Tokenisation, a digital proof of ownership for any asset, whether digital or real-world, is seen as a technological leap with the potential to increase efficiency in nearly every step of a fund or securities lifecycle. This was the consensus among industry leaders at the Nexus2050 tech conference in Luxembourg on Thursday 27 June 2024. However, challenges remain before its full potential can be realised.

Moderated by Isadora Pardo, senior vice president of industry affairs at the Association of the Luxembourg Fund Industry (Alfi), the panel included key industry figures. Julien Wolff, executive board member and head of risk management at 6 Monks, a Luxembourg-based alternative investment fund manager (AIFM) active in private equity and Web3 ecosystems, said that the overall trend of the crypto-assets industry is positive. It is adopted by both institutional and retail investors due to its high returns allure. However, Wolff cautioned that the crypto world is volatile and carries high risks. He also noted that for asset managers, cryptocurrencies provide a way to diversify portfolios, acting as a potential inflation hedge as fiat currencies lose value in a high-inflation environment.

Roberto Petrarulo, vice president of decentralised finance and new digital markets at Clearstream, stated that the tokenisation of financial assets, such as funds, is poised to improve substantially in terms of distribution and efficiency. Petrarulo explained that distribution is one of the biggest concerns for issuers. Digital issuances are already in place, but tokenisation would make the process much faster, even for downstream applications like dividends payouts, which would optimise costs for investors. Settlements would also improve remarkably in terms of efficiency, both time and cost-wise, with transactions completed in minutes instead of days.

Hubert Grignon Dumoulin, regulatory senior expert at Caceis, described tokenisation of investment funds as a boon for asset managers. Dumoulin argued that a new breed of tech-savvy investors, familiar with the digital world, now seeks digital solutions for the financial landscape. Tokenisation also introduces new business opportunities for asset managers that were previously unavailable. Conversely, asset managers are now more competitive. With blockchain and distributed ledger technology gaining prominence, tokenisation has the potential to lower distribution costs and broaden market reach.

Dumoulin acknowledged that regulations like the markets in financial instruments directive (Mifid) have evolved over the past three decades through various iterations. In contrast, crypto assets are new and require new regulatory frameworks, such as the EU’s forthcoming markets in crypto-assets regulation (Mica). He believes that the diversity of financial and non-financial crypto assets introduces grey areas, which remain subject to interpretation.

Mindaugas Miskinis, sales director at Fireblocks, a digital asset technology startup, emphasised the finance industry’s constant pursuit of efficiency, with trading and settlements already benefiting from the speed and efficiency of digitalisation. Miskinis argued that tokenisation is the natural next step, creating new asset classes such as illiquid and long-term locked assets. He highlighted the potential of ‘smart contracts,’ which can be managed on public and open ledgers for transparency, shared costs, and secure and faster ownership transfers, improving liquidity for investors.

All the experts agreed that tokenisation is poised to have a broader impact, with Luxembourg well-placed due to its robust regulatory environment and funds industry ecosystem.