Creating Value By Digitising Assets
Blockchain specialist Fireblocks offers their insights into the growth of the asset digitisation and tokenisation space.
Digital assets are gaining popularity in the investment world as technologies such as blockchain facilitate their creation. Beyond cryptocurrencies, financial institutions have also started to digitise real assets, including equities, bonds, and real estate, through a process called asset tokenisation.
This involves an issuer creating digital tokens on a blockchain to represent the value of the physical assets. For instance, ownership of a property worth $1 million can be split into 1 million tokens — each one representing a tiny percentage of the value of the underlying asset.
As digital assets and tokenisation go mainstream, fintech players and traditional banks are turning toward blockchain-based digital asset specialists such as Fireblocks to meet growing demand.
Fireblocks is a blockchain-based platform for securely moving, storing, and issuing digital assets in the finance industry. The firm is providing banks and other institutions in Singapore the technology and infrastructure to support their asset digitisation initiatives.
Stephen Richardson, Vice President, Head of Product Strategy and Business Solutions at Fireblocks, shares his thoughts with BiZQ on the growth of this exciting space and how Singapore is supporting the growth of asset digitisation.
What kinds of digital assets are supported by Fireblocks’ solutions?
Other than ‘natively digital assets’ such as Bitcoin or Ethereum, we also work with a wide range of clients such as banks that are tokenising real assets like loans, bonds, and other securities.
These clients are leveraging our platform to either hold the underlying tokens or use our tokenisation engine to issue the tokens. Our clients have the ability, on one singular platform, to do things in a natively digital space when they want to keep in custody or trade digital assets like Bitcoin, or work with real assets.
We have been hearing a lot about digital assets in recent years. What do you see driving this trend?
Payment companies are becoming super apps that offer not only digital asset products, but also banking and financial services. In response and to keep pace with these companies, traditional banks are also starting to offer digital products.
Improving operational efficiency is an important driver for banks. By tokenising assets, they can reduce the overhead costs of maintaining legacy infrastructure and systems.
There are also different products that can be launched through the digitisation of assets, including hard-to-trade assets in markets like private placements, private equity, and venture capital. We are now seeing the power of blockchain to digitise these assets and create new secondary markets that provide additional revenue opportunities for financial institutions.
How has the pandemic impacted the asset digitisation space?
COVID-19 has accelerated digitisation initiatives, with many banks looking for innovative ways to better manage costs and reconfigure their broader infrastructure to be more cost- and operationally-effective. This is especially important in an ecosystem where cost is critical due to COVID-19.
The pandemic has also spurred the shift from a centralised security model towards more decentralised security as remote work becomes more prevalent. This has contributed significantly to the growth of our platform.
As a cloud-based platform and technology provider, we enable firms to enhance the security of their digital assets, in a decentralised way that supports new modes of working.
What other types of assets, beyond financial assets, can be digitised?
We are seeing some interesting developments with non-fungible tokens (NFTs) for tokenising underlying real assets like art, music, clothing, and collectibles. It is targeted towards the retail consumer but there is potential for growth. We are also seeing new opportunities in tokenising underlying real estate, as well as some interesting developments in media and entertainment.
What risks should investors be aware of when it comes to digital assets?
Going through a traditional banking institution mitigates some risks. On the other hand, if you are issuing digital assets, you can leverage a technology provider like Fireblocks.
However, there are several risks that one should be aware of whether they are using a bank or not. The first is technology risk and determining if you have access to the best leading-class technology to safeguard your digital assets. The second is having the right regulatory infrastructure and be keenly aware of the jurisdiction you are operating in.
Third is ensuring you have the right kind of advisory. The ability to find strong resources that help you understand this market, the value proposition of the assets that you are trying to digitise, and how you are going to enable more people to potentially invest or acquire your token, is another key aspect you need to pay attention to.
How does Singapore fare when it comes to supporting the growth of this space?
We chose to set up in Singapore because of its supportive regulations for fintech and the ability for fintech companies to disrupt financial ecosystems. I believe that the regulatory framework in Singapore does not condone reckless behaviour. Instead, it has a forward-looking view on where disruptions could come from, and how to harness those disruptions to solidify Singapore’s position as a leading destination for companies and global institutions to base themselves in.