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Tokenisation of assets:

A conversation with Prof. Dr Hans-Gert Penzel about the future of property (2/2)

According to Prof. Dr. Hans-Gert Penzel, recognized financial expert, member of the atriga Advisory Board and former Director General and CIO of the European Central Bank, tokens are already a natural part of the digital world. They allow the end-to-end digitization of processes without media disruption and can therefore be used as a store of value almost anywhere. In quantitative terms, they are presented as highly attractive economically because processes become more favourable, faster and more transparent. 

In the second part of the interview, you can read about the role of regulation at EU level and the impact tokenization will have on banks. You can find the first part of the interview here.


What barriers remain to the widespread use of tokens?

In the area of technology, the corresponding protocols are not always sufficiently elaborated and standardized, especially in the case of smart contracts. There is also a lack of convenient, widely available wallets to hold the tokens.

The classification of tokens via taxonomy is incomplete and inconsistent, and the requirements for individual token classes in the EU are not clearly defined. Ensuring Know Your Customer concepts remains unsatisfactory. The magic word is MiCA, i.e. the EU Markets in Crypto Assets Regulation, which will hopefully be adopted and implemented by 2024. But securitization of real estate and mirroring of complex rights will still remain cumbersome.

In terms of cost-effectiveness, the numerous analog intermediate steps have a negative impact on the result, so that perhaps only 20 percent of the envisaged 65 percent cost reduction remains.

In the area of acceptance, too, the cumbersomeness of analog intermediate steps weighs on the balance sheet. Added to this is the difficulty of tracing complex contracts and the fear that the apparent anonymity on DLTs such as the blockchain could dissolve very quickly. From a purely emotional point of view, young people and future generations will probably have fewer fears of contact because they have simply grown up with this technology.

Prof. Dr. Hans-Gert Penzel: “If around 3 percent of European GDP is anchored on tokens in 2027, that will already be a success. In about 7 to 10 years, tokens could then reach the mainstream.”

Ausgabe 21 Newsletter 2021-06-21 Drei Fragen an Prof. Dr. Hans-Gert Penzel

How do you see the future of the token then?

There is still a lot of work to be done, but in my view tokens have a great future in the long term. They are attractive as a digital anchoring of ownership because of the advantages in efficiency, transparency and speed. However, as described, there are still various hurdles to overcome and tokens will remain in the niche for many years to come. If around 3 percent of European GDP is anchored on tokens in 2027, that will already be a success. In about 7 to 10 years, tokens could then reach the mainstream.


What impact will tokenization have on banks? In connection with tokens, the term embedded finance comes up again and again.

Embedded finance means that the financial transaction is merely a necessary by-product: the customer wants to buy something, so he has to pay or finance it. Tokenization makes the financial steps particularly simple and thus allows embedded finance in the best sense. Banks, as repositories of trust, can also represent the fundamental basis and the end point of embedded finance here with their attached financial services. However, they must begin to build up the corresponding competencies now at the latest so that the advisors can take the customer by the hand and accompany him through all the steps.

About the interview partner: Prof. Dr. Hans-Gert Penzel, member of the atriga Advisory Board, teaches and conducts research at the University of Regensburg. From 2004 to 2010, Penzel was Director General and CIO of the European Central Bank, from 2010 to 2019 Managing Partner of ibi research at the University of Regensburg.

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