Tokenization is democratizing investment, and nowhere is this process more advanced than in Asia. The long-term benefits include greater financial inclusion, increased trading activity in domestic equity and debt markets, and more cross-border investment within the region. 

The emergence of digitally native securities and the tokenization of financial and non-financial assets through distributed ledger technology ( DLT ) has the potential to enable ordinary people to own assets that would have been out of reach previously.  

For example, not many individuals can afford to buy a whole corporate bond, which typically trades in lots of US$1 million – or would even be able to gain access to this wholesale market. Even fewer could buy a Picasso, an office tower in London, or a data centre in Malaysia. But tokenization can potentially allow assets to be split into small fractions, allowing ordinary investors to buy a small percentage of an illiquid asset, or one that rarely changes hands, and get a proportionate share in any increase in its value. 

Already we have seen previously illiquid property and infrastructure being transformed into easily tradeable units. Progmat, a Japanese tokenization platform, has tokenized real estate in Japan, while the Pioneer Global Assets Tokenized Fund is a tokenized real estate fund in Hong Kong. Next may come private equity, private credit, and other alternative assets – the walled gardens of institutional and private wealth have opened for the first time to everyday investors.  

So today, as Asia’s growing population of tech-savvy middle-class investors looks to grow their wealth, many have high expectations for this new technology. Policymakers and regulators in key financial centres including Hong Kong and Singapore are moving to develop these new markets in sustainable ways.  

More than a token 

One important prerequisite for market development has been to bring both assets and the cash that pays for them onto DLT platforms. Project Ensemble, a regulatory sandbox set up by the Hong Kong Monetary Authority ( HKMA ), allows financial institutions to test the tokenization of assets using a wholesale central bank digital currency. 

HSBC is driving innovation in this space. Through our HSBC Orion digital assets platform, we issued the world’s first multi-currency digital bonds on behalf of the HKMA in 2024. That deal attracted more than 50 global investors. We have also tokenized gold held in our vaults, allowing investors to buy tokens representing 0.001 troy ounces of gold, rather than the entire ounces that are typically traded. 

The key now is to go beyond distributing digital securities and assets to investors who buy and hold them, to developing more active trading. Many keen early adopters of new financial technologies already own tokenized assets. But the average investor needs more market turnover and liquidity, so they can conveniently enter or exit positions when they need to, and also use their virtual assets as collateral for other trades. That means bringing a new wave of fast-followers into the markets.

To encourage this next generation of investors to have confidence in these new asset classes, legislation and regulations must clarify that ownership of a token truly equates to ownership of the underlying security – virtual or physical – that it represents; that tokenized securities are simply digital versions of familiar instruments. That also entails new mechanisms for custody and account-keeping.  

At the same time, the companies that operate these systems must show that they can operate at scale, handle high transaction volumes, and remain secure against hacks. 

Hong Kong and Singapore are global leaders in developing forward-looking policies in this space. However, there is plenty more technical work to do to ensure interoperability and compatibility between different systems. Privacy must be protected, perhaps by keeping records on public blockchains while transaction details are stored privately. 

Asia’s leadership can help people in the region leapfrog conventional investments to those that used to be inaccessible. That is why financial inclusion through digitization will be a key topic discussed at HSBC’s Global Investment Summit in Hong Kong on March 25-27.

John O’Neill is group head of digital assets and currencies at HSBC.