“Tokenization”, the next revolution in financial markets?

Instant transactions, without intermediaries and at lower costs: this is the promise of “tokenization”, a technology that some financiers present as the next revolution in the markets, despite potential risks for their stability. This technique consists of creating the digital copy (a “token”) of a financial asset, such as a stock or a bond, to exchange it on a blockchain (“blockchain”), a database similar to those on which cryptoassets, such as bitcoin, are based.

Thanks to a decentralized register – each computer in the system participates in certifying the validity of a financial transaction – it makes it possible to eliminate some of the intermediaries between the buyer and seller of an asset. From then on, the title can “be sent to any country, in a few seconds”, and with “extremely low cost” and “24 hours a day”, explains to AFP Campbell Harvey, professor of Finance at Duke University, in the United States.

Currently, the purchase of a security takes up to 48 hours to be settled in Europe, because the transaction must be validated by several actors, such as stock exchange operators, clearing houses, which secure it, or central depositories, which record it. On Wall Street, the New York Stock Exchange (NYSE) already announced at the beginning of the year its intention to open a platform allowing “24 hours a day, seven days a week operations” and “instant settlement”, based on “tokenization”.

This would be a major change for stock markets, where for centuries trading can only take place between defined opening and closing times. Blackrock, the world’s leading asset manager, has also embarked on the digitalization of part of its assets. His boss, Larry Fink, regularly talks about the subject in interviews, which he describes as the “next big evolution” of the markets.

“Tokenized” financial assets currently only weigh $30 billion (24 billion €), a drop in the ocean, according to figures from the consulting firm McKinsey. But they jumped 118% last year and could rise to $2,000 billion by 2030. In a report at the end of March, the French financial lobby Paris Europlace called for preparations for this “irreversible development”, as “the contributions” of this technology are “significant”, while being concerned about the United States’ advance in the field. Without European progress, American markets could “absorb an even more significant share of financial activities”.