How tokenization could help investors to better achieve their goals

At abrdn, we believe tokenization, in which asset ownership is recorded using blockchain technology, could come to support our ultimate goal of making our clients better investors. That's because tokenization can be used to improve investor access to a wider range of investment opportunities, while improving liquidity and transparency, and reducing operational cost.

Advantages for investors

The tokenization of funds brings many advantages to investors. It enables a fund's assets to trade more cheaply and transparently. The new technologies deliver operational efficiencies and cost savings that benefit end customers, since the fund's operating costs are ultimately borne by them. Customers will also enjoy faster settlement times, and benefit from enhanced risk management.

Democratising markets

Furthermore, tokenization opens up opportunities for ordinary investors to invest in assets that were previously out of reach due to their high cost. This includes a broad range of assets, particularly those in private markets, which have recently seen a surge of interest from institutional investors like pension funds. These assets, not being listed on public markets, are typically illiquid and require substantial investment. However, they offer the advantages of portfolio diversification and tend to exhibit less volatility compared to their publicly traded counterparts.

Currently, our US dollar, euro and sterling money-market funds are available in token form. Eligible investors can benefit from real-time transfers and enjoy income that is "airdropped" to investor accounts as new tokens. We expect to significantly expand the range of tokenized access to our funds.

We believe tokenization, in which assets are split into smaller units using blockchain technology, could come to support our ultimate goal of making our clients better investors.

Duncan Moir, Senior Investment Manager, abrdn

At abrdn, we believe the biggest opportunity today lies in existing assets. New asset opportunities will certainly present themselves in the future but until existing assets are transformed into tokens, it's unlikely that the infrastructure needed to support new assets will be developed for a wide range of investors.

Our focus is on offering tokenized assets via public/permissioned blockchains, since we believe they offer the greatest potential to reach the mass of investors and grow the market. That being said, private distributed ledger technology can be beneficial and offer great operational efficiencies, and we are exploring this option - particularly with specific counterparties that we would like to work with.

Evolution rather than revolution the best way forward

The tokenization of real-world assets has become a major narrative in the crypto world. However, we believe the sector is unlikely to advance at the pace expected by some commentators. For example, there seems to be an expectation that all that's required is to tokenize the asset and demand will take off. In reality, we also need to think about the distribution channels, access, and the operational "plumbing" required. However, with the correct infrastructure in place, the potential is massive.

Our view at abrdn is that - rather than experiencing a revolution - the sector will evolve more gradually, with assets moving on chain in varying forms and becoming more efficiently represented and transferred over time (i.e. beneficial ownership tokens versus native issuance). Over the course of this year, a move away from proof-of-concept to live projects is likely. This trend will accelerate over the next few years as buyers become increasingly confident of investing in tokenized assets.

Some of the information within this piece has recently appeared in an article by BTC Echo, ahead of Duncan Moir's attendance at the Digital Assets Forum in London this week. You can read the BTC Echo article here.

As with any form of investing, the value of holdings in money market funds can go down as well as up. Investors may get back less than they invested.