Many tokenization initiatives amount to little more than putting existing financial products on a distributed ledger, often to reach crypto native investors. Two UK experts in the asset management sector have published a paper calling for a fundamental rethink, arguing the industry should harness tokenization’s potential for composability rather than simply digitizing the status quo.
The paper, “Replicating Legacy is Squandering the Promise of Tokenisation,” was authored by Stephen Whyman, formerly of BlackRock and Fidelity International, and Dr Ian Hunt, an industry consultant to major asset managers. They argue that the current financial ecosystem is built along asset specific and product specific lines, with separate regulations, operations, technology and business entities for each asset class. That complexity costs serious money, and tokenization as currently deployed will simply replicate it.
Their proposal is radical in its simplicity. Rather than encoding the full terms, conditions, processes and regulations of each asset class into bespoke smart contracts, they argue that virtually all financial assets can be represented using just two types of tokens. The first is a token of title, representing ownership of an asset, whether that is a building, a share or a commodity. The second is a token of entitlement, representing the right to receive or the obligation to deliver future value, such as a coupon payment, a dividend or delivery of a stock at a future date.
The paper demonstrates how conventional instruments from fixed rate bonds to interest rate swaps and options can all be composed from clusters of these two token types. For example a bond might include an ownership token and . Innovation in new asset classes would not require new infrastructure, regulations or special purpose tokens, just new configurations of the same components.
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