Shared my views with WatersTechnology.com on Deutsche Bank's efforts to develop standardised protocols for asset tokenisation.
Benjamin Quinlan, CEO of Quinlan & Associates, says from various project engagements and discussions with asset managers, asset tokenisation has the potential to address numerous pain points, leveraging DLT’s programmability, atomic settlement, and fractionalisation characteristics.
However, a challenge that firms running DLT initiatives may face is the lack of standardisation.
“Many financial institutions have conducted pilots and proofs-of-concept for digital asset exploration, which yielded a variety of network types and data formats. Private-sector players are building interoperability solutions to solve for the lack of standardisation, but they still cite discrepancies in data and communication protocols as major implementation obstacles,” Quinlan says.
Firms also face high integration costs when incorporating DLT into their existing technology stack. Legacy systems, such as EMSs, will need “intensive customisation” and, therefore, significant capital to integrate with on-chain capabilities.
Another challenge has to do with throughput and scalability. Quinlan says that compared to traditional trading systems, DLT networks support lower throughput. “For permissionless systems, in particular, throughput is throttled without the use of solutions like ZK-proofs (zero-knowledge proofs) and Layer 2 chains. Even in permissioned systems, many industry players comment that DLT rails may not be suitable to support use cases like high-frequency trading,” he says.
That said, Quinlan believes that Singapore’s efforts with Project Guardian encourage the financial industry to explore DLT and invest in digital assets, and it is a “very clear sign” that the regulator sees a role for the still-emerging technology in the financial system.
The lack of regulatory clarity on tokenised assets and systems remains a common concern in the industry. For example, Quinlan says the balance sheet treatment of digital assets remains uncertain and most regulators are still in the midst of developing clear and comprehensive guidance for regulated entities to follow DLT adoption.
While it is an inevitable part of DLT adoption, as the technology is still in its nascent stages and supporting regulations tend to be more “reactive” than “proactive”, Quinlan says the market faces a “chicken-and-egg” dilemma: solutions tend to thrive in well-regulated environments … but well-regulated environments are derived from extensive testing of solutions.
“We see regulators generally adopting a risk-based, ‘same risk, same regulation,’ approach. In other words, change in the underlying technology (in this case, DLT) does not change the inherent risks of financial assets and activities,” he says.
https://lnkd.in/gEnRmrSy
#tokenisation #dlt #blockchain
