BlackRock eyes tokenised future

In recent comments, the Chairman and CEO of BlackRock, Larry Fink, the world's largest asset manager, has repeatedly endorsed the prospects and merits of tokenization in financial markets. In an interview with Aaron Ross Sorkin at the New York Times Dealbook Conference in late November, Fink said:

The next generation for markets, the next generation for securities, will be tokenization of securities.

The notion of tokenisation refers to a digital representation of an asset, which is minted and tradable on a blockchain. Tokenisation allows for a different way of trading assets when compared to traditional shares, bonds or real estate. The transaction is recorded on a ledger that is secure and decentralised.

Fink noted that distributed ledger technology offers the benefit of instantaneous settlement and dramatically reduced fees by eliminating middlemen.

Fink also believes that tokenisation can have benefits for investor participation and governance, commenting to CNBC last week:

We want to democratize the vote. This is one of the reasons why I'm focused on the whole idea of blockchain for securities. I look forward to the day when we can tokenize stocks and bonds that every stock and every bond we can identify immediately who is the beneficial owner and this is why we're working on it and every beneficial owner from an individual to an institution have the ability to vote, to democratize every single vote, and that's where we want to take this and we're leading that effort.

Tokenisation has received increasing attention from financial titans and venture capitalists. In May last year, Flowcarbon, which tokenizes carbon credits, raised $70 million of funds from prominent investors such as General Catalyst and Samsung Venture Investment. In November 2022, JPMorgan worked with Polygon to trade tokenised cash deposits.

While JP Morgan's CEO, Jamie Dimon, has been a longtime critic of cryptocurrencies, the bank has been a prominent backer of blockchain technology and tokenisation through its Onyx platform. The unit's head, Tyrone Lobban, trumpeted the prospects of institutional DeFi at last year's Consensus conference:

Over time, we think tokenizing U.S. Treasurys or money market fund shares, for example, means these could all potentially be used as collateral in DeFi pools...The overall goal is to bring these trillions of dollars of assets into DeFi, so that we can use these new mechanisms for trading, borrowing [and] lending, but with the scale of institutional assets.

These developments indicate strong institutional interest in the applications of blockchain technology to financial markets. The application of these technologies to Australia's markets is likely to be considered further as part of the Government's proposed reforms to payments and market infrastructure which it has promised to progress this year.