The long-term vision is a fully tokenized financial ecosystem

The asset management industry has traditionally been slow to adopt technological change. Why is this the case?

Pascal Naegeli: Unlike many other industries that have rapidly embraced digital transformation, asset management has remained deeply entrenched in its traditional structures. This is largely due to the stringent regulatory environment, which has made it difficult to implement new technologies without thorough compliance considerations.  

Additionally, the industry relies heavily on legacy infrastructure, including intermediaries such as custodians, administrators, and brokers, who manage processes that have been in place for decades. These intermediaries play a crucial role in ensuring regulatory compliance, executing transactions, and maintaining financial stability.

Another key reason for the slow adoption of technology is the high level of trust required in financial transactions. Asset managers, investors, and regulators have historically placed their confidence in centralized institutions. Decentralized digital solutions, on the other hand, are novel and still unfamiliar to many. However, with the maturation of blockchain technology, this paradigm is shifting. Blockchain introduces transparency, automation, and efficiency, offering the potential to streamline operations while maintaining - or even enhancing - trust and security.

How exactly does blockchain technology transform asset management?

Pascal Naegeli: Blockchain is fundamentally reshaping asset management through tokenization, smart contracts, and decentralized ledgers. Tokenization allows real-world assets - such as equities, bonds, and real estate - to be digitally represented on a blockchain, making them more accessible and easily tradable. This eliminates many inefficiencies associated with traditional asset transfers, such as time delays and high transaction costs. Smart contracts play a particularly important role in automation. These are self-executing programs that enforce agreements without the need for human intervention. For example, a smart contract could automatically calculate and distribute interest, enforce investment rules, or execute trades based on predefined conditions. This not only improves efficiency but also significantly reduces operational risks and human errors. Additionally, decentralized ledgers provide real-time visibility into transactions, enabling instant auditability and eliminating the need for multiple layers of verification. In a blockchain-enabled asset management ecosystem, compliance checks, transaction reconciliations, and reporting can all be automated, leading to a more transparent and efficient financial system.

What does the near-term (2–5 years) adoption of blockchain in asset management look like?

Pascal Naegeli: In the near term, we are likely to see a hybrid model where tokenized and traditional assets coexist. Tokenization is expected to rapidly enhance value in inefficient asset classes such as private equity and real estate by increasing liquidity and accessibility. However, other asset classes may experience a slower pace of tokenization due to their existing efficiency. While blockchain offers many advantages, transitioning to a fully digital system will take time, especially because central bank digital currencies (CBDCs) are not yet fully developed. This means that asset managers will still need to work within the existing financial system, which relies on fiat currency settlements and traditional custody solutions.

During this phase, custodians will play a critical bridging role, managing the interaction between tokenized assets and traditional markets. Asset managers will need to build expertise in token research, risk management, and blockchain integration to navigate this evolving landscape. Although efficiency gains may be somewhat limited due to legacy payment infrastructures, firms that embrace blockchain early will gain reputational and operational advantages, positioning themselves as leaders in the digital transformation of finance.

And what about the long-term (5–10 years) vision for blockchain in asset management?  

Pascal Naegeli: The long-term vision is a fully tokenized financial ecosystem where all securities, currencies, and derivatives exist as digital tokens on blockchain networks. In this future, smart contracts will automate - beside the core function portfolio management - virtually every aspect of asset management, from investment execution and compliance monitoring to fund accounting and investor reporting. With full adoption, settlement delays and counterparty risks will become obsolete, as transactions will be executed in real-time through atomic swaps. This will eliminate the need for intermediaries, allowing asset managers to directly interact with blockchain-based exchanges and manage tokenized portfolios more efficiently. Moreover, regulatory compliance will be embedded within smart contracts, ensuring that transactions automatically adhere to investment guidelines and legal requirements. Asset managers will have greater transparency and control over their operations, ultimately reducing costs and enhancing investor confidence.

How will blockchain impact core asset management processes such as trade execution and settlement?

Pascal Naegeli: Blockchain will revolutionize trade execution by enabling instant, automated transactions. Unlike traditional financial markets, where trades often involve multiple intermediaries and can take days to settle, blockchain enables atomic settlement, meaning trades are executed and settled simultaneously. This eliminates settlement risks and reconciliation inefficiencies. For example, a smart contract can be programmed to ensure that a trade only executes if all predefined conditions are met, such as regulatory approval, price limits, or portfolio allocation thresholds. This removes human error and ensures compliance in real-time. Additionally, blockchain will streamline investment accounting by providing real-time net asset value (NAV) calculations. Fund managers will no longer need to rely on end-of-day price reconciliations, as all asset data will be available instantly on the blockchain.

What new infrastructure is needed for asset managers to adopt blockchain?

Pascal Naegeli: For blockchain to be fully integrated into asset management, a new technological and operational infrastructure will be required. The core components will include:

1. Smart Contracts – These will automate investment rules, compliance checks, and transactions, reducing manual intervention.
2. Fund Vaults – Secure digital vaults will store tokenized assets, replacing traditional custodians.
3. Decentralized Exchanges – These will facilitate instant, secure, and peer-to-peer asset trading without intermediaries.
4. Real-Time Reporting Tools – Blockchain-based reporting will enable instant access to financial data for investors and regulators.

Can you give an example of projects you have worked on?

Pascal Naegeli: Sure. For a group of clients, we have developed a platform called Open Invest. This decentralized application (DApp), elevates the efficiency of market places to new heights and facilitates user-friendliness of complex financial products. The platform includes all relevant elements starting with a token marketplace, all relevant smart contracts, and a user-friendly web interface, supporting blockchain networks like Ethereum and Polygon. It is used in a range of (illiquid) financial assets starting with insurance-linked securities.

What are the biggest challenges to blockchain adoption in asset management?

Pascal Naegeli: The primary challenge is regulatory uncertainty. Many jurisdictions are still developing frameworks for blockchain-based assets, and compliance requirements are not yet standardized.

Another challenge is integrating blockchain with legacy systems. Most financial institutions still operate on centralized platforms that are not designed for blockchain’s decentralized architecture. Transitioning to new systems will require significant investment and expertise.

Additionally, security and key management are critical concerns. Unlike traditional financial accounts, blockchain assets are secured by cryptographic keys, and losing access to these keys can mean permanent loss of funds. Asset managers must develop robust security protocols to mitigate these risks.

What steps should asset managers take today to prepare for blockchain adoption?

Pascal Naegeli: To prepare for blockchain adoption, asset managers should:

1. Engage with regulators to understand compliance requirements and shape industry standards.
2. Develop internal blockchain expertise by creating dedicated teams focused on digital asset strategies.
3. Form partnerships with blockchain custodians, exchanges, and technology providers.
4. Experiment with tokenization by launching pilot projects to test blockchain’s capabilities.

Do you think blockchain will become the standard in asset management?

Pascal Naegeli: Yes, blockchain has the potential to fundamentally reshape asset management. Blockchain will become the new operational backbone to the financial industry. While full adoption will take time, the efficiency gains, transparency, and cost reductions it offers make it an inevitable evolution. Firms that begin adapting now will have a competitive advantage in this rapidly changing landscape.

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