The purpose of this report is to assess whether digitizing the equity or debt financing used for infrastructure projects using blockchain, i.e., tokenized infrastructure, provides enough benefits to justify the use of this technology. The information presented here aims to inform the World Bank whether it should explore the possibility of tokenizing one of its infrastructure projects. The conclusions are based on interviews with tokenization start-ups, experts, and the review of current and planned regulatory frameworks in selected jurisdictions and use cases/pilots to date.
Financing of infrastructure using blockchain technology: tokenization of assets Infrastructure investment is a means to generate long-term benefits to society with inclusive economic growth and well-being while contributing to a low-carbon transition. However, the sector is faced with several challenges including poor governance and management of infrastructure systems. Projects are also often large, capital intensive, and not immediately profitable. Therefore, innovative mechanisms are required to leverage private financing and lower the costs of capital. It is also crucial to maintain information symmetry amongst stakeholders and provide investors with transparent data to make informed investment decisions. One of the foremost impediments is matching abundant supply of private capital to the demand for infrastructure.
The use of distributed ledger technologies (DLT) like blockchain can potentially overcome many of the challenges that hinder the scaling of infrastructure. The efficiency of financing and management of infrastructure projects can improve by leveraging core features of the technology like decentralization, immutability, and transparency. The blockchain is an immutable technological infrastructure designed to enable simultaneous access, validation, and record updating spread across several networks. These features make blockchain a disruptive technology capable of transforming businesses. The most common application of this technology in finance could be capital-raising through Security Token Offerings (STOs), and in post-trade processes, like clearing and settlement of securities.
Another application of blockchain technology is the tokenization of real assets. Tokenization is the process of converting rights, a unit of asset ownership, debt, or even a physical asset into a digital token on a blockchain.9 This enables historically illiquid assets to be broken down into smaller units representing ownership and encouraging the democratization of finance.