DFSA White Paper Says Tokenisation Needs On-Chain Cash and Interoperability to Scale

The paper, titled "Scaling Tokenisation: The Road Ahead", was released at the DFSA's Future of Asset Tokenisation forum on November 5, the regulator said in a statement published by the state news agency WAM. The DFSA is the independent regulator of banking, financial services and markets in the Dubai International Financial Centre.

The paper matters because the UAE's financial centres are competing to host tokenised funds, bonds and the settlement systems behind them. The DFSA runs a Tokenisation Regulatory Sandbox for firms testing tokenised investment products in the DIFC. In Abu Dhabi, Coinbase said in August that it would make the emirate its international tokenisation hub, according to Khaleej Times.

The regulator built the paper from structured interviews with specialists at BlackRock, Ripple, Robinhood, Soter Insure and Standard Chartered, along with its own supervisory experience and published regulatory, industry and market research. It says tokenisation is moving from pilots into live financial products and market infrastructure, but adoption remains concentrated in a narrow set of asset classes and use cases.

The Five Conditions

The paper sets out five themes that it expects to shape the next phase. The first is network effects. The paper says the question is shifting from whether individual products work technically to whether issuers, investors, intermediaries, infrastructure providers, technology companies and providers of settlement assets can connect within a wider system.

The second is cross-border coordination. The DFSA says close alignment of national regulatory frameworks may not be realistic in the near term, but more consistent legal, operational and technical standards could reduce fragmentation and make investment decisions clearer.

The third is custody. Issuers and institutional investors are unlikely to expand their use of tokenisation unless they are confident the risks can be managed, the paper says, and regulated custody services can help institutions control that exposure. Khaleej Times reported that the paper identifies investors' views of risk as the main challenge, including weaknesses in blockchain bridges and bad actors exploiting them.

The fourth is digital cash. The DFSA calls a reliable, widely accepted form of cash on blockchain networks a prerequisite for tokenisation to deliver its benefits, including simultaneous settlement of both sides of a trade. It lists regulated stablecoins, tokenised commercial bank deposits and central bank money for settlement between financial institutions as possible models. According to Khaleej Times, the paper estimates that if tokenisation took 10 per cent of global securities markets, based on SIFMA's end-2025 figures, that would amount to around $32 trillion. Digital cash on that scale would probably need several settlement assets rather than one.

The fifth is interoperability. Without stronger links between blockchains and trading platforms, and between tokenised and traditional market infrastructure, platforms risk becoming isolated "digital islands" that split liquidity, the paper warns. It says interoperability covers workable operating procedures, legal certainty and regulatory coordination as well as technical connections.

Stability Risks Still Small

The DFSA concludes that at its current size tokenisation is unlikely to pose a material risk to financial stability. It says this could change as tokenised markets grow, connect more closely with the traditional financial system and spread into trading, settlement, collateral and funding.

Mark Steward, the DFSA's chief executive, said the debate in major international financial centres has moved from whether tokenisation can be applied to how it should be applied and what it changes in existing markets. He said its future will also depend on reliable market infrastructure, governance, risk management, legal and regulatory certainty, interoperability, commercial viability and cooperation between the public and private sectors. No single firm, regulator or jurisdiction can answer those questions alone, he added.

The paper does not set a technological, regulatory or commercial direction. It collects market participants' views and identifies questions for further discussion between industry, investors, regulators and international standard-setters. The full text is available on the DFSA's website.