A new report from UK and Singapore regulators and asset management associations highlights a mismatch between tokenized assets issued by web3 firms and institutional investor requirements. It also provides some suggestions for how to bridge the gulf, suggesting greater traditional investor engagement to shape tokenized assets. Additionally, the paper provides a tokenized asset checklist for institutional investors. The report was jointly authored by Monetary Authority of Singapore (MAS), the UK’s Financial Conduct Authority (FCA) and Investment Association (IA), and the Investment Management Association of Singapore (IMAS).
It argues that web3 issuers have very different motivations from traditional investors, tend to adopt regulatory arbitrage, and are very focused on the technical features of the tokenized assets. “Issuers can often view institutional investment operations as inefficient legacy systems rather than carefully evolved frameworks designed to manage fiduciary risk,” the authors state. This gulf between the two sides may be because traditional institutional investors are frequently not the primary target market of web3 issuers.
But the crucial takeaway from the report is that if real world asset (RWA) tokenization is to scale beyond a crypto native and retail market, web3 issuances will need to evolve significantly. They will have to cater to the needs of the traditional buy side investor. “The absence of institutional participation limits secondary market liquidity, which discourages further institutional interest whilst reducing the revenue potential for sell-side intermediaries,” the authors wrote.
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