Tokenisation could become a major feature of mainstream financial markets, but regulatory, technological and liquidity challenges continue to limit its widespread adoption, according to a new report by the Dubai Financial Services Authority (DFSA).
In its whitepaper, Scaling Tokenisation: The Road Ahead, the regulator examines the obstacles facing the conversion of traditional financial assets into digital tokens recorded on blockchain networks.
Tokenisation allows assets such as shares, bonds and cash to be represented digitally on a shared ledger. The technology can widen market access, improve efficiency for issuers and intermediaries, and reduce certain transaction risks. However, the DFSA said the market remained at an early stage of development.
The report identifies investor concerns over security as a major obstacle to wider adoption. Weaknesses in connections between different blockchain networks can expose assets to risks, while criminals may exploit vulnerabilities in these systems.
Although regulation cannot eliminate these threats entirely, the DFSA said appropriate oversight could help financial institutions manage their exposure and build confidence among investors.
The report also highlights the need for a widely accepted and trusted form of digital cash that can be used to settle transactions on blockchain networks. Such a system would allow investors to trade and transfer assets during periods of market uncertainty without being restricted by the operating hours of traditional exchanges.
The scale of potential demand could be substantial. If tokenised assets account for a significant share of global bond and equity markets, trillions of dollars in digital cash could be required to support settlement and maintain liquidity.
Figures from the Securities Industry and Financial Markets Association show that 10 per cent of global securities market capitalisation at the end of 2025 would represent approximately $32 trillion. The amount of digital cash required would depend on market turnover and volatility, with settlement likely to involve several types of assets rather than a single form of digital currency.
Interoperability remains a major challenge
The DFSA also identified limited interoperability between blockchain platforms as a barrier to institutional adoption.
Many regulated financial institutions have developed tokenised securities and digital cash systems using private, permissioned networks. However, these platforms often operate independently, restricting the movement of assets and liquidity between institutions.
The report said wider adoption would require systems that allow tokenised assets, digital cash and financial market infrastructure to operate across different blockchain networks, institutions and jurisdictions.
This would also involve connections between traditional stock exchanges and regulated digital asset trading platforms, as well as between conventional and blockchain-based settlement systems.
Dubai and Abu Dhabi have been expanding their roles in digital finance. The DFSA, which regulates financial services in the Dubai International Financial Centre, operates a Tokenisation Regulatory Sandbox to support businesses testing tokenised investment products.
In August, US cryptocurrency exchange Coinbase announced plans to establish its international tokenisation hub in Abu Dhabi Global Market, which has developed a regulatory framework for virtual assets.
The report suggests that the technology’s long-term growth will depend not only on digital innovation but also on investor confidence, reliable settlement arrangements and closer cooperation across financial markets.
