Banks' drive to 'tokenise' assets moves slower than expected

The employee of a currency exchange shop counts U.S. dollar banknotes in Ciudad Juarez

By Elizabeth Howcroft

AMSTERDAM (Reuters) - Banks which for years have talked about creating 'tokenised' versions of assets like bonds and currencies say a shift to blockchain-based trading is taking longer than expected, with some investors cautious about the idea.

By creating tokenised assets - usually blockchain-based tokens to represent holdings of mainstream assets such as currencies or bonds - banks hope to make it more efficient, faster and cheaper to trade, and easier to record who owns want.

Consultants and digital asset executives predict that a significant proportion of the world's assets will be tokenised via blockchain - HSBC and Northern Trust said in a note last year they expected 5% to 10% of all assets by 2030.

But executives speaking at the Money20/20 fintech conference this week said the shift to digital versions of assets was moving slowly.

"It's taken longer than I expected, to be honest, to get to the point where we are in this space," Ryan Rugg, Head of Digital Assets for Citibank's trade and treasury solutions business told the Amsterdam event.

"We've experimented with money markets and bonds but nothing that's live and scaling right now, the only application that we have live is a tokenised deposit."

Despite this, Rugg said she remained enthusiastic about tokenisation with the aim to create a tokenised deposit that can be sent 24/7, 365 days a year, avoiding cut-offs in different timezones or for banking holidays.

Clients are requesting it and the token has been live since last year, Rugg added.

While there have been various experimental projects - for example, to create blockchain-based bonds - tokenised trading lacks a liquid secondary market.

Having spent seven years attempting to re-build its software platform around blockchain, Australia's stock exchange eventually "paused" the project and announced last year the upgrade would no longer involve the technology.

Monica Long, president of U.S. crypto firm Ripple, told Reuters that many U.S. banks have "put digital asset services a bit on hold".

Ripple last year acquired crypto custody firm Metaco and Long said it was going well - pointing to a recent partnership with HSBC.

One of the main impediments to trading traditional assets via blockchain is that banks are working on their own networks, executives say, making it difficult to trade across platforms.

"Fragmentation slows down adoption, as investors don't want to connect to dozens of different networks," said Julien Clausse, head of BNP Paribas' digital asset platform AssetFoundry ahead of the event.

"More likely than not, we will continue to operate in a hybrid world for years to come, with some domains more actively tokenised because of the perceived benefits, and some others remaining in a the traditional world," Clausse said.

(Reporting by Elizabeth Howcroft; Editing by Tommy Reggiori Wilkes and Ros Russell)