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TOKENFUTURE Preview: A masterclass on tokenization for banks



 
"For banks looking to see a return on investment, it's realistic to set a timeline of three to five years."
 


When it comes to digital asset custody and tokenization infrastructure, Taurus is indispensable.


Over 50% of Swiss banks offering digital assets rely on Taurus's infrastructure. Their $65 million Series B funding round, which included participation from financial giants like Deutsche Bank and Credit Suisse last year, underscores the trust in the company’s technology and growth trajectory.


This is why we’re extremely proud to have Taurus as one of our sponsors for this year’s TOKENFUTURE.


Jürgen Hofbauer, Taurus’ Global Head of Strategic Partnerships, will join one of our panels to offer unique insights into the revenue opportunities tokenization unlocks for banks and the various go-to-market strategies they can pursue.


To give you a glimpse of what’s in store for you in Frankfurt on June 18th, we interviewed Jürgen and discussed the following topics:


  • The business case for banks: revenue opportunity vs. cost saving potential

  • The primary internal and external drivers for tokenization initiatives

  • Biggest operational challenges for banks

  • ROI and average completion timeline

  • Cost drivers


So, without further ado, please enjoy my interview with Jürgen Hofbauer.



The business case for banks


In your view, does tokenization primarily present opportunities to generate new revenue streams, or is its greater value found in cost reduction? What’s the business case here for banks?


Having spent 15+ years in the traditional finance industry, I've observed that a main driver to accelerate the adoption of new technologies is business opportunity and client demand.


However, tokenization is still in its early stages, making it a harder sell based purely on business creation. That's why I've noticed a shift, especially in a high-interest rate environment: banks are increasingly recognizing the cost savings and operational efficiencies that tokenization can offer.


These efficiencies are particularly noticeable in middle and back-office processes, such as corporate actions, asset servicing, clearing, and settlement. By factoring in both revenue opportunities and efficiency gains, banks can craft a stronger and more compelling business case for tokenization.


Double-clicking on the cost savings side of the equation again, where do you see the biggest potential for banks?


Blockchain technology is transformative to the banks’ business, touching on multiple areas. The more banks start looking into it, the more operational efficiencies can be made. But these are the three biggest areas for improvement I’ve seen so far:


  • Corporate Action and Asset Servicing: By automating processes via asset programmability, the use of smart contract functionalities can reduce the need for manual and labor-intensive tasks, thereby cutting overhead costs significantly over time.

  • Clearing and Settlement: Traditionally, these processes involve quite a bit of manual work and touch multiple legacy payment systems. Tokenization can change this by using smart contracts to automate transactions once specific conditions are met.

  • Regulatory and Client Reporting: There's a balance to strike with what information goes on the blockchain versus what stays off due to costs and privacy. However, by embedding transaction data or links to prospectuses directly on the blockchain, banks can streamline processes and make information more accessible.


Current level of awareness and understanding


Based on your experience in working with banks, what is the current level of awareness and knowledge within the banking sector with regard to tokenization?


I would look at this from two different angles: technology on one side and business cases on the other.


Technology-wise, banks have come a long way. Working with infrastructure providers like us at Taurus, they've deepened their grasp of the technology behind digital asset custody and tokenization. There's a growing realization that while newer technologies like Secure Multi-Party Computation (MPC) are available, many banks find that traditional tools like Hardware Security Modules (HSMs) fit their needs perfectly. It's also becoming clear to them that effective tokenization requires robust custody solutions—essentially, custody and tokenization are two sides of the same coin.


On the business side, the picture is a bit more mixed. While there's enthusiasm for tokenization, finding a clear business case isn't straightforward for everyone. Some banks look to mimic strategies from larger global banks, which don’t always fit their unique needs, especially for regional banks with big retail operations. There is an ongoing transition from innovation teams to business units, and getting buy-in at the top levels to move projects forward is key to success.




Primary drivers and relevant costs behind tokenization projects


What I'm curious about is who or what is the primary driving force for banks to explore tokenization? Is this push primarily internal, or is it driven more by client demand?


When it comes to what's driving banks to explore tokenization, it's a mix of internal motivations and client demands. On one hand, banks themselves are pushing for innovations like stablecoins and tokenized deposits, especially those with a global footprint. They see significant benefits in streamlining settlement services across different regions and entities.


On the other hand, much of the drive towards tokenizing financial instruments is client-driven. Banks are fundamentally in the business of serving their clients, so they respond to their clients’ needs. If there’s substantial demand from clients—whether they are corporates or high-net-worth individuals—which justifies the business case, banks are quick to prioritize and develop those capabilities.


Although it's not directly related to tokenization, a relevant example is the recent resurgence in the cryptocurrency market. With crypto prices on the rise again, we're seeing a significant revival in the demand for custody of crypto assets and staking services. These business cases had significantly dwindled in 2022 following the collapse of FTX. Now, with the market rebounding, there's a strong client-driven demand prompting banks to rapidly adapt and expand their capabilities, especially in countries with hyperinflation.


Digging deeper into the operational side, what are the most significant challenges that banks have faced while building out their tokenization infrastructure?


Integrating a digital asset solution is truly a significant undertaking for banks, not just a simple matter of selecting a vendor and starting the integration. It involves a comprehensive review of existing processes across the bank, from AML and risk compliance to operational workflows. It also requires banks to analyze their current technological infrastructure, governance, and the training of the necessary personnel in order to succeed.


To effectively address these challenges, banks must establish a foundational layer. This involves creating a strategic framework and defining a target operating model that the organization can execute upon. Ultimately, the integration of digital assets is as much about internal alignment and preparation as it is about choosing the right technology and partners.


What is a realistic timeline for seeing a return on investment in these tokenization projects?


For banks looking to see a return on investment from digital asset solutions, it's realistic to set a timeline of three to five years. The process is extensive, starting with understanding business requirements, followed by vendor selection and integration. Typically, you're already a year or two into the project before you start onboarding clients. Once operational, scaling the business doesn’t happen overnight either.


Banks often run legacy and new systems in parallel, which can initially increase costs due to the need to maintain both infrastructures. Over time, as the new system gains volume and scales, that's when you begin to see the cost savings and benefits of moving onto a blockchain. However, achieving this scale—and the resulting ROI—takes time and depends heavily on client engagement and market adoption.


What are the key factors that influence the costs associated with such a project? Considering that costs vary with the scope, I'm interested in understanding the different variables involved.


Costs can vary depending on the business, scope, and solution deployment, particularly impacting the fixed costs of building the underlying infrastructure. However, there are flexible deployment options that allow clients to lower fixed costs, especially as they enter the space and still need to ramp up volume.


It's important to consider the DLT cost impact over a wider time horizon. Banks will need initial investments in building out the digital infrastructure, and it's very likely that digital and traditional infrastructures will run in parallel for some time. The cost-saving effect will kick in once you reach a certain scale and legacy systems are gradually replaced.


What's next for Taurus?


As we’re coming to the end of our conversation, is there anything you can share already about your roadmap at Taurus? How do you want to grow and evolve your product offering in the coming years?


Given our origin, we began with a strong focus on Switzerland, establishing a solid client base that enabled us to expand successfully by opening offices in the UK, Germany, France, and the UAE.


Regulatory environments play a big role for us, especially since our services depend on banks obtaining the necessary regulatory approvals for digital asset custody and tokenization. We've seen significant traction in Turkey, the Middle East, and Latin America—markets where we are considering further expansion.


When it comes to our product roadmap, we aim to offer a comprehensive suite of services from custody and tokenization to the trading of digital assets. Once you tokenize an asset and take custody of it, you also need distribution to scale your business effectively.


Thank you very much, Jürgen! Really looking forward to your panel at TOKENFUTURE!




 

Are you also exploring tokenization within your organization?


On June 18 we host an exclusive event around tokenization tailored towards institutional investors, capital allocators and banks in Frankfurt am Main.


Learn more on our website or feel free to reach out to max@blockstories.de.


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