UK investment funds get green light for tokenization (2024)

FAQs

What is tokenization of funds in the UK? ›

Also known as digital funds, tokenised funds issue digital tokens that represent an investor's shares or units in the fund. They are generally recorded and traded on a DLT, such as a smart contract-enabled blockchain, rather than using a traditional system of records.

Improved accessibility: A tokenised fund can be accessed directly via a network node which essentially replaces the online account or other non-digital access channels that exist in traditional funds. The provision of this real-time access and self-servicing produces greater efficiency through the chain.

Tokenization lacks a fully developed and comprehensive legal and regulatory framework. However, jurisdictions like Singapore, France, Germany, and the United Kingdom are making significant strides in the development of a comprehensive legal framework for tokenization.

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.

There is no formal definition of 'fund tokenisation', but generally it refers to representing or turning an investor's share or unit in a collective investment scheme (or 'fund') into a digital token recorded on a smart contract-enabled blockchain, a highly programmable, automated and cryptographically secure database ...

Regulatory Uncertainty

The regulatory landscape for tokenized assets is still evolving, so it involves a lot of uncertainty and complexity. To a company or an investor, that presents a challenge! Because getting around diverse regulatory frameworks usually requires strict adherence to compliance standards.

Diversification: Tokenized assets offer diversification opportunities, potentially leading to more robust and balanced portfolios. 24/7 trading: Unlike traditional markets, tokenized assets can be traded 24/7, increasing flexibility and potential trading opportunities.

Tokenization has many benefits for investors, including increased liquidity, fractional ownership, lower costs, transparency, and accessibility.

Drawbacks of Word Tokenization

One of the major issues with word tokens is dealing with Out Of Vocabulary (OOV) words. OOV words refer to the new words which are encountered at testing. These new words do not exist in the vocabulary. Hence, these methods fail in handling OOV words.

Can tokenization be hacked? ›

The token and number itself could be hacked, but it would take years of attempts to be successful because of the encryption methods. While security tokens are generally considered to be a secure method of authentication, they are not completely immune to attacks.

Asset tokenization has the potential not only to facilitate more efficient transactions, but also to democratize access to certain kinds of investment opportunities and bring more liquidity to traditionally illiquid asset classes, such as real estate and art.

In conclusion, tokenization is not merely a trend but a transformative force shaping the future of finance. From enhancing liquidity and accessibility to fostering innovation in traditional sectors, tokenization continues to unlock new possibilities in the evolving digital asset landscape.

Tokenization, the process of converting an asset or the ownership rights of an asset to a digital form using blockchain technology, has gained significant traction throughout the financial services industry. Investors suggest they may allocate 7% to 9% of their entire portfolio to tokenized assets by 2027.

Tokenization replaces the Primary Account Number (PAN) with randomly generated tokens. If intercepted, the data contains no cardholder information, rendering it useless to hackers.

A tokenised fund, which may also be known as a digital fund or a BTF (blockchain-traded fund) is one where shares or units in the fund, or a feeder fund for it, are digitally represented and can be traded and recorded on a distributed ledger.

National Transport Tokens were used in lieu of, or in combination with, regular currency when paying for public transport in the United Kingdom. The tokens were usually purchased by the local authority or welfare organisations. They could be used on most public transport services.

Security tokens, on the other hand, are actual securities, like bonds or stocks, tied to a real company. In terms of legislation, some jurisdictions do treat STOs, ICOs, and other cryptocurrency-related operations under the same legislative umbrella.

Nature of investment: In crowdfunding, investors can receive non-financial rewards, loans with interest or shares in the company. While in asset tokenization, investors acquire tokens backed by tangible or intangible assets, giving them rights to the value and income associated with the underlying asset.