💡 Insights from Deloitte's 'Tokenization: Realizing the vision of a future financial ecosystem'

You're busy - I've read the report so you don't have to.

This week I'm highlighting the key insights from the latest Deloitte report - Tokenization: Realizing the vision of a future financial ecosystem.

Web3 is giving Financial Services an opportunity to revolutionise their services. Arguably, Open Banking has done more to offer customers greater flexibility and enable financial services to increase their offering bith in quality and relevance to their customers.

That's why for me, Web3 is so intriguing. Systems and processes are still developing but in 5-10 years these services will be fully integrated. Whether they are directly visible to the every day customer is unlikely, yet understanding how these systems impact the product will be critical for you.

But I'm in Marketing, why should I care?

As a CMO (Chief Marketing Officer) you should care about this report on tokenization for a few key reasons:

1. New products and markets: Tokenization enables the creation of new financial products and services that can potentially reach new customer segments, especially tech-savvy investors interested in innovative offerings like fractional ownership of previously illiquid assets.

2. Branding and positioning: Early movers in tokenization can establish themselves as innovative leaders in this emerging space, enhancing their brand reputation and positioning themselves favorably with forward-thinking customers.

3. Customer education: The importance of educating customers about the benefits of tokenization to foster demand and ensure lasting value for tokenized assets. CMOs can play a crucial role in developing effective educational campaigns and marketing strategies around these new offerings.

4. Partnerships and ecosystem: Successful commercialisation of tokenized assets may require partnerships with technology vendors, crypto exchanges, and other entities to access broader user bases. CMOs can help identify and foster these partnerships to expand market reach.

5. Regulatory landscape: As regulations around tokenization evolve, CMOs need to stay informed about the changing landscape to ensure compliance and effectively communicate the value proposition of tokenized offerings within the prevailing regulatory frameworks.

Overall, tokenization represents a potential disruptive force in financial services, and CMOs should be aware of its implications for creating new products, reaching new markets, and positioning their organisations as innovation leaders in this emerging space.

📌 [Insights] Tokenization: Realizing the vision of a future financial ecosystem

Here's What You Need To Know:

Deloitte's latest report discusses the potential benefits and challenges associated with the tokenization of financial assets. A process that involves representing real-world assets as digital tokens on blockchain or distributed ledger networks.

The report explores the opportunities that tokenization presents for the financial services industry, such as introducing new products, reaching new customers, and achieving operational efficiencies. However, it also highlights the key hurdles that need to be addressed for widespread adoption, including interoperability, regulatory clarity, risk management, privacy concerns, and the integration of legacy systems.

TL;DR in 30 words or less

This report aims to explore the potential benefits, challenges, and considerations surrounding the tokenization of financial assets, providing insights and recommendations for financial institutions.

📌 Key Takeaways

I've listed here the top five insights you should take away from this report.

1. Tokenization offers the potential to create new financial products, reach new customers through fractional ownership, and achieve operational efficiencies through automation and smart contracts.

2. Developing interoperable networks and secondary markets for tokenized assets is crucial for realising the full benefits of tokenization, but requires collaboration and consensus on technical standards and transaction processes.

3. Regulatory clarity and risk management frameworks are essential for widespread adoption by regulated financial institutions, as tokenization introduces new risks across technology, operations, strategy, tax, accounting, and compliance.

4. Addressing privacy concerns and ensuring the confidentiality of transactions is a critical challenge for tokenization networks, as transparency and privacy often conflict in distributed ledger systems.

5. Integrating tokenization with legacy systems and processes is a significant technical challenge that requires architectural ingenuity and a long-term strategy for transitioning to distributed ledger platforms.

📌 Lifecycle of a Tokenized Asset

I wouldn't usually include graphs/ diagrams into these posts, but this is very helpful if you are unfamiliar with tokenized assets.

I've seen many variations of this diagram in the past and feel it's useful even if you're explaining these subject to a colleague.

Start with the Real-World Asset, which moves to a Digital Twin or Native on-chain asset. Everything beneath that are the on-chain transactions which make blockchain so valuable to industries like Financial Services.

📌 Statistics

Important statistics from the report:

1. A 2021 survey* undertaken by BNY Mellon reported that more than 70% of institutional asset managers had plans to develop solutions for the tokenization of assets. (* BNY Mellon, Digital assets: From fringe to future, 2021)

2. According to a survey* conducted in 2023, more than 50% of asset managers and 30% of asset servicers indicated that they had specific plans to launch tokenized assets in the next 12 months. (* Calastone, “Getting to grips with tokenization,” Global Custodian, 2023)

3. Several financial institutions have launched pilots and proofs of concept (PoCs) and are joining industry consortia that are dedicated to developing rigorous cross-industry standards, practices, and solutions.

4. JPMorgan reported last year that its Onyx platform had helped facilitate more than $300 billion in intraday repo transactions.

5. Broadridge's global Distributed Ledger Repo platform across both sell-side and buy-side firms captures $1 trillion in monthly volumes from the global repo market.

6. A number of digital assets startups have issued more than $1 billion worth of tokens* that represent ownership in physical gold, and traditional commodities traders are following suit. (* Source: Coindesk)

📌 Get Ahead of the Curve

According to the report there are several ways you can get ahead of the curve, including:

1. Actively participate in industry consortia and collaborative efforts to establish interoperability standards, transaction processes, and best practices for tokenization networks.

2. Engage with regulators and policymakers to advocate for clear guidance and a regulatory framework that supports the adoption of tokenized assets while addressing associated risks.

3. Conduct comprehensive risk assessments and develop robust risk management frameworks to address the new risks introduced by tokenization, such as cybersecurity, privacy, and compliance risks.

4. Evaluate and plan for the integration of tokenization solutions with existing legacy systems, considering long-term strategies for transitioning to distributed ledger platforms.

5. Explore partnership opportunities with technology vendors, crypto exchanges, and other entities to access broader user bases and foster demand for tokenized assets.

🔗 Read the Report

As always I recommend reading this report as they dive into more detail around market opportunities and how businesses can benefit by being early adopters of this tech.

Read the report here

And thanks to the authors:

Roy Ben-Hur, CJ Burke, Jonathan Camhi, Agha Khan, Erica Lacerenza, Alex Lakhanpal, CFA, CPA, Ben Larson, Michael Lino, Jarick Poulson, PJ Theisen, Aaron Turenshine

📌 Want more insights?

Previously on the Smart CMO: Check out my last summary of McKinsey's report 'The state of AI in 2023: Generative AI’s breakout year'.

Read now

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