Financing of infrastructure using blockchain technology

The report explores blockchain’s role in addressing infrastructure financing challenges. Infrastructure projects often face issues of limited liquidity, high costs, and inefficiencies. Blockchain, through its decentralised and transparent nature, offers innovative solutions. Tokenisation enables fractional ownership, reducing the high entry barriers traditionally associated with infrastructure investments. With a global infrastructure investment gap of $5.5 trillion to $15 trillion identified by the OECD and Global Infrastructure Hub, blockchain offers a potential pathway to addressing this shortfall. However, challenges such as regulatory uncertainty and technological integration persist, limiting its adoption in the sector.

Scaling infrastructure: Value proposition of blockchain technology

Scaling infrastructure finance using blockchain is increasingly recognised for its potential. Blockchain’s transparent and immutable features, combined with automation via smart contracts, improve governance and reduce operational inefficiencies. Security Token Offerings (STOs) provide an alternative to traditional funding, broadening investor access and enabling greater participation in projects. Despite these advancements, the lack of regulatory alignment across jurisdictions remains a critical barrier to scaling its application.

Tokenisation of assets

Tokenisation transforms physical assets into digital tokens, enabling improved liquidity and greater accessibility for investors. Examples in sectors like real estate demonstrate its viability, with successful tokenisation initiatives such as AnnA Villa in France yielding 7.5% annual returns and Zurich’s Bahnhofstrasse raising €120 million. Key advantages include lower transaction costs, greater inclusivity, and diversification opportunities. Nonetheless, compliance with regulations like AML and KYC is critical for ensuring credibility and transparency in tokenised assets.

Tokenisation of infrastructure: Risks and considerations

Tokenising infrastructure assets presents notable risks:

• Regulatory gaps: Inconsistent standards across jurisdictions hinder adoption.
• Cybersecurity risks: Increased automation makes systems susceptible to breaches.
• Investor awareness: Traditional investors may struggle to understand tokenisation frameworks.

Recommendations include developing harmonised regulatory frameworks and fostering education to promote wider adoption among investors and stakeholders. The report also highlights the importance of adapting global standards for smart contracts to ensure enforceability and consumer protection.

Examples of conducive regulatory frameworks for implementing tokenisation of infrastructure

Countries like Luxembourg, France, and Singapore are developing regulatory environments conducive to blockchain adoption. Luxembourg recognises tokenised securities under its financial laws, while Singapore has implemented a robust STO framework. Similarly, France’s “Blockchain Order” offers legal clarity for tokenisation initiatives. These frameworks are instrumental in promoting innovation while ensuring compliance with global standards.

Applicability in emerging markets and developing economies

Blockchain-based tokenisation holds promise in emerging markets and developing economies, where infrastructure investment gaps are significant. Tokenisation enables greater participation from domestic and foreign investors, allowing for more inclusive growth. It also addresses governance inefficiencies that often hamper progress in these regions. However, challenges like inadequate digital infrastructure, regulatory limitations, and investor education need to be addressed to unlock its full potential in these markets.

Case studies: Infrastructure tokenisation pilots to date

Several pilot projects illustrate the potential of blockchain in infrastructure. In addition to the AnnA Villa and Bahnhofstrasse cases, a pilot project in the United States demonstrated tokenisation’s ability to streamline asset management and enhance investor access. These case studies underscore blockchain’s ability to reduce costs, improve liquidity, and increase transparency across various asset classes.

Future of tokenisation: The future and alternatives to blockchain

While blockchain offers significant opportunities, alternative technologies are also being explored. Decentralised storage solutions like Storj and distributed databases such as OrbitDB may provide cost-efficient and scalable alternatives to blockchain. The future of tokenisation will likely involve integrating blockchain with these technologies, prioritising interoperability and scalability. Continued research and collaboration between governments, financial institutions, and technology providers are recommended to fully explore these alternatives.

Conclusion and key takeaways

Blockchain technology has the potential to revolutionise infrastructure financing through tokenisation, improving liquidity, inclusivity, and efficiency. However, overcoming regulatory barriers, addressing technological risks, and increasing investor education are crucial. Quantitative evidence, such as the global infrastructure financing gap and successful pilot projects, highlights its potential impact. Collaboration among stakeholders and regulatory harmonisation are essential to create an enabling environment for blockchain-based infrastructure financing to thrive.