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Tokenization radically changes structure of investment markets

Bad Homburg, 09/08/2021
by FERI Cognitive Finance Institute
  • Crypto assets bring disruptive changes to capital markets and financial industry
  • Token-based investment vehicles and "smart assets" create new markets for investors
  • Future vision of a decentralized financial system (DeFi) requires professional legislation
  • FERI Cognitive Finance Institute examines opportunities and risks of the "token economy"

With the introduction of so-called "crypto-assets", the digitalization of the financial world is reaching the next level. In particular, "tokenisation", i.e. the possibility of converting real assets into virtual units and trading them via the blockchain, will radically change capital markets and the financial industry. These are central statements of the new study by the FERI Cognitive Finance Institute on "Blockchain and Tokenization - Disruption of the Financial System by Crypto-Assets and Decentralized Finance (DeFi)". "In a decentralized financial system based on blockchains, traditional financial intermediaries will have to massively rethink their business models," says Dr. Heinz-Werner Rapp, founder and director of the FERI Cognitive Finance Institute.

"Digital democratization" challenges the financial establishment

The tokenization of assets makes it possible to acquire fractions of any asset in digital form, he said. This would not only expand the investment universe for established investors and create opportunities, for example in new markets such as art, music or intellectual property rights. It would also give new groups of investors access to asset classes that were previously beyond their reach. The digitization of assets in a blockchain infrastructure also offers significant time and efficiency gains in asset trading. Options and derivatives markets could also be completely redesigned, for example through the use of self-executing contract elements ("smart contracts"). Such "digital contracts" would enable the development of digital payment flows and new types of assets ("smart assets"). "Trading and investing in crypto assets is still in its infancy, but the future vision of a 'token economy' within the framework of a 'decentralised financial system' is already challenging the financial establishment," Dr Heinz-Werner Rapp is convinced.

Legislators are needed

However, there is still a long way to go before blockchain technology, cryptocurrencies and global investment markets merge to form a new digital financial system. However, the first steps towards a legal framework have already been taken - such as in Germany with the Electronic Securities Act. "We need a professional legal basis for digital assets to ensure fair competition and social acceptance," says Rapp. After all, as with every technological structural break, the opportunities and risks here are also close together. Potential efficiency gains from the elimination of fees, deadlines and other transaction barriers are offset by the fear that a parallel shadow financial system could emerge to which supervisors have no direct access. Both arguments are valid, which guarantees lively discussions and disruptive developments in the future.

The study "Blockchain and Tokenization - Disruption of the Financial System by Crypto-Assets and Decentralized Finance (DeFi)" is available in German as download.


About FERI Cognitive Finance Institute

FERI Cognitive Finance Institute is the strategic research centre and creative think tank of the FERI Group, with a clear focus on innovative analysis and method development for long-term aspects of economic and capital market research. The institute uses the latest findings from areas such as behavioural economics, complexity theory and cognitive science.

The FERI Cognitive Finance Institute is backed by an experienced team with an interdisciplinary academic background, many years of research practice and specific expertise. In addition, it has access to a powerful network of external experts.

The Institute was founded in 2016 by Dr. Heinz-Werner Rapp, CEO of FERI AG and CIO of the FERI Group, for which he has worked since 1995. Rapp studied economics at the University of Mannheim and received his doctorate on psychologically influenced investor behaviour ("Behavioral Finance"). He has worked on alternative capital market models for many years and has recently developed key principles of the new "Cognitive Finance" theory.

FERI has operated as an independent investment house since 1987, with a focus on investment research, investment management and investment consulting. The name FERI stands for "Financial & Economic Research International".



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presse@feri.de

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Member of the Management Board
Head of Press & Communications

T +49 (0) 6172 916-3192
F +49 (0) 6172 916-1192
presse@feri.de

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Rathausplatz 8-10
D-61348 Bad Homburg

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Katja Liese
Member of the Management Board
Head of Press & Communications

T +49 (0) 6172 916-3192
F +49 (0) 6172 916-1192
presse@feri.de

FERI AG
Rathausplatz 8-10
D-61348 Bad Homburg

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