PLENITUDE INSIGHTS: Beyond Digital Assets

Tokenisation is the process of creating a digital representation of an underlying asset in the form of a token whose ownership is recorded in a blockchain network. These underlying assets range from traditional classes like bonds and fund shares, to less-liquid instruments like art or carbon credits, but all of them can stand to benefit from potential advantages in terms of liquidity, traceability and programmability of compliance rules, as will be seen later in this article. These potential benefits, in turn, can explain why regulatory bodies across the globe are fostering the adoption of tokenisation, as is evident in the launch of pilot programs and sandbox regimes to facilitate in the experimentation of tokenisation and the development of new financial markets.

Tokenisation, however, introduces new risks inherent to the technology, requiring diligent risk identification and mitigation strategies from the token issuers. Before embarking on tokenisation initiatives, token issuers must understand their regulatory obligations and fulfil the applicable regulatory requirements, especially given how the regulatory landscape is still taking shape and different countries are progressing at different speeds or adopting slightly different stances towards this topic. These requirements encompass the design of the tokens and their ecosystem, the definition and programming of compliance rules, and an in-depth exploration of potential risks associated with the adoption of new technology, coupled with the formulation of robust risk mitigation plans.