Traditional financial institutions are increasingly showing interest in “tokenising” real-world assets, meaning they are curious about how these assets could be digitally represented by programmable tokens recorded on shared ledgers. There could be real efficiency gains associated with tokenisation, but the drive towards it could also take a dark turn.
The most dangerous outcomes would arise if tokenisation of real-world assets were pursued simply to feed into what has been described as “the perpetual motion machine that is crypto trading”. Regulators around the world have expressed concerns about the integration of crypto and traditional financial markets, because of the high levels of volatility, leverage, concentration and operational risk associated with the crypto markets. This integration would be sped up if ownership of tokenised real-world assets were recorded on so-called permissionless public blockchains. The type of ledger favoured by the crypto industry, these blockchains can be accessed by any computer running the necessary software to host them, no identification or vetting required