The tokenisation of investment funds within an industry-wide DLT infrastructure will bring many benefits.
ALFI’s Leading Edge conferences bring together expert knowledge and technical insight into state-of-the-art industry practices and best-in-class approaches. The latest of these will take place on 6 November and will be looking at cybersecurity and blockchain.
Olivier Portenseigne of Fundsquare will speak at this event as part of a panel entitled “Tokenisation and digital assets custody”.
Revolutionising fund distribution with distributed ledger technology is an idea whose time has come. But beyond the streamlining of process and the operational efficiencies that DLT, as an immutable ledger, will bring to the ecosystem, many opportunities will be created through the tokenisation of investment fund shares.
Further efficiencies with tokenisation
Tokens are the digital representations of an asset on a blockchain. Tokenisation is the creation of these digital representations. Almost any kind of asset (or right or information) can be tokenised but here we are interested in “security tokens” representing fund shares or units.
The great advantage of a blockchain-based distribution ecosystem is the high level of process automation. So when the shares of an investment fund are configured as security tokens, much is simplified. For example security token offerings can greatly improve both the fund’s primary issuance and the post issuance phases, while greatly opening up the potential investor base and creating much value.
Some of the benefits of such tokenisation include:
- Fractional ownership, thus enabling greater participation and inclusion, particularly from retail investors
- Automated processes, including for compliance and during the fund’s lifecycle
- Increased liquidity
- Reduced costs.
Additionally, the decentralized element enables actors in the fund distribution chain, who today work in siloed IT environments, to cooperate over a single infrastructure, allowing more information sharing and transparency, along with real-time processing.
On the other hand, while there are blockchain-based solutions existing that clearly demonstrate the practicality of the technology, these are early days and there are a few legal and technical questions to be answered.
Notable amongst these are the exact regulatory or legal classifications of any particular security token offering. In a more general sense on the technical side, there is the question of whether the industry would be best served by a public or a private blockchain. Interoperability between different DLT solutions is also to be clarified.
At this stage, as for all new technology, adoption remains the primary barrier. Nevertheless, the investment fund industry recognises the potential and usefulness of distributed ledger technology. Tokenisation has a great many benefits and will help move adoption.
For more details about this event, see the ALFI Leading Edge conference page.