In 2016, the Australian Stock Exchange announced an ambitious plan to overhaul its trading infrastructure using blockchain technology, aiming to position Australia as a leader in financial market innovation. However, the project was ultimately abandoned due to software design flaws and management issues, leading the exchange to write off $170 million and pay a $14.5 million fine for misleading investors.
A decade later, global financial institutions have reignited their interest in blockchain, investing heavily in projects that leverage the technology’s potential to reduce transaction costs, accelerate settlements, and facilitate round-the-clock trading of various asset classes. Unlike the earlier period when blockchain was closely associated with volatile cryptocurrencies and met with regulatory caution, current developments benefit from increased oversight by major regulators worldwide, providing companies greater confidence to adopt digital ledger technology.
Blockchain’s appeal largely rests on the concept of tokenisation—transforming traditional financial assets such as cash, stocks, bonds, and commodities into digital tokens that can be tracked and traded on blockchain platforms. Proponents compare the prospective shift to the transformative impact of the internet on financial systems, moving away from paper-based processes toward programmable digital assets powered by smart contracts. These automated contracts enable predefined actions, such as dividend payments or loan disbursements, without the need for intermediaries, potentially allowing processes that once took days to settle within moments.
Institutional investors and stock exchanges are actively exploring tokenised assets. Nasdaq, for example, plans to launch a tokenised equity exchange enabling 24/7 trading and automatic corporate actions embedded in tokens. Meanwhile, firms like Coinbase, Kraken, and Robinhood have introduced tokenised stocks aimed at providing faster, cheaper access to U.S. equities for global investors.
Tokenised money, particularly stablecoins pegged to sovereign currencies, represents one of the fastest-growing segments. With more than $300 billion in circulation, stablecoins facilitate near-instant settlement and offer an alternative to traditional payment networks like SWIFT. Asset managers have also developed tokenised money market funds with yields that accrue daily—including weekends and holidays—contrasted with traditional monthly payouts.
Despite these advances, significant challenges and risks remain. Regulators and financial officials, including those at the European Central Bank and the International Monetary Fund, have highlighted concerns about operational risks, systemic vulnerabilities, and the potential for faster propagation of failures due to automation and interconnected blockchain platforms. The continuous nature of tokenised markets adds complexity in managing market-moving information and operational resilience.
Security risks are also notable, particularly on public blockchains such as Ethereum, where large sums have been lost to hacks. While some banks favor private blockchains for added control and confidentiality, interoperability between institutions remains limited, restricting the scalability of tokenised deposits across different banks. Central bank digital currencies are being explored as potential facilitators of interoperability, although timelines and regulatory stances vary internationally.
Questions around the legal and economic nature of tokenised securities remain unresolved. For instance, tokenised stocks sold by Robinhood last year in a private company did not carry traditional equity rights, causing confusion and regulatory scrutiny. Experts warn that such complexities could be problematic for retail investors who may not fully understand what they are purchasing.
Overall, while enthusiasm for blockchain is growing among financial incumbents seeking efficiency gains and competitive positioning against crypto exchanges, tokenised markets still constitute a small fraction of global finance. Industry leaders caution against overhyping developments that may not come to fruition quickly, emphasizing the need for measured progress as regulatory frameworks and technological standards evolve.