Tokenization is the next big step in how financial assets are housed and offers advantages over existing traditional structures, Wall Street Firm Bank of America (BAC) A Friday report said, noting that it also assails risks.
In essence, tokenization is the process of converting real -world asset property, from shares and bonds to real estate, private capital and even art, in digital tokens recorded in a block chain.
Tokenization follows a lineage that began with mutual funds and expanded through separate accounts, collective investment trusts and stock -listed funds (ETF)And according to bank analysts, this model could remodel the way inverters access and administer assets by offering a series of advantages over traditional structures.
Among the most important benefits are improved liquidity, analysts led by Craig Siegenthaler wrote, and added that trade 24 hours a day, 7 days a week, could open secondary markets for previously previously illegidal assets and faster agreements without friction that eliminate the delays of several common days in today’s financial markets.
Token also allows fractional property, analysts said, reducing investment minimums and expanding access to portfolios. Transparency is another advantage, since Blockchain accounting books provide property records and publicly immutable and accessible transactions.
The lowest rates are possible when cutting intermediaries, and intelligent contracts can automate key processes such as dividend payments, coupons and voting rights distributions, while also helping to navigate the regulatory requirements and even the complexities of private capital capital calls, the report said.
According to the data provider RWA.XYZ, the value of real world assets represented in the chain exceeds $ 28 billion.
Tokenization risks
Even so, Bank of America warned that tokenization faces significant obstacles before it can achieve generalized adoption.
Regulatory uncertainty remains the biggest challenge. Although US policy formulators have indicated support, future administrations could reverse the course, and many jurisdictions are still in the process of writing rules.
The bank said that custody is another concern, since investors are at risk of losing access to assets if private keys are out of place and institutional degree custody solutions are still being developed.
On the technology side, vulnerabilities in intelligent contracts or blockchain platforms leave space for exploitation, and integration with inherited financial infrastructure presents additional obstacles, given the dependence of most institutions in traditional systems.
And when it comes to assets that quote on the stock market, existing American markets already offer deep liquidity, low rates and strong protections of investors, which makes the case of the tokenized versions less convincing, the report added.
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