BLOCKCHAIN and the underlying Distributed Ledger Technology (DLT) are powerful tools that can transform the financial industry’s banking processes for the better.

In fact, we see three major blockchain shockwaves that will hit the financial industry. First is the fast-paced blockchain transformation of payment processes. Second is the increasing pervasiveness of blockchain technology across capital markets. Third is the explosive growth and acceptance of digital assets that will create a new class of investible assets.

First blockchain shockwave: transforming payment with CBDCs

The first blockchain shockwave involves integrating DLT into payment systems to make them even more efficient and frictionless. While existing payment systems in developed economies are “cashless and real time”, much still needs to be done to improve cross-border payment and increase financial inclusion. Blockchain technology with its “tamper-resistant and tamper-proof” characteristics can also be used to improve the “final-mile” payment reconciliation to aid in Anti-Money Laundering (AML).

There is still much experimentation in this DLT payment space. Many third-party fintech firms are trying to create their unique payment systems. Many central banks across the world are also racing to study and pilot their respective Central Bank Digital Currencies (CBDCs), aiming to innovate domestic payment in the retail or wholesale space as well as cross-border payments. Stablecoins are also having their “existential fight” against CBDCs in the race towards providing critical liquidity payment ramps between digital assets and fiat money.

The CBDC space is extremely complex. There is no “one-size-fits-all” model for central banks. China’s successful domestic trials for e-CNY (digital yuan) may not work outside the country without the strong distribution support of its state-owned banks. It is also extremely difficult to write the entire new legal and regulatory framework for CBDCs and how to supplement existing fiat money effectively. The “holy grail” among the CBDC race is how to achieve cross-border interoperability. At UOB, we believe in the connectivity benefits of CBDCs and their ability to innovate payment. To that end, we aim to work with regional central banks across Asia and Asean, to help bring CBDC innovations to the region and our clients.

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Second blockchain shockwave: use of asset tokenisation to transform capital markets

The second blockchain shockwave involves the increasing use of asset tokenisation in the transformation of capital markets. Asset tokenisation uses blockchain technology to fractionalise traditional assets, breaking them down into smaller tokens, improving accessibility, thereby generating liquidity and value in the process. The immediate applications for asset tokenisation are in the capital markets space whereby equities and fixed income securities have been successfully tokenised. The asset tokenisation process has also been applied to illiquid traditional high-value assets like real estate, paintings and art pieces. There are many benefits of asset tokenisation that will likely change the face of capital markets in the years to come. As efficiency improves, cost is reduced and liquidity improves.

Specifically, the Monetary Authority of Singapore (MAS) has highlighted asset tokenisation as one key action point in the updated Financial Services Industry Transformation Map (ITM) 2025, to “shape the future of capital markets via tokenisation of financial and real economy asset’. We share the same view. And we have started partnering blockchain-related firms like ADDX (a private digital exchange) and Marketnode (a subsidiary of SGX) to pilot and pursue early commercialisation of asset-tokenisation opportunities. We have issued several digital bonds and are now working on a pipeline of other asset-tokenisation transactions.

Third blockchain shockwave: the explosive growth of digital assets

The third blockchain shockwave to hit financial markets is the explosive growth of digital assets. By this, we are not referring to many cryptocurrencies which are mostly speculative in nature. Our focus is on securitised tokens that are generated from the asset-tokenisation process. These securitised tokens may form a new class of investible assets and will grow in significance.

Banks have historically been strong custodians of traditional assets for their customers. Going forward, banks can help provide safe custody for digital assets as well. To safeguard digital assets, what needs to be protected are the cryptographic private keys. This requires usage of sophisticated technologies and appropriate governance to provide the appropriate security and safety. Losing the keys is equivalent to losing assets.

Banks can help safeguard these private keys in a digital asset custody system which also provides a gateway to connect to the rest of the digital assets ecosystem. To that end, we are currently exploring various digital asset custody solutions.

We are excited about the three major blockchain shockwaves that will hit the banking industry and financial markets in the years to come. We are in the process of future-proofing our existing banking systems to prepare for these shockwaves that will change the face of existing payment systems and capital markets.

We are innovating with CBDCs as well as asset tokenisation. In addition, we are studying various forms of digital assets custody. We look forward to collaborating with like-minded blockchain service partners to help improve the banking journey for our clients.

Leong Yung Chee is head of Blockchain and Digital Assets at UOB. Heng Koon How is executive director for Blockchain and Digital Assets at UOB.