Major financial institutions are investing heavily in startups developing the crypto market — but they're steering clear of investing in the asset class themselves:
The potential of tokenization to upend existing processes is likely driving the investment uptick.Much of the investment action is happening around tokenization — the process by which conventional assets like stocks or oil are represented on blockchain — according to Anton Ruddenklau, global cohead of fintech at KPMG, cited by Reuters.
a collaboration, dubbed the Token Taxonomy Initiative, aimed at helping firms meet their tokenization needs. Members of the group include a number of major FIs like JPMorgan, Santander, and ING.We expect FIs to keep pouring investments into the tech, not least because it offers them an opportunity to have skin in the game, while freeing them from commitment.
Investing in startups enables FIs to bridge the enduring tension over blockchain's potential.Despite heavy investments in blockchain, FIs have struggled to move these projects from testing to large-scale rollouts. The result has been increasing sentiment that little has been delivered from the large investments.
At the same time, the promise of the technology, coupled with the constant pressure on FIs to keep up with developments shaping the future of the industry, makes walking away from blockchain particularly challenging. The contradiction between BofA's numerous patents and Bessant's skepticism is a prime illustration of this tension. Investing in startups like Nivaura and Chainalysis, in this regard, offers incumbents a route to meeting these competing demands: It allows them to have stakes in promising projects without having to bear the brunt of the developmental costs. We think it's likely investments in startups in the space will surge even more as FIs look to hedge their bets on the tech.
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