Tokenization in financial services: Delivering value and transformation

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  • Tokenization lets you digitally represent asset ownership for tangible or intangible assets on a blockchain. 
  • Regulators around the world are showing a deeper understanding and comfort with the process and security safeguards. 
  • There are several complexities to consider when building out a project, including ecosystem and scale, operations, and product design and portfolio management.

In our current constrained market with high interest rates, financial institutions are looking for new revenue streams and for ways to speed up operations and cut costs. A blockchain-based technology, tokenization, can help deliver value in these areas, right now. Tokenization lets you digitally represent asset ownership for any tangible or intangible asset — stocks or bonds, cash or cryptocurrency, data sets or loyalty points — on a blockchain. Once your asset is represented by a token, you can quickly and cost-effectively transfer or trade it, use it as collateral and more.

Tokenization has the potential to ease common pain points. For example, look at the costs and delays of delivery versus payment (DVP) settlement. By utilizing tokenization and the technological improvements that a blockchain-based model offers, operational agility can improve, increasing both flexibility and speed. The lessons learned from implementation today can also lay the foundation for transformation tomorrow. Each new investment in tokenization infrastructure and capabilities can unlock a variety of opportunities, including improving capital efficiency, cost savings, access to new market segments, transparency and risk management capabilities.

3 ways tokenization can create value

There are many ways to create value through tokenization. But successful companies often find an attractive mix of near-term return on investment (ROI) and long-term capability building in three major ways:

  • Save money and time by conducting internal transfers and transactions. If you’re a major institution, transferring funds and securities among locations can take time — and add up to a significant cost. It might, for example, take days for an overseas subsidiary to transfer cash to the US to purchase US securities. Tokenization can offer a quicker, more cost-effective way: You can transfer ownership of currencies or securities on a blockchain and put those assets to work, nearly instantaneously, all within the same pre-set workflow. Similarly, if you are a large asset manager, tokenization can be used on a variety of standard operating costs. For example, by using tokenization to manage trade allocations, managers can pre-program which accounts get the results of proceeds, eliminating manual processes and enabling a more efficient operation.
  • Unlock revenue opportunities by making traditionally illiquid assets more liquid. Tokenization works for liquid assets, such as cash, bonds or cryptocurrency and illiquid assets. Historically illiquid assets, such as private credit and private equity, can also be viable tokenization candidates. In the roughly $1.5 trillion private credit market1, for example, it can take a tremendous amount of time and effort to match buyers and sellers. When private credit starts utilizing tokenization, lenders can “fractionalize” loans, making them into a variety of sizes, increasing the pool of potential borrowers. From there, buyers or borrowers can use the tokenized asset as they would a bond.
  • Accelerate completion of complex transactions and enable new types of collateral by connecting on- and off-chain assets. Just as you can transfer assets between different jurisdictions, you can use tokens to transfer value between blockchain-based finance and the traditional financial system. You (or your high-net-worth clients) can quickly and securely use assets in one ecosystem to make investments or payments in the other, opening up new potential markets.


How tokenization works

Operational mechanics

Understanding how tokenization can change the way you do business

To understand tokenization, let us start with a basic example.

Imagine a multinational financial services entity. They need to transfer money between two of its international entities. One in USD, one in Yen.

Currently, this is a process that can take up to a week to resolve through the SWIFT network.

Tokenization lets you bypass this cumbersome process.

First, you have currency in a custody account being held in the respective fiat currency.

Next, create tokens representing an amount of fiat money on either side.

You can now exchange this token instantaneously. The fiat will stay in the account until such time as you “unwrap” the token, in this case meaning that you would go through the standard process of money transfer (SWIFT) at that point.

But lets say you didn’t. Not right away. You can use this token internally to represent that amount of fiat currency (held at a custodian known by the token holder) and transfer it for either another type of tokenized cash, to pay a debt, or buy another asset tokenized or otherwise.

Just this process of tokenizing interfirm cash transfers can unlock other value opportunities that were not possible previously.

Let's continue this example. The same multinational company that has enabled on-chain cash transfers now has the capability of “programmable” money.

What can programmable money do:

Picture a treasurer who takes the internal funds and uses them to pay vendors, employees, or internal debts owed between departments.

The treasurer can work with their internal blockchain team to codify and set the terms of a smart contract to execute upon the terms being met (receiving the predicted amount of money).

Now imagine you could tokenize your assets, be it bonds, money market funds, private credit whatever. You could go through a similar process.

It all starts at a custodian. Once the asset is held in custody, you could create a token to digitally represent that asset.

  • You can then transfer in the same fashion in the cash discussion moving both the payment and asset simultaneously.
  • The benefits are immediate. A deal, even internal, that may take days or a week to resolve can be done instantaneously. Tokens can be unwrapped as needed and converted back to the asset’s original form or transferred along the chain as needed.
  • As long as the tokens are well designed with the proper regulatory and cybersecurity considerations, there may not be a need to convert the token back to its native form.
  • You can even use your new tokenized asset as collateral for a new loan or potentially your next shipment of goods by locking it into a codified smart contract that releases the collateral upon settlement or any other predetermined condition that has been met.

Now imagine a bigger future, where vendors, customers, or any other entity benefits from this speed.

  • Imagine being able to trade a bond to another entity for the tokenized cash you were previously working with.
  • Having smart contracts execute a transaction based on pre-agreed, codified terms that distribute funds to multiple accounts upon settlement.
  • All automatically without having to babysit all of the transfers. Cutting days of work down to a few simple programming options.

Embracing tokenization

What financial institutions and regulators think

Tokenization is already starting to transform how financial services operate. Banks, asset managers, lenders, payment providers and even corporate treasurers and finance departments are tokenizing a broad array of real-world assets, from bank deposits to securities, commodities to documentation.2 Some banks have even been building the blockchain technology stack in-house with an eye to further tokenization initiatives, such as collateral settlement, multiparty trade finance, interbank cash settlements and more.3 Many high-value projects result from collaboration between digital natives offering innovative tech solutions and established financial institutions equipped with capital, scalability, an attractive user experience and rigorous risk management.4

This growing interest in tokenization can have many motivations: technology is advancing, real-world use cases are multiplying and — crucially — regulators around the world are now showing a deeper understanding and comfort with the process and accompanying security safeguards. We are seeing regulators begin to create global frameworks to integrate digital asset technology into the fabric of finance. Regulators’ work is far from complete, and standards still need to be set. But key progress in the regulatory environment includes a focus on separating the technology from the asset, and more widespread recognition of the differences among various types of digital assets.

What tokenization could do next

Agility, automation and revenue growth

If you’re seeking ROI from tokenization, it’s usually easiest to start with internal operations where you as an organization can make all necessary decisions. But tokenization could also facilitate these operations, such as finance, treasury, etc., between different institutions. It can reduce settlement time to near zero, bypass expensive volume-focused networks and provide greater transparency to regulators, who can have a presence (node) on the blockchain. If development, governance and infrastructure are well designed, tokenization can create a single source of truth that can be highly resistant to fraud and cyber threats.

Tokenization can also enable programmability: enabling smart contracts that automatically execute complex operations and systematically manage their risks. Today, for example, corporate treasurers may have to spend hours each day tracking and overseeing cash movements. Tokenization can make these movements programmable. When a token is transferred via blockchain, it can settle in the destination account nearly instantly. Then — automatically and instantly — a properly programmed smart contract could distribute smaller transfers from the received balance, allocating the funds for specified investments and payments. What was once a costly, labor-intensive, multiday process can become automatic, near-instant and independent of traditional fee-based networks.

You can also program advanced risk-management measures into your smart contract. By increasing automation, these measures can reduce the manual oversight and touchpoints needed. They can help you achieve a level of oversight and control over the contract that aligns with your broader control structure. And thanks to the “tunable” transparency of blockchain transactions, your risk managers and third line of defense can easily and quickly track and verify activities. While there are certainly plenty of benefits, we would be remise not to mention the nuances and challenges associated with topics such as control of the asset when compared to traditional finance and the increased scrutiny of regulators in the short term as the technology evolves.

With lower costs, increased speed and automation, and enhanced risk management, tokenization can enable new products, services and lines of business — especially those involving complex, cross-border transactions. Skilled professionals can be redeployed from traditional treasury activities to higher-value work. And by diversifying the available assets for collateralized borrowing, tokenization can open new revenue streams and reach new market segments.

Guidelines for enabling tokenization success

While we have simplified tokenization here, there are several complexities to think about when building out your own project, including ecosystem considerations and scale, operational considerations, product design and portfolio management considerations. Five guidelines can help you find your path forward.

  1. Find what’s feasible — and valuable. Identify and map realistic opportunities to simultaneously deliver short-term value — often by strengthening your core business — and expand long-term capabilities. It’s usually preferred to focus less on isolated use cases and more on capabilities. When well implemented, the same foundational capabilities often require only bespoke additions to support many different, valuable use cases.
  2. Assess the challenges. Once you’ve identified the capabilities you need, prepare for the challenges: technology, skills, culture, security, risk management and more. Be sure to consider the need for interoperability — the ability to move tokenized assets across separate networks or tech stacks.
  3. Understand your stakeholders. Whether your initiative has only internal stakeholders or involves counterparties, clients or investors, map out how tokenization can provide value and grow their trust.
  4. Design trust in. An effective way to enable trust is to put it front and center, starting at the design stage. Embed oversight capabilities into your organization, create or enhance controls for digital assets, upskill risk professionals, and be ready to comply with regulatory, legal and tax requirements.
  5. Learn from others. Bitcoin just turned 15 years old. In traditional finance (TradFi) that may be young in terms of a currency, but in the field of innovation, it isn’t. There are people with deep experience in the nuances of tokenization technologies and their implementation. For both initial and more complex tokenization initiatives, consider allying with digital natives or other trusted organizations that have a deep history with and rich understanding of digital assets and tokenization.

Once you have one tokenization initiative at work and delivering ROI it becomes easier to implement others quickly. As tokenization becomes more integrated into your technology stack and business processes, more and more net-new uses will likely become evident. Soon, you may find that tokenization has enabled a new paradigm and become a trusted foundation for near-instant, transparent and hyper-personalized financial services, coupled with speedy, low-cost settlement and increased liquidity across a broad range of assets.

1 Jodi Xu Klein, “The $1.5 Trillion Private-Credit Market Faces Challenges,” The Wall Street Journal, October 16, 2023, accessed via Factiva, February 6, 2024.
2 Aruni Soni, Treasury-yield surge boosts tokenization of real-world assets on blockchains, leading 'huge paradigm shift' in finance, Business Insider, November 12, 2023, accessed via Factiva, January 25, 2024.
3 Luisa Crawford, “Global Supply Chain Financing: A New Era of Resilience and Diversification,” Blockchain News, January 24, 2024, accessed via Factiva, January 25, 2024.
4 Miriam Cross, “Large regional banks invest in startup deposit network,” American Banker, January 23, 2024, accessed via Factiva, January 25, 2024.

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John Oliver

Partner, Governance Insights Center & National FinTech Trust Services Co-Leader, Washington, PwC US


Matthew Blumenfeld

Digital Assets Strategy Leader, PwC US


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