Nasdaq TradeTalks: How Tokenization Changes Financial Market Infrastructure
In a recent discussion with Jill Malandrino on Nasdaq TradeTalks, Benedikt Schuppli, CEO of Obligate, delves into the transformational effects of tokenization on financial market infrastructure and its profound implications for banks and stock exchanges.
Below is a brief summary on the topic, highlighting the key insights from the interview.
The definition and scope of tokenization
Tokenization is the process of creating an asset natively or representing an existing asset as a blockchain-based token. It’s estimated that around $16 trillion worth of assets will be tokenized over the next few years, which will have a significant impact on the financial market and its infrastructure.
The impact of tokenization on financial markets and exchanges
It has taken time for blockchain technology to mature, starting with the emergence of Bitcoin over a decade ago and the introduction of Ethereum and smart contracts in 2015.
The current financial market infrastructure encounters challenges in connecting asset issuers and investors, with lengthy settlement times and fragmentation across national silos. However, blockchain technology, particularly through the use of smart contracts, has the potential to revolutionize the market.
Smart contracts are self-executing computer programs on a blockchain that automate the terms of an agreement, providing transparency, security, and tamper-proof transactions without the need for a centralized authority.
With this technology, corporate bond issuers can directly issue bonds to investors in a peer-to-peer fashion, with the same legal value as traditional bonds held in the investor’s wallet. These assets can be transferred within seconds globally. Banks and stock exchanges are acknowledging the inevitability of these changes, as they will directly impact their businesses and value chains.
Anticipating infrastructure evolution
The infrastructure of banks, stock exchanges, and central depositories is bound to change. The legal framework for tokenization exists in most jurisdictions outside of the U.S., allowing assets to be issued as blockchain-based tokens. As a result, major financial institutions are expanding their digital asset units, anticipating forthcoming changes in the industry.
As a result, major financial institutions are expanding their digital asset units, anticipating the forthcoming changes in the industry. While it will still take a few years to see widespread adoption of blockchain-based bonds and equities, the momentum is strong, and incumbents are now deciding on their strategies and partnerships with technology firms that prioritize regulatory compliance.
In conclusion, tokenization will undoubtedly shape the future of the financial market infrastructure and enable direct connections between asset issuers and investors. Additionally, financial institutions that embrace these changes, partner with technology firms, and prioritize regulatory compliance have a strategic advantage in the tokenization era.
About Obligate
Obligate combines deep legal and tech knowhow with financial expertise to help build a new blockchain-based financial system. Promoting a fully-regulated approach, Obligate offers a decentralized platform for on-chain financing using bonds and commercial paper on Polygon. Thus, Obligate unlocks a new era for DeFi — regulated but decentralized. Obligate.com has team members in Switzerland, Germany, Lithuania, UK and Singapore and has won several awards, most recently the global fintech hackcelerator at the Singapore Fintech Festival 2022.
