Landscape of On‑Chain Asset Tokenization & Blockchain Technology’s Path Toward Maturity

Although blockchain technology has long held a certain allure for fund managers as a way to optimize their compliance practices and modernize their operations, that potential has not been actualized on any grand scale. The technology has improved and advanced with time, however, increasing the likelihood that it will eventually prove to be viable for the private funds industry. Specifically, on-chain tokenization has the potential to connect private funds with untapped sources of capital once the technology and network of providers mature, as well as when there is more regulatory certainty. Those issues were addressed in a paper by Boston Consulting Group and ADDX, entitled “Relevance of on-chain asset tokenization in ‘crypto winter’” (Paper). The Paper examines current crypto market conditions and developments; the application of blockchain technology to illiquid assets; how on-chain tokenization compares with traditional fractionalization; key challenges to the growth of on-chain asset tokenization; and how key stakeholders – including regulators – can assist with progress and growth. This article summarizes the key insights and takeaways from the Paper that are relevant to private funds. See “Tokenization on the Blockchain: Applicability to Private Debt and the Technology’s Future Outlook” (Sep. 30, 2021); and “Tokenization on the Blockchain: Unique Challenges and Benefits and Its Use by Hedge Funds” (May 27, 2021).

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