Global securities watchdog says 'tokenization' creates new risks

By Elizabeth Howcroft

PARIS (Reuters) -Crypto tokens linked to mainstream fiscal assets could make caller risks for investors, the planetary securities regulator IOSCO said ​in a study connected Tuesday, arsenic the concern manufacture remains divided connected the merits ‌of "tokenization".

Tokenization - the process of creating blockchain-based tokens linked to real-world assets specified arsenic stocks ‌or bonds - has seen a revival of involvement among crypto enthusiasts this year, with caller tokenized products being sold to the nationalist via online brokers.

IOSCO, a assemblage whose members are the regulators liable for astir each of the world's securities markets, said that the bulk of ⁠the risks astir tokenization travel nether ‌pre-existing frameworks, but that determination could beryllium caller risks and vulnerabilities stemming from the underlying technology.

"Although adoption remains limited, tokenization has the ‍potential to reshape however fiscal assets are issued, traded, and serviced," said Tuang Lee Lim, seat of IOSCO's board-level fintech taskforce.

The antithetic ways tokenized assets are structured could permission investors uncertain ​about whether they ain the underlying plus oregon conscionable the crypto token, and the third-‌party token issuer creates counterparty risks, IOSCO added, echoing immoderate of the concerns raised by the European Union's securities regulator successful September.

"Tokenization could besides endure from imaginable spill-over effects from accrued inter-linkages with the crypto plus markets," IOSCO said.

Some mainstream fiscal institutions, including Nasdaq, are making a propulsion into tokenization, but different Wall Street players person ⁠raised concerns.

EFFICIENCY GAINS 'UNEVEN'

For years, assorted fiscal ​institutions person experimented with issuing blockchain-based versions of assets.

Commercial ​interest successful tokenization is rising, but existent adoption is inactive "limited", IOSCO said.

Promoters of tokenized assets accidental that utilizing blockchain tin chopped trading ‍costs, velocity up settlement,⁠ facilitate around-the-clock trading and adjacent pull younger investors.

But IOSCO said that "efficiency gains are uneven" arsenic marketplace participants inactive request to usage accepted marketplace infrastructure ⁠for the trading processes, alternatively than replacing it with blockchain.

"Issuers bash not thin to publically disclose existent quantifiable ‌efficiency gains, if any," IOSCO said.

(Reporting by Elizabeth Howcroft; ‌Editing by Tommy Reggiori Wilkes and Susan Fenton)