Russia Cautious on Tokenizing Real-World Assets

While tokenization has the potential to increase liquidity for real-world assets, among other benefits, a Bank of Russia report notes that Moscow’s legal framework for tokenization is still under development, limiting its full potential. Additionally, the report highlights the uncertainty surrounding the tax implications of tokenization, which could deter investors and issuers.

The Russian central bank’s report on tokenizing real-world assets comes as more countries explore the potential to expand the value of traditional assets. However, in its Nov. 22 report, the central bank emphasizes that there is currently no universally accepted definition or classification for tokenized real-world assets. Furthermore, it notes that countries adopting tokenization have yet to agree on a common regulatory approach.

In countries with developed digital markets, central banks are either establishing specific rules or adapting existing regulations. However, when a token represents ownership of a physical asset, additional infrastructure and regulatory adjustments may be necessary, the central bank said. Regarding Russia’s specific situation, the bank noted that:

The digital rights framework (including digital financial assets, utilitarian digital rights, hybrid digital rights) is most suitable for tokens in the Russian legislation. This enables the digitisation of various rights to objects even now.

The bank acknowledges, however, that there are still issues related to individual assets that need further examination.

While the Russian central bank and some of its peers have expressed reservations about tokenizing real-world assets, proponents argue that the benefits outweigh the risks. In its report, the Bank of Russia lists key potential benefits of tokenization, including fractional ownership of assets and streamlined processes for traditional asset management and trading.

The report notes that Russia has established a regulatory sandbox for testing innovative financial technologies, including tokenization. Furthermore, the central bank has invited public comments on tokenizing real-world assets by Dec. 27, 2024.