The term ‘crypto’ has come to cover a wide range of diverse technologies and this lazy terminology has impaired the willingness of the sector to explore the nuances of the various solutions on offer.
While some industry commentators mention the resurgence of a 'blockchain, not crypto' narrative among traditional financial services players, this terminology does little to clarify the stance of the industry. In fact, some of the largest institutions are investing in both offering their clients exposure to cryptocurrencies and exploring Distributed Ledger Technology (DLT) solutions for traditional assets.
That being said, in the past year, a particular digital asset technology has distinguished itself as one that traditional financial services firms are dedicating a substantial portion of their innovation budgets to explore.
Tokenization, which involves creating a digital representation of a traditional asset on a blockchain or distributed ledger, is cropping up as a solution across a range of critical capital markets activities. Leading institutions are actively exploring a variety of tokenization solutions and have publicly expressed optimistic outlooks for the potential expansion of tokenized markets. Several of the world's largest banks are establishing dedicated units to develop products, platforms, and marketplaces with the goal of securing a first-mover advantage as early adopters of tokenization.
In this article, we examine three burgeoning areas of interest for financial services firms in which tokenization plays a pivotal role. We delve into prominent technology vendors, in-flight projects, the benefits they offer, and provide our recommended approach for firms seeking to thoroughly evaluate tokenization opportunities for their operations.
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