During her testimony before the House Financial Services Subcommittee on Digital Assets, Nadine Chakar, the global head and managing director of DTCC Digital Assets, emphasized the advantages of tokenization. She highlighted the transformative potential of tokenizing real-world assets and how it could impact the US financial markets. Chakar pointed out DTCC’s essential role in modernizing the financial industry through digital securities and tokenization solutions. The firm, with over 50 years of experience, processed an impressive $3.0 quadrillion in securities transactions in 2023.
Chakar’s detailed testimony outlined the significant benefits of tokenization in processing and managing the lifecycle of financial assets like tokenized securities. By converting rights or asset ownership units into digital tokens on a blockchain, tokenization has the potential to revolutionize the processing of traditional financial assets. Chakar discussed two primary types of tokenization: Digital Twin Tokens and Security Tokens, both aiming to streamline transactions, reduce costs, and broaden investor access.
Increased Efficiency and Lower Costs
One of the key advantages of tokenization, as highlighted by Chakar, is the increased efficiency and lower costs it offers. By enabling swifter and more efficient transactions, reducing processing inefficiencies, and better managing reconciliation, tokenization can enhance overall market performance. Additionally, Chakar noted that tokenization could expand the investor base by making assets more accessible through increased automation and greater data availability.
While tokenization presents promising advancements, Chakar acknowledged the challenges in integrating DLT into existing financial systems. She stressed the importance of industry-wide coordination, standardization, and robust regulatory frameworks to address security risks, compliance considerations, and interoperability issues. Transitioning to a DLT-based financial system will require concerted efforts from the entire financial ecosystem, including regulatory bodies, to establish a secure and resilient digital assets infrastructure.
Chakar urged lawmakers to align tokenization regulations with existing financial frameworks, advocating for the “same activity, same risk, same regulation” principle. She also called for additional studies on ensuring the legal enforceability of tokenized assets, operational resiliency, and appropriate treatment under insolvency regimes. By addressing these regulatory and operational challenges, tokenization can continue to drive innovation and efficiency in the financial markets.
