Tokenization Rises From Hype to Inflection Point

At the World Economic Forum in Davos this year, the key theme for digital assets was the future of tokenization.

The stage setting ahead of the forum started with themes on clear regulations promoting greater acceptance and growth potential of digital assets to the pace of asset tokenization rapidly increasing, influencing capital markets, enhancing liquidity, and broadening access to various investment products, and the evolution of blockchain technology into a foundational element as its use transitions from trial phases to robust, enterprise-level applications.

However at the forum, a panel discussion was on tokenization, featuring a diverse range of experts, and moderated by Karen Tso, who co-anchors CNBC's flagship show "Squawk Box" in EMEA.

Here is a brief summary of the discussions and what the panelists said during the session at the World Economic Forum in Davos, Switzerland.

After years of subtle preparation that were eclipsed by the surge in artificial intelligence, the process of tokenization is poised to reach a critical juncture in 2026.

What was once a visionary concept is now evolving into essential financial infrastructure.

Financial institutions, investment firms, cryptocurrency companies, and market infrastructures are coming together to integrate tangible assets, such as cash, securities, real estate, and commodities, onto blockchain technology, on a large scale.

Bill Winters, group chief executive of Standard Chartered, said, “We are at a major inflection point. Eventually, most things will settle in digital form.”

Winters added, "This is the year tokenization starts happening at scale."

Significance of Tokenization

Fundamentally, tokenization revolves around enhancing efficiency, improving access, and increasing liquidity.

The ability to settle transactions instantly, reduce costs, and enhance the movement of collateral has the potential to transform the very structure of market operations.

Fractional ownership provides opportunities for individual and previously unrepresented investors to engage with assets that have traditionally been available only to institutions.

Tokenized markets offer enhanced transparency and liquidity in asset classes that have historically been unclear and difficult to trade.

Stablecoins: The Initial Significant Breakthrough

Stablecoins have become the foremost application of tokenization, experiencing a significant increase in transaction volumes.

Currently, the focus is primarily on cryptocurrency markets and international payment systems. Panelists identify a distinct trajectory leading to wider acceptance within national financial frameworks and, ultimately, routine economic exchanges.

Ripple CEO Brad Garlinghouse said, "Stablecoins are the first real poster child of tokenization."

The prevalence of stablecoins linked to the US dollar brings to light significant geopolitical issues, especially for developing nations that are wary of losing control over their monetary systems and facing unintended dollarization.

French Central Bank Governor Villeroy de Galhau kicked off the expert views and said, "Tokenization and stablecoins may be the name of the game this year."

Garlinghouse added, "Tokenized assets on our ledger grew over 2,200% last year."

Monetary Authorities Versus Individual Currency Systems

Central bankers countered the notion of a future where one entity dominates all. Their perspective is unmistakable: financial resources have consistently represented a collaboration between the public and private sectors.

The primary concern revolves around the unregulated privatization of currency and the diminishing authority of national governance.

Villeroy de Galhau said, "If money becomes only private money, sovereignty is at risk.”

Quoting former Fed Governor Ben Bernanke, Garlinghouse said, "Governments will roll tanks into the street before giving up control of money."

Europe's Plan

Wholesale central bank digital currencies (CBDCs) are designed for financial markets instead of individual consumers.

A dual-layer monetary framework, featuring central bank currency as the foundation, complemented by regulated private tokenized currencies—such as stablecoins or tokenized deposits—functioning in parallel.

In this context, regulation serves not as an obstacle to innovation but rather as a fundamental requirement for fostering trust and ensuring stability.

Villeroy de Galhau said, “Regulation is not the enemy of innovation. It is the guarantee of trust.”

Financial Institutions, Foundational Projects, and Confidence

Financial institutions and market frameworks position themselves as crucial links connecting conventional finance with digital asset markets.

Their responsibilities include safeguarding assets, ensuring regulatory adherence, facilitating seamless integration, and achieving growth potential.

From this viewpoint, tokenization represents not a substitution for the current framework, but rather its technological advancement.

Valérie Urbain, CEO of Euroclear, said, "Tokenization is not a revolution. It is an evolution of financial markets.”

Urbain highlighted "Interoperability between traditional finance and tokenized markets is where the real value lies."

But added "Access does not mean speculation."

Garlinghouse said, "You don’t tokenize everything just to tokenize it. There has to be a real outcome."

Coinbase's Armstrong, said, "There are four billion adults in the world who are unbanked or unbrokered. Tokenization allows people everywhere to participate in wealth creation."

Distinction Between Bitcoin and Fiat Unmistakable

Proponents of cryptocurrency contend that Bitcoin serves as a viable alternative for preserving wealth, providing protection against inflation, excessive government spending, and political meddling.

Central banks decisively dismiss the idea of a “Bitcoin standard,” emphasizing that monetary policy is a democratic responsibility that cannot be delegated to algorithms.

The growing agreement suggests that coexistence is unavoidable, yet traditional currencies will continue to play a crucial role in developed economies.

Armstrong said, "Bitcoin is a check and balance on deficit spending."

He added, "Fiat currencies survive on trust. Lose that trust, and people move."

On the other hand, Villeroy de Galhau said, "I trust independent central banks more than private issuers."

Winters said, "Power still matters when it comes to money."

Oversight, Returns, and Market Rivalry

A crucial point of discussion is whether stablecoins ought to offer rewards or interest.

Companies in the cryptocurrency sector assert that this development is advantageous for consumers and boosts international competitiveness.

Central banks caution that this could lead to instability within financial institutions and hasten the movement of deposits away from them.

The probable result is distinction:
- Reliable digital currencies for transactions
- Yield-generating tokenized bank deposits
- Tokenized money-market funds serve as reliable stores of value

Garlinghouse said, "Perfection is the enemy of progress.”

Armstrong said, "Competition is good, but the playing field has to be level."

Winters highlighted that "We want customers to have the best outcome. We don’t care which token wins."

Implications for Global and Emerging Markets

Tokenization has the potential to significantly lower the expenses associated with cross-border payments, providing an immediate advantage for developing nations.

However, it may also hasten the process of adopting foreign currencies in nations where confidence in domestic currencies is lacking.

Interestingly, numerous developing economies are at the forefront of payment innovation, exemplified by systems such as UPI in India and Pix in Brazil, despite the fact that concerns over sovereignty are hindering complete on-chain adoption.

Villeroy de Galhau said, "Tokenization could dramatically cut the cost of cross-border payments. Advanced economies are not the most innovative in payments."

Winters said, “The top ten fiat currencies will survive. The rest will be dollarized, or replaced by Bitcoin.”

And on dollarization, he added, "If it doesn’t happen through the front door, it happens through the back door."

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