Jefferies: Tokenization Shifting From Experiment to Early Adoption in European Markets

The tokenization of financial assets is transitioning from an experimental phase toward early strategic adoption, particularly within European market infrastructure, according to a new report from Jefferies. The firm states the key question for investors is no longer *if* tokenization will occur, but rather what problems it solves and how profits will be redistributed across the value chain.

From Theory to Practice

Jefferies analysts argue the conversation has shifted from a purely technological focus to a more practical one concerning market structure. A key risk identified by the firm is simply moving current systems onto distributed ledger technology (DLT), which could maintain existing inefficiencies rather than creating a truly redesigned and more efficient market.

The most compelling wholesale use case, according to Jefferies, is intraday collateral mobility. The firm estimates that moving eligible collateral intraday could improve capital efficiency by 3% to 5% on large flow bases. Early examples include Deutsche Börse’s system involving HQLAX, Eurex, and Clearstream, which mobilizes collateral without moving the underlying asset.

Key Hurdles Remain

Despite the progress, significant bottlenecks persist, with the "cash leg" of transactions being the most critical constraint. True delivery versus payment (DvP) requires securities and cash to settle on aligned, real-time rails. Jefferies highlights several challenges:

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• Fiat currency settlement systems typically run at T+1 or slower.
• Stablecoins are considered private money, and their accounting treatment for global systemically important banks remains unresolved.
• Central bank digital currency (CBDC) coverage is still very limited.

On the retail side, Jefferies views equity tokenization primarily as a distribution strategy. Platforms like Robinhood issue tokenized wrappers on shares, providing crypto-native users with equity exposure. However, the firm notes these are issued by the platform, not the underlying company, making them more akin to derivatives on cash flows without accompanying governance rights.

Outlook for Market Infrastructure

For listed financial market infrastructures (FMIs), tokenization represents both a threat and an opportunity. Jefferies believes vertically integrated groups that control liquidity, connectivity, collateral, and asset-servicing are best positioned to capture market share. Furthermore, existing regulations will continue to require registry-like functions, protecting some traditional revenue pools.

Given that adoption, regulation, and ecosystem coordination move slowly in this sector, Jefferies expects limited near-term disruption to the market shares of central securities depositories (CSDs) or exchanges. The firm views a three-to-five-year timeframe as relatively short for major shifts in financial infrastructure.