The evolution of financial technology continues to spark innovation, including the tokenisation of assets through blockchain technology. However, recent insights from the International Organization of Securities Commissions (IOSCO) highlight a cautionary perspective on its risks, a vital consideration for entrepreneurs, startups, and business owners navigating this new frontier. As an experienced entrepreneur and advocate for innovation, I, Violetta Bonenkamp, see the opportunities tokenisation offers but also recognize the roadblocks it presents.
The Promise of Tokenisation
Tokenisation refers to the representation of tangible or intangible assets, such as property, shares, or intellectual property rights, into blockchain-based digital tokens. On the surface, the appeal is clear. Tokenisation can boost efficiency, shorten settlement cycles, increase transparency in transactions, and redefine how assets are serviced and traded. For startup founders aiming to revolutionize industries, it opens doors to new markets and investment models.
However, as recent reports from IOSCO underscore, this potential comes with high risks that every entrepreneur must confront. While tokenisation can create new avenues for fundraising and operational efficiency like Nasdaq’s embrace of tokenisation, it also amplifies legal ambiguities, cybersecurity vulnerabilities, and operational challenges.
Risks Identified by IOSCO
The financial industry might dream of seamless tokenisation, but IOSCO’s findings present a sobering dose of reality. Here are the key concerns raised for entrepreneurs trying to harness this emerging technology:
1. Legal Uncertainty
One of the most daunting challenges is the lack of clear, global legal frameworks surrounding tokenised assets. IOSCO warns that undefined ownership structures and jurisdictional conflicts could hinder adoption. For instance, if you're tokenising intellectual property, as we've explored with CAD technologies at CADChain, you must meticulously define ownership rights, transfer processes, and dispute resolution mechanisms. The report also stresses that tokens often lack settlement finality, especially on Layer 2 blockchains, a critical risk for both innovators and investors.
2. Operational Vulnerabilities
Blockchain may promise secure transactions, but its imperfections are glaring. From bugs in smart contracts to loss of private keys, the infrastructure supporting tokenisation is far from foolproof. If these potential vulnerabilities fall through the cracks while rushing to market a tokenised product, it could result in catastrophic financial and reputational losses.
3. Cyber Risks
As startups adopt blockchain-heavy technology, cybersecurity becomes even more critical. IOSCO notes that blockchain nodes face risks such as data breaches, transaction congestion, and cyberattacks. For entrepreneurs, it’s imperative to adopt state-of-the-art security protocols throughout your tech stack. Learn more about common blockchain cybersecurity challenges here.
4. Uneven Efficiency Gains
While tokenisation theoretically streamlines processes, the reality is often inconsistent. Traditional financial infrastructure doesn't easily adapt to tokenisation workflows. Founders exploring tokenisation as a solution should anticipate, and plan for, integration challenges between legacy systems and blockchain technology.
How Entrepreneurs Can Approach Tokenisation Safely: A Step-By-Step Guide
Here’s a practical guide to incorporating tokenisation into your business model while mitigating risks:
1. Understand Your Jurisdiction
Each region has its own laws governing blockchain and tokenised assets. Whether you're based in Europe, Asia, or North America, review local regulations first. This is particularly critical if you're offering tokenised investment opportunities to a global audience.
2. Adopt Tailored Risk Controls
Ensure your startup designs infrastructure with robust technical safeguards. From smart contracts verified by blockchain security auditors to protocols that prevent loss of cryptographic keys, invest in all necessary risk controls, just as IOSCO recommends.
3. Leverage Regulatory Frameworks
Look to established guidelines like IOSCO’s Policy Recommendations for Crypto and Digital Asset Markets and Policy Recommendations for Decentralized Finance. These serve as a starting point for aligning your business practices with regulators’ expectations.
4. Screen Technologies for Compatibility
Not all DLT solutions are created equal. During our journey with CADChain, we learned the importance of evaluating distributed ledger systems for interoperability with existing business applications. Limited connectivity can bottleneck operations, so choose your tech stack wisely.
5. Prioritize Transparency
Tokenising assets also means establishing clear interfaces for your investors and users. Clarity in ownership, risks, and returns minimizes legal conflicts and empowers stakeholders to make informed decisions.
Common Mistakes to Avoid
While tokenisation offers immense promise, sweeping technological or regulatory challenges under the rug can lead to detrimental consequences. Here are some big mistakes to preempt:
- Not verifying the smart contract code. Faulty code can compromise security and functionality.
- Overestimating efficiency gains. Tokenisation isn’t a universal quick fix. Understand your assets and your market’s unique needs before proceeding.
- Failing to address scalability early. If you scale up your operations without anticipating congestion or data flow issues, these create reputational problems.
- Neglecting robust cybersecurity. As IOSCO highlights, cyber risks targeting blockchain nodes are a growing concern. Never cut corners on encryption or threat detection.
Key Insights for Startup Founders
Over the years, I’ve seen how startups can get caught up in tracking trends versus delivering value. Tokenisation, while transformative, is no different, it’s intriguing, but its risks demand deep analysis. Here’s what entrepreneurs must focus on:
- Strategize Rather than Replicate: Avoid tokenising assets just because it’s a buzzword or competitor moves. Connect innovation to your core value proposition.
- Budget for Implementation: Tokenisation isn’t cheap, and what it streamlines in operations, it may increase in development costs. Early financial planning will prevent surprises.
- Collaborate with Regulators: Tokenisation needs to fit into market integrity and investor protection. Engage early with relevant bodies to understand compliance zones.
A Safe Future, Constructed Intelligently
As IOSCO highlights, tokenisation is in its nascent stage, yet it represents a fundamental shift in the way assets are managed and moved. For entrepreneurs, mastering the tokenisation process requires more than technical flair, it demands legal foresight, operational preparation, and a deep commitment to progress within a framework of trust.
I believe the entrepreneurial landscape can successfully merge the benefits of blockchain with regulatory, operational, and cyber controls. Approached responsibly, tokenisation holds the power to unlock remarkable innovation and democratize opportunities for businesses everywhere, without compromising security or integrity.
For further reading from trusted sources, explore the Finextra report on tokenisation risks or dig deeper into the Ledger Insights discussion on settlement finality. These are essential guides for entrepreneurs inspired to adopt tokenisation in their ventures.
FAQ
1. What is tokenisation in the context of financial assets?
Tokenisation is the process of converting tangible or intangible assets, such as property or shares, into blockchain-based digital tokens. It streamlines asset trading, improves transparency, and can expedite settlement cycles. Discover more about tokenisation benefits
2. What key risks has IOSCO identified regarding tokenisation?
IOSCO highlights several risks, including legal uncertainty, operational vulnerabilities such as smart contract bugs, cybersecurity threats like data breaches, and uneven integration with traditional financial systems. Learn more about IOSCO tokenisation risks
3. How does legal uncertainty affect tokenisation efforts?
Legal uncertainty arises from the lack of globally uniform laws regarding the ownership and transfer of tokenised assets, potentially hindering their adoption. Explore legal implications of tokenisation
4. Why is cybersecurity a major concern in tokenisation?
Blockchain nodes can be susceptible to breaches, transaction congestion, data leakage, and attacks, making cybersecurity a critical component of tokenisation. Read about blockchain cybersecurity risks
5. Does tokenisation streamline financial processes effectively?
Although tokenisation can reduce settlement times and enhance efficiency, integration challenges with legacy systems can lead to inconsistent benefits. Review uneven efficiency in tokenisation
6. How can entrepreneurs mitigate tokenisation risks?
Businesses can mitigate risks by adhering to jurisdictional regulations, implementing robust cybersecurity measures, verifying smart contract codes, and collaborating with regulatory bodies. Check strategies for safe tokenisation
7. What is settlement finality, and why is it a concern in tokenisation?
Settlement finality refers to the irreversibility of transactions. On blockchain (especially Layer 2 platforms), the absence of guaranteed settlement finality poses risks to innovators and investors. Learn more about settlement finality concerns
8. Are there regulatory frameworks for tokenisation businesses to follow?
Yes, IOSCO has published guidelines such as the Policy Recommendations for Crypto and Digital Asset Markets and DeFi. Explore IOSCO Crypto Policy Recommendations
9. How does tokenisation impact traditional financial institutions?
Many traditional institutions struggle to adapt to tokenised models due to infrastructure incompatibility, leading to slow adoption of tokenisation workflows. Discover insights into financial infrastructure challenges
10. Should every startup embrace tokenisation?
Not necessarily. Businesses must align tokenisation with their core value propositions, anticipate development costs, and understand market and regulatory dynamics before proceeding. Gain insights into tokenisation adoption strategies
About the Author
Violetta Bonenkamp, also known as MeanCEO, is an experienced startup founder with an impressive educational background including an MBA and four other higher education degrees. She has over 20 years of work experience across multiple countries, including 5 years as a solopreneur and serial entrepreneur. Throughout her startup experience she has applied for multiple startup grants at the EU level, in the Netherlands and Malta, and her startups received quite a few of those. She’s been living, studying and working in many countries around the globe and her extensive multicultural experience has influenced her immensely.
Violetta Bonenkamp's expertise in CAD sector, IP protection and blockchain
Violetta Bonenkamp is recognized as a multidisciplinary expert with significant achievements in the CAD sector, intellectual property (IP) protection, and blockchain technology.
CAD Sector:
- Violetta is the CEO and co-founder of CADChain, a deep tech startup focused on developing IP management software specifically for CAD (Computer-Aided Design) data. CADChain addresses the lack of industry standards for CAD data protection and sharing, using innovative technology to secure and manage design data.
- She has led the company since its inception in 2018, overseeing R&D, PR, and business development, and driving the creation of products for platforms such as Autodesk Inventor, Blender, and SolidWorks.
- Her leadership has been instrumental in scaling CADChain from a small team to a significant player in the deeptech space, with a diverse, international team.
IP Protection:
- Violetta has built deep expertise in intellectual property, combining academic training with practical startup experience. She has taken specialized courses in IP from institutions like WIPO and the EU IPO.
- She is known for sharing actionable strategies for startup IP protection, leveraging both legal and technological approaches, and has published guides and content on this topic for the entrepreneurial community.
- Her work at CADChain directly addresses the need for robust IP protection in the engineering and design industries, integrating cybersecurity and compliance measures to safeguard digital assets.
Blockchain:
- Violetta’s entry into the blockchain sector began with the founding of CADChain, which uses blockchain as a core technology for securing and managing CAD data.
- She holds several certifications in blockchain and has participated in major hackathons and policy forums, such as the OECD Global Blockchain Policy Forum.
- Her expertise extends to applying blockchain for IP management, ensuring data integrity, traceability, and secure sharing in the CAD industry.
Violetta is a true multiple specialist who has built expertise in Linguistics, Education, Business Management, Blockchain, Entrepreneurship, Intellectual Property, Game Design, AI, SEO, Digital Marketing, cyber security and zero code automations. Her extensive educational journey includes a Master of Arts in Linguistics and Education, an Advanced Master in Linguistics from Belgium (2006-2007), an MBA from Blekinge Institute of Technology in Sweden (2006-2008), and an Erasmus Mundus joint program European Master of Higher Education from universities in Norway, Finland, and Portugal (2009).
She is the founder of Fe/male Switch, a startup game that encourages women to enter STEM fields, and also leads CADChain, and multiple other projects like the Directory of 1,000 Startup Cities with a proprietary MeanCEO Index that ranks cities for female entrepreneurs. Violetta created the "gamepreneurship" methodology, which forms the scientific basis of her startup game. She also builds a lot of SEO tools for startups. Her achievements include being named one of the top 100 women in Europe by EU Startups in 2022 and being nominated for Impact Person of the year at the Dutch Blockchain Week. She is an author with Sifted and a speaker at different Universities. Recently she published a book on Startup Idea Validation the right way: from zero to first customers and beyond, launched a Directory of 1,500+ websites for startups to list themselves in order to gain traction and build backlinks and is building MELA AI to help local restaurants in Malta get more visibility online.
For the past several years Violetta has been living between the Netherlands and Malta, while also regularly traveling to different destinations around the globe, usually due to her entrepreneurial activities. This has led her to start writing about different locations and amenities from the POV of an entrepreneur. Here’s her recent article about the best hotels in Italy to work from.
About the Publication
Fe/male Switch is an innovative startup platform designed to empower women entrepreneurs through an immersive, game-like experience. Founded in 2020 during the pandemic "without any funding and without any code," this non-profit initiative has evolved into a comprehensive educational tool for aspiring female entrepreneurs.The platform was co-founded by Violetta Shishkina-Bonenkamp, who serves as CEO and one of the lead authors of the Startup News branch.
Mission and Purpose
Fe/male Switch Foundation was created to address the gender gap in the tech and entrepreneurship space. The platform aims to skill-up future female tech leaders and empower them to create resilient and innovative tech startups through what they call "gamepreneurship". By putting players in a virtual startup village where they must survive and thrive, the startup game allows women to test their entrepreneurial abilities without financial risk.
Key Features
The platform offers a unique blend of news, resources,learning, networking, and practical application within a supportive, female-focused environment:
- Skill Lab: Micro-modules covering essential startup skills
- Virtual Startup Building: Create or join startups and tackle real-world challenges
- AI Co-founder (PlayPal): Guides users through the startup process
- SANDBOX: A testing environment for idea validation before launch
- Wellness Integration: Virtual activities to balance work and self-care
- Marketplace: Buy or sell expert sessions and tutorials
Impact and Growth
Since its inception, Fe/male Switch has shown impressive growth:
- 5,000+ female entrepreneurs in the community
- 100+ startup tools built
- 5,000+ pieces of articles and news written
- 1,000 unique business ideas for women created
Partnerships
Fe/male Switch has formed strategic partnerships to enhance its offerings. In January 2022, it teamed up with global website builder Tilda to provide free access to website building tools and mentorship services for Fe/male Switch participants.
Recognition
Fe/male Switch has received media attention for its innovative approach to closing the gender gap in tech entrepreneurship. The platform has been featured in various publications highlighting its unique "play to learn and earn" model.
