The Bank of England recently sounded the alarm about the growing phenomenon of asset tokenization. A crypto practice which is gaining ground with banks, but which according to the United Kingdom’s central bank represents a risk for the financial system.
Asset tokenization, a crypto threat to financial stability?
For many crypto enthusiasts, asset tokenization undoubtedly represents the future of the evolving crypto-asset industry. The Bank of England doesn’t see it that way.
Indeed, the United Kingdom’s central bank has issued a warning about the growing trend of asset tokenization within the financial sector. She emphasizes, in a recent report on financial stabilitythe potential systemic risks of this practice.
This warning comes as banks show growing interest in crypto technologies. Among these, smart contracts, but above all the tokenization of money and real-world assets.
The Bank of England highlights, in its report, the need and urgency for regulation of this crypto practice. A regulation, which, according to the institution, must be coordinated on a global scale to remain relevant.
Asset tokenization is on the rise
It must be said that the warning from the Bank of England comes in a very specific context. That of the growth of this crypto practice. This is at least what figures provided by asset manager 21.co suggest.
According to this company’s forecasts, asset tokenization is expected to represent a $10 trillion market in the next seven years. Currently, there are clear signs that this practice is rapidly gaining ground in the banking ecosystem.
Indeed, a large financial firm like HSBC has launched into digital asset custody services with an emphasis on tokenized securities. Societe Generale carried out a sale of 10 million euros of green bonds tokenized on Ethereum.
While this clearly illustrates the momentum that asset tokenization is currently gaining, the Bank of England fears the increased interconnection between the crypto market and traditional financial assets. This connectivity could, according to her, lead to direct exposures for financial institutions, amplifying potential systemic risks.
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