Finally, Blockchain Being Used, Promises Being Delivered

After more than a decade of experimentation with blockchain and distributed ledger technology in the financial sector, the results of tokenization are only now beginning to manifest.

For years, sceptics have rightfully questioned whether this technology could truly revolutionize the trade settlement process, especially after so many years of hype with little to show for it. The technology seemed destined to be archived as another overly touted innovation—forever stuck in the realm of the theoretical and unproven.

A multitude of institutional pilot projects, rather than dispelling these doubts, only seemed to bolster them. High-profile failures—from stock exchanges to trade finance—were rooted in efforts that relied on isolated platforms, disconnected from the broader market. The absence of a cohesive market ecosystem meant fewer participants, stifling the scalability and broader adoption of blockchain-based networks. Thank you for trying; let’s return to our tried-and-true ISO-based messaging systems.

Investment write-offs in these technologies have reached into the hundreds of millions. Even successful proof-of-concept trials rarely advanced beyond a final report of findings.

This year, however, marks a pivotal shift. 

Many claim that stablecoins represented the first genuine application of blockchain technology. Indeed, they spurred central banks to explore digital currencies more seriously and regulators to discuss future frameworks.

However, with bond yields presenting lucrative returns as of late, investors sought more capital-efficient means to deploy their funds—especially as stablecoin issuers struggled to pass along the yields generated by the assets backing them.

Seeing a gap in the market, several major asset managers seized the opportunity, deploying tokenized bonds on blockchain networks. There were no large preliminary tests, no overarching platforms or pilot programs—just high-quality collateral, tokenized and ready for use.

Blockchain technology was finally being implemented, not through an exhaustive overhaul of every aspect of the trade lifecycle, but in a way that made immediate, practical sense. Over $1 billion in tokenized bonds have been added into the digital asset ecosystem across multiple public blockchains this year alone. 

There has always been a persistent debate about which blockchain will ultimately prevail—whether public or private blockchains would prove more advantageous.

However, institutional asset managers have sidestepped these debates, opting instead to mint their funds on various public blockchains. While these blockchains are not interoperable, meaning, an asset on one blockchain cannot be directly traded for another asset on a different blockchain, they have nonetheless moved beyond this often-cited hurdle.

This approach offers key insight into the future of blockchain-based financial markets—not from a theoretical perspective, but a practical one.

Firstly, transparency on public blockchains is not seen as a disadvantage but rather as an advantage. High-quality collateral on public blockchains allows all market participants to observe the assets and the systemic risks they are intended to mitigate.

The use of public blockchains for tokenized bonds demonstrates that speed and scale are not the primary objectives as these remain technological hurdles. But if the trading of assets isn’t the primary goal, then what is?

Perhaps, the focus is more appropriately on collateral mobility across investor positions on exchanges, rather than on instantaneous trading and settlement, which would require advances in technology that are beyond the current capacity of blockchains. For issues of speed and scale, digital asset custodians have found solutions to these problems and are already processing billions in daily trading volume for digital assets, removing counter-party risk from the system for all involved all day long, year round. 24/7/365. 

And with the largest Central Securities Depositories in the US and Europe having come to the conclusion that digital asset custodians will be key players in the distribution of tokenized assets, the evolution of markets becomes quickly evident.

The use of tokenized funds as high-quality collateral harnesses the operational efficiencies of blockchain assets, reducing the need for reconciliation and enhancing capital efficiency through improved capital mobility. Issues of interoperability, scale and speed are no longer obstacles because market participants have moved beyond the realms of mere possibility into the realms of what is now possible.