[Economy Pulse] Token Securities: From Fractional Investment to Financial System Innovation

On August 27, an intriguing transaction took place on Tradeweb, a global electronic trading platform. Global market maker Virtu Financial executed a repurchase agreement (repo) transaction, borrowing funds against digital government bonds as collateral and then repaying them. The entire process—from providing collateral and receiving cash to repurchasing the securities—was conducted on the blockchain and took less than ten minutes to complete.

Recent tokenization market data highlights a significant gap between the perception of token securities in Korea and the realities of the global market. According to RWA.xyz, as of early September, the total global market capitalization of stablecoins is about $303 billion. In contrast, tokenized stocks account for approximately $2.6 billion, and tokenized real estate stands at about $500 million. Notably, the repo sector warrants special attention. Broadridge's distributed ledger-based repo platform, DLR, processed $8 trillion in transactions in July alone, with an average daily volume of $365 billion. Fractional investments in real estate or artwork, which are often top of mind, still represent only a small portion of the overall global tokenization market.

This divergence appears to stem from differing perspectives on blockchain technology and policy design. In the US, the financial market sees blockchain less as a tool for creating new investment products and more as a next-generation infrastructure for upgrading existing financial market 'plumbing.' In contrast, Korea’s initial token securities regulations focused on the technology for issuing and distributing new forms of securities, with an emphasis on fractional investments and permissioned networks led by domestic financial institutions.

The economic value that global financial institutions seek in tokenization does not lie in fractionalizing assets. Rather, it is in enabling faster movement of bonds, funds, cash, and collateral, thereby enhancing liquidity and efficiency across the financial system. Transferring securities and cash on the blockchain allows for atomic settlement, in which payment is made the instant government bonds are delivered. It also makes it possible to reuse collateral deployed in the morning for different transactions by the afternoon. This means the same assets circulate more, and the amount of cash and collateral that needs to be locked away is reduced.

The benefits are quantifiable. Analysis by Broadridge, a global financial infrastructure provider, and research firm Finadium shows that converting just 15% of all transactions to blockchain-based repos can reduce the intraday liquidity buffer needed by 8–17%. When the US shortened its securities settlement cycle from T+2 to T+1 in 2024, the National Securities Clearing Corporation (NSCC) saw its average clearing fund requirement drop by $3 billion, a 23% reduction. As settlement times decrease, capital previously set aside as a buffer against risks can now be redeployed for other trades and investments, significantly improving capital efficiency.

This is why the US equivalent of Korea Securities Depository, DTCC, included not only equities but also government bond repos, securities lending, collateral management, and central clearing house margin management in its tokenization pilot last July. The upcoming service, set to officially launch in October, does not simply focus on moving securities onto the blockchain, but rather on creating an infrastructure that enables more efficient transfer of financial assets.

Differentials in financial infrastructure efficiency ultimately translate into differences in industry competitiveness. Financial institutions better able to reuse the same capital and collateral can engage in more transactions and offer lower interest rates and fees. Ultimately, blockchain infrastructure competition is competition in capital efficiency.

Korea also needs to look beyond merely which real estate or content to tokenize and instead consider how to migrate existing financial assets—including government and corporate bonds and funds—on-chain, and how to utilize them in repo and securities lending, as part of real-world financial operations. Digital payment instruments such as stablecoins or deposit tokens need to be connected in real time, and integration with global networks is also vital.

Fractional investment may be a good starting point. However, the true value of tokenization is not in how finely an asset can be fractionalized, but in how efficiently the financial system as a whole can be transformed and how much more productively the same capital can be deployed. Missing this shift would set back not only the token securities market but may also undermine the competitiveness of the Korean financial industry itself.

Seo Byungyun, Co-CEO of DSRV

This content was produced with the assistance of AI translation services.