What is Tokenisation and is it the new CFD?
Last week I attended the Barcelona Trading Conference, an event which centred on Bitcoin, digital assets and all services relating to them.
I went principally to find out more about stable coins, and how tokenisation could help the CFD/FX world continue to evolve to provide the trading opportunities that speculators and investors want.
What’s clear is that at present, no one has all the answers, but tokenisation does give a glimpse of the trading world of the future.
I think of them like an ETF, where a coin is backed by a particular asset to define its value, making it in theory more stable than other coins. It has an intrinsic value. So you could have a Dow backed coin, a EUR backed Coin, or “your house in Mayfair” backed coin. There is no asset that in theory couldn’t be tokenised into a coin.
So what would be the benefit of tokenisation?
Well the first thing is that you wouldn’t need a broker, not in the conventional sense at least. Coins, underpinned by the blockchain are fungible. Someone would issue the coin, and you would be free to hold your position in a cold or hot wallet (i.e. offline or online) and then free to send that coin to any other counterparty you choose. In CFD parlance, that would allow you to open a position with IG, and close the position with CMC Markets. This could and should lead to increased transparency on price discovery, increased liquidity and lower costs.
The major attraction for me is the flexibility of the product.
If you want to offer leverage, fine, the coin, or access to the coin can have leverage of any level you choose. If you want to fractionise a product, fine you could sell one-tenth of your “house coins”.
One of the reasons why there are still gaps in the delivery of this brave new world is that it remains to be seen how regulation will treat this embryonic product. Will it be treated like a CFD, the product currently almost deemed the single cause of retail investor losses by global regulators? Or will it be treated like something new, a product for sophisticated speculators and investors who wish to get exposure to an asset class on their own terms?
What is interesting is how regulators seem to be keen to get in at the ground floor with Coins.
Most current conferences seem to boast a representative from the local regulator, and it seems Europe, politically, is determined not to cede control of this new initiative to Chinese and US based firms ( and therefore the respective Governments).