Over the past decade, institutional adoption of digital assets has undergone a transformation. The emergence of tokenisation, stablecoins, and decentralised finance (DeFi) has unveiled new opportunities, attracting asset managers, banks, and funds, propelling digital assets closer to mainstream acceptance. As blockchain technology matures and regulatory frameworks take shape, institutions are expanding their focus beyond cryptocurrencies, exploring a broader range of digital assets with increasing rigour.
“We’re seeing a renewed interest in digital assets from institutions, but the areas of focus have shifted compared to a few years ago,” observes Ian Salmon, Director of Ignite G2M, a consultancy firm specialising in the digital asset space. “Back in 2019 and 2020, there was a surge of interest, but then it tapered off as proofs-of-concept (POCs) and similar initiatives started to fade. However, over the past year or so, there’s been a resurgence. This time, the emphasis is on actual pilots rather than just POCs. Institutions are beginning to implement production-style infrastructure to address real use cases, potentially involving real transactions in production environments.”
Given these renewed levels of interest, what are the key challenges that institutions now face around the adoption of digital assets, and where might the market evolve from here?
Achieving Equivalence
Industry experts would probably agree that the future of digital asset adoption hinges on three key factors: regulatory clarity, robust infrastructure, and compelling real-world use cases. Clear regulations would allow institutions to confidently engage in these nascent markets by minimising compliance risks and establishing consistent rules across jurisdictions. Robust infrastructure, encompassing secure custody solutions and scalable networks, is crucial for safely and efficiently managing large-scale transactions. And use cases that clearly demonstrate value will lead to broader acceptance and participation, thus driving the critical mass needed to create liquid and stable markets.
But first things first.
“To truly kickstart the digital asset revolution, we first need to establish equivalence with the current systems before we can build something more advanced,” suggests Michele Curtoni, Head of Strategy at SIX Digital Exchange (SDX). “To achieve this equivalence, regulatory status is crucial. Switzerland provides a good example, and we’re seeing similar progress in the UK and in the EU with the respective pilot regimes. The US is lagging, but Singapore is also making strides.”
He continues: “Regulatory status is essential for regulated institutions to handle digital assets. This means that securities can be recorded not only through double-entry bookkeeping in a CSD (Central Securities Depository) but also on a distributed ledger, with both forms being equivalent. Next, we need the financial market infrastructure to support this ecosystem. A bank can service some use cases with its clients on its own, but it’s the financial market infrastructure that connects everything and generates network effects. We need both the technical capability to issue digital assets and the ability to settle them.”
This is where the role of CBDCs (Central Bank Digital Currencies) becomes important, says Curtoni. “Once we have the regulatory status, a common platform, and a way to handle both delivery and payment—CBDCs for payments and digital assets for delivery—we reach parity with existing systems. The next step is building critical mass to drive adoption. The next step is to build value creating use cases beyond what we can do today with traditional securities.”
Curtoni highlights the Helvetia Project, a collaborative initiative led by the Swiss National Bank (SNB) and the Bank for International Settlements (BIS), which successfully demonstrated that tokenised assets could be settled using a CBDC while maintaining regulatory and operational standards comparable to those of traditional CSDs. The project underscored the potential for dual regulatory status, where blockchain-based assets receive treatment equivalent to those in conventional systems, effectively bridging legacy and digital ecosystems. The Helvetia pilot has now been extended for at least two more years, allowing the industry to explore new use cases with this framework in place.
Production Use Cases
Two asset classes that are increasingly being utilised in digital form are bonds and money market funds. Tokenised bonds can benefit from improved efficiency in issuance and settlement processes – by leveraging blockchain technology, settlement times can be reduced from days to near-instantaneous, which also lowers counterparty risk and operational costs. Additionally, tokenisation allows for fractional ownership, broadening access to bond markets and potentially attracting a wider range of investors.
To date, tokenised bonds have been SDX’s primary focus, rather than other assets such as equities or funds. “What we’ve done is allow for native digital bond issuance on SDX, so if you want to trade a bond with all the brokers on the Swiss exchange, you can move the asset back and forth between the digital and traditional worlds,” says Curtoni. “This interoperability allows you to access liquidity where and when you need it, while also enabling atomic settlement and native digital issuance on SDX. We’ve created a dual model with a single ISIN, which is a significant achievement. It took us two years to reach the point where every issuance could operate this way. Initially, we had two ISINs and two parallel copies, which offered no real benefit. Now, we have one ISIN for a single bond, which can move seamlessly between the two worlds and remains equivalent in both.”
Money market funds are also ideal candidates for tokenisation due to their high liquidity and short-term nature. Tokenising these funds enables real-time trading and instant settlement, which aligns well with the demand for flexibility and efficiency in cash management. Institutions are increasingly looking for solutions that provide immediate access to liquidity while maintaining capital stability, making tokenised money market funds particularly attractive.
“The reason money market funds are particularly appealing is that in a high-interest-rate environment, you don’t want your money just sitting in a bank account, a stablecoin like USDC or USDT, or even a high-interest account where access is restricted,” says Simon Barnby, Chief Marketing Officer of Archax, a UK-regulated digital assets exchange. “You want it readily available while still earning a yield, and money market funds are perfect for that. In the traditional world, you’d invest in a money market fund, receive your yield, and get your money back at the end. In the digital world, however, you not only receive your yield, but you’re also given a token that represents your ownership of money market fund shares. This token can be used as collateral, transferred to others, borrowed against, or lent out, unlocking a range of new possibilities. A lot of banks transfer money overnight, posting margin payments, repos, and other transactions. Moving in and out of fiat can be cumbersome, so having a token that represents a money market fund, which earns you a yield and can easily transfer value between institutions or between institutions and their clients, is highly attractive. We’re seeing considerable institutional interest in the capabilities these tokenised assets offer once they’re in digital form and represented by a token. This kind of innovation is really exciting,” he says.
Both bonds and money market funds are well-regulated and understood by institutional investors, making the digital versions easier to integrate into existing portfolios. As tokenised markets grow, they could serve as key drivers of institutional adoption, offering clear advantages while maintaining the stability and risk profiles that institutions require.
Different Approaches to Interoperability
Within the digital asset domain, a particularly thorny challenge is how to connect isolated digital asset ecosystems – or ‘tokenisation islands’ – and integrate them with regulated infrastructure. Different digital asset platforms operate on varying technologies and standards, making seamless interaction difficult. Regulatory fragmentation across jurisdictions further complicates efforts to integrate these digital ecosystems with traditional financial infrastructure.
“Servicing these assets remains a challenge,” says Salmon. “For example, if an asset was created on Polygon, traded on Ethereum, and settled with a specific coin, how do you then manage dividend payouts in the future? Where does the recipient hold their wallet? These are complex interoperability issues that need to be addressed.”
Blockchain-to-blockchain solutions, utilising interoperability protocols, offer a means to enable decentralised asset transfers across different blockchains without intermediaries. While this approach aligns with the DeFi ethos, it does face several challenges, including issues related to security, scalability, and standardisation. Moreover, such solutions require significant technical integration and cooperation between networks.
Ben Stephens, CEO of Cleartoken, a central counterparty (CCP) for digital asset markets, questions whether this is the right approach. “Technologists often claim that we need native interoperability between chains, but do we really?” he asks. “Let’s consider the practicalities. When we talk about interoperability, we’re saying that blockchain A holds the title to an asset, and you want that asset to appear on blockchain B. But do you really want that, or do you just want the two chains to be connected in some way? If you want to move an asset from blockchain A to blockchain B to facilitate atomic settlement, you’re essentially immobilising the asset on blockchain A. How do you plan to do that? Through a smart contract? So, something on blockchain A would depend on an action on blockchain B? This is a risky approach. While you might be able to use a wormhole or a bridge, history shows that these solutions have been hacked repeatedly in the last couple of years, leading to billions of dollars in losses.”
Stephens suggests an alternative approach. “What you actually need is something like a depository receipt, facilitated by a financial institution that holds the asset in custody. We can solve that from legal, regulatory, and operational perspectives without needing native interoperability.”
This depository receipt-style approach essentially involves tokenising assets backed by custodians, allowing traditional assets to be traded within digital ecosystems using established legal and regulatory frameworks. This method would be familiar to institutions, legally secure, and would integrate well with existing financial infrastructure, but one could argue that it doesn’t fully leverage blockchain’s decentralised potential.
In short, whereas depository receipts could provide regulatory certainty and ease of adoption, which could be ideal for bridging traditional assets into digital markets, blockchain-to-blockchain solutions could offer more flexibility within purely digital ecosystems, albeit with greater complexity and potentially more risk.
Public, Private and Permissioned Public Blockchains
When building digital asset infrastructure on distributed ledger technology (DLT), institutions and consortiums face a fundamental strategic decision: whether to utilise public or private blockchains.
Public blockchains – open, decentralised networks where anyone can participate, offer transparency and security through large-scale decentralisation, but their open nature can pose regulatory and privacy challenges for institutions. Private blockchains – closed networks controlled by a single entity or consortium, offer enhanced privacy, speed, and control, making them suitable for internal operations or industry-specific use cases. However, their centralisation can limit broader interoperability and trust.
“There’s been more clarity regarding the use of public versus private blockchains,” says Salmon. “For financial market infrastructures, it’s becoming clear that a secure, permissioned environment is required. However, this may not be necessary for consumer or B2C models, resulting in a bifurcated market. This has prompted regulators to examine how these different technologies will coexist. BIS, through Project Agora, is exploring how the market will evolve with different technology bases and how they’ll work together. Similarly, the Monetary Authority of Singapore’s (MAS) Project Guardian is focused on making point solutions interoperable in the market. The key question is whether we’re building walled gardens or if we’ll actually be able to move assets around seamlessly.”
A third option, combining aspects of both public and private blockchains, is a permissioned public blockchain. This is a public network operating with access controls, where only authorised participants can validate transactions or access specific data. This model provides a balance, enabling institutions to maintain privacy and control while still leveraging the broader ecosystem’s security and transparency.
“Institutions like to have control, but they also recognise that to unlock the full value of digital assets, they’ll need to work with public blockchains and ensure interoperability between different chains,” says Barnby. “At Archax, everything we’ve done so far has been on public networks, though they are permissioned public networks. This means that there are KYC and AML measures, and a good deal of protection in place. We also utilise Silent Data, which allows for data on the public blockchain to be obfuscated so that only those with the right permissions can see it. For example, if two institutions are transacting on a public chain, the details they don’t want to be visible to others remain hidden, viewable only by them and possibly the regulator. This capability makes public blockchains much more appealing to institutions. I believe we will see a mix of private, public, and permissioned public chains, along with chain interoperability. The data security is already there.”
How to Achieve Secondary Market Liquidity?
Despite the growing institutional interest in digital assets, the majority of activity to date has been around issuance in the primary markets, with trading in secondary markets much less developed. So what is needed to drive secondary market trading?
“Before you can fully develop a secondary market, you need to see success in the primary market, which needs to be proven and operational before moving on to secondary trading,” explains Barnby. “Liquidity becomes an issue—who makes the market, and who stands behind the trades? With money market funds, for example, some of the asset managers we’re talking to are willing to support secondary market trading. They’re open to buying back their own money market funds at a slight discount or selling at a slight premium because there’s value in enabling real-time trading. People want the ability to get in and out of positions quickly, and they’re often willing to trade at slightly lower or higher prices to benefit from instant liquidity. So, secondary markets will come, but you need to prove things in the primary market first.”
“Running an institutional secondary market is quite challenging for a number of reasons,” adds Stephens. “Secondary markets obviously exist for cryptocurrencies, but they function through a structure where the same entity often takes on multiple roles: running a CCP (Central Counterparty Clearing House), managing the exchange, acting as the market maker, handling the order book, providing custody, operating as the prime broker, and running the borrowing desk. This concentration of roles is typically not institutional-grade; it’s far from the robust infrastructure separation required for large-scale institutional involvement.”
He continues: “At ClearToken, we’re addressing these challenges by building independent horizontal infrastructure which will solve many of these issues. At the venue level, we’re providing a CCP, which handles operating capital, netting, and risk management, enabling borrowing/ lending, non-deliverable forwards, spot trading, and essentially everything needed to run a T+0 system. By offering this setup, institutions won’t be tied to individual exchanges for custody and similar functions. We provide a ‘trade on any venue and settle with any custodian’ model, which increases choice and mitigates market risk issues. And since we will be regulated by the central bank, we will be required to ensure margin is prefunded to cover a firm’s risk exposure. And because the settlement timeframes are so short, the total margin requirements are generally lower, for instance, than they would be for equities, which settle T+2 outside North America.”
Driving Further Adoption
Looking ahead, critical mass will be essential for driving broader institutional adoption of digital assets because it will create the network effects, liquidity, and trust necessary for sustainable growth. A foundation for scale is only likely to be established when key stakeholders—including regulators, financial institutions, technology providers, and market participants—align on regulatory, technological, and operational standards.
If and when such a critical mass of participants is reached, it will lead to improved liquidity, more efficient markets and better price discovery. This, in turn, will attract additional participants, creating a virtuous cycle of adoption. Without this critical mass however, the ecosystem will remain fragmented, limiting broader institutional engagement and stunting market development.
“Liquidity will grow as these assets are used more frequently,” says Salmon. “I see it as a combination of three key factors: regulatory and legal frameworks, market adoption and understanding, and technological maturity. These three elements need to come together. We’re approaching that point now, but we could benefit from more regulatory and legal certainty, a better understanding, and more proven use cases. The technology has advanced significantly through various POCs. Organisations like MAS and BIS play a crucial role in this process by focusing efforts on programs that create sandboxes, allowing people to test how these systems will function in practice.”
“This is no longer a technology problem—it’s becoming a legal and operational problem, and soon it will be an adoption problem,” says Stephens. “But we need to resolve the legal and operational issues first. We’ve already made significant progress on the technology front.”
Curtoni suggests that digital assets adoption is no longer a question of why, but when. “The big challenge now is how we connect these ecosystems,” he says. “Our approach is to start linking everything to regulated infrastructure to overcome these digital or tokenisation islands. We’ve focused on building out the infrastructure, securing regulatory certainty, and achieving critical mass, which has put us in a strong position for adoption. Other players, whether banks or startups, often start with specific use cases and then retrofit everything else. Depending on where we all began, we’re all making significant progress. It will be fascinating when we reach the point where, for example, a bank can exchange a bond issued on SDX, settle it on HQLX, and use JPMorgan Coin for the transaction. That’s when we’ll see true adoption. But we need regulatory harmonisation to make this happen, as well tech interoperability.”
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