As financial institutions move from exploring blockchain tokenisation to considering real-world applications, the focus is shifting from opportunity to execution. For finance leaders, understanding the blockchain tokenisation risks, governance requirements, and regulatory implications is essential before tokenised assets can achieve widespread adoption. 

In Part 1, we examined how blockchain tokenisation enables digital representations of ownership rights, the opportunities it creates for assets such as real estate and private equity, and why tokenisation does not automatically create liquidity.

Continuing our conversation with Dr Efstathios Polyzos, Associate Dean and Associate Professor of Finance at Zayed University’s College of Interdisciplinary Studies, Part 2 examines the key issues shaping the future of tokenised finance, including custody and ownership risks, smart contract vulnerabilities, regulatory challenges, emerging market structures, and the skills finance professionals need to lead in a digital economy.

Why Finance Leaders Must Understand Tokenisation Risks 

Many discussions about tokenisation focus on cybersecurity and technology risks. While these risks are important, they are primarily managed by technology teams. For finance leaders, the more critical questions relate to financial and strategic risks that require strong judgement from finance professionals

    1. Valuation Risk: Managing Price Discovery Challenges

While Part 1 examined why valuation differences can occur, finance leaders must consider the broader implications of valuation risk. When token markets operate continuously while underlying assets are valued periodically, institutions may face challenges related to financial reporting, portfolio management, investor communication, and regulatory oversight.

Because many tokenised assets are not continuously valued in traditional markets, token prices can move independently of the underlying asset value, creating what is known as tracking error. For example, a token linked to a commercial property may trade daily on a digital platform, while the underlying property is professionally valued only monthly, quarterly, or annually. As market conditions change, the token's market price may temporarily diverge from the asset's fundamental value.

This disconnect has important implications for:

• Financial reporting
• Portfolio valuation
• Risk management
• Investor disclosure
• Regulatory oversight 
  

For finance professionals managing institutional portfolios, understanding how token prices relate to underlying asset values will be essential. While tokenisation may improve accessibility and transferability, it does not eliminate the need for robust valuation methodologies and sound governance frameworks. 

    2. Custody Risk: Protecting Ownership in a Digital Asset Environment

Traditional financial markets have established custody models involving banks, custodians, and regulated intermediaries. Tokenised assets introduce new structures involving:

• Digital wallets
• Private keys
• Blockchain infrastructure
• Smart contracts
• Digital asset custodians
  

These systems create new questions:

• Who controls access to the token?
• How are assets protected from loss or misuse?
• Who is responsible if access credentials are compromised?
• How are investor rights preserved?
  

For senior finance professionals, custody is not simply an operational issue. It is a governance and fiduciary responsibility. Institutions adopting tokenised assets will need clear policies around ownership protection, operational controls, and third-party risk management. 

    3. Legal Risk: Defining Investor Rights

One of the most important questions surrounding tokenisation is also one of the least straightforward: What legal rights does a token holder have? Depending on the structure, a token may represent:

• Ownership rights
• A claim on income generated by an asset
• Voting rights
• A contractual entitlement
• An interest in an investment vehicle 
  
  

However, these rights must be clearly defined and legally enforceable. Key questions institutions must address include:

• What happens if the issuer becomes insolvent?
• How are investor claims protected?
• Which jurisdiction governs ownership rights?
• Are token holders treated the same as traditional security holders? 
  
  

Without legal clarity, tokenisation risks creating digital representations of ownership without equivalent investor protections. For professionals working in compliance, investment management, and advisory roles, understanding these legal structures will be critical. 

    4. Smart Contract Risk: Governance of Automated Finance

Smart contracts introduce powerful automation capabilities, but they also create new forms of operational and governance risk. They can automate processes such as:

• Asset transfers
• Compliance checks
• Dividend distributions
• Settlement processes 
  
  

However, smart contracts are still software created by humans, and software can contain errors. A smart contract may be executed exactly according to its programming while producing outcomes that were not intended. This creates important governance questions: 

• Has the code been independently audited?
• Does the smart contract reflect the legal agreement?
• Are there mechanisms to resolve errors or disputes?
• Who is accountable when automated processes fail? 
  
  

Successful tokenisation requires alignment between technology, legal structures, and financial objectives.

Regulatory Challenges in the UAE Digital Finance Landscape

Regulation will play a decisive role in determining how tokenised assets are integrated into mainstream financial markets. For finance leaders, understanding evolving regulatory frameworks is essential to evaluating both the opportunities and risks associated with digital assets.

International regulators, including the International Organization of Securities Commissions (IOSCO), have emphasized that regulation should focus on outcomes rather than technology. The principle is straightforward: if a token functions like a security, creates investment rights like a security, and carries risks like a security, it should generally be regulated accordingly.

Blockchain technology does not eliminate the need for:

• Investor protection
• Disclosure requirements
• Market integrity standards
• Governance frameworks 
  

The UAE has adopted a proactive approach to digital finance by developing regulatory environments that encourage innovation while safeguarding financial stability The Abu Dhabi Global Market (ADGM) has established a comprehensive framework for virtual assets and digital securities, while the Dubai Virtual Assets Regulatory Authority (VARA) provides a dedicated regulatory pathway for virtual asset activities. In addition, the UAE Central Bank’s digital currency initiatives, including the Digital Dirham, further demonstrate the country’s commitment to developing future-ready financial infrastructure. For finance professionals in the UAE, understanding these regulatory developments is becoming a core professional capability, enabling them to navigate digital finance with confidence while supporting responsible innovation.

The Future: A Hybrid Financial System

The future of financial markets is unlikely to be entirely digital or entirely traditional. Instead, tokenisation is expected to become part of a hybrid financial ecosystem in which blockchain-based infrastructure operates alongside established institutions, regulated markets, and conventional financial systems. 

Research from the Bank for International Settlements (BIS) highlights the potential for tokenisation to support a more integrated financial ecosystem, enabling central bank money, commercial bank deposits, and financial assets to interact more efficiently within regulated digital environments. 

For UAE finance professionals, this convergence presents significant opportunities and new responsibilities. The finance leaders of tomorrow will be those who combine strong foundations in investment analysis, risk management, and governance with an understanding of the emerging technologies reshaping financial markets.

Shape the Future of Finance 

Together, Parts 1 and 2 demonstrate that successful tokenisation depends not only on technological innovation but also on sound financial judgement, effective governance, and robust regulatory oversight.

Blockchain tokenisation represents more than a technological development. It reflects a broader transformation in how financial assets may be structured, valued, managed, and exchanged. As financial markets evolve, finance professionals will need expertise that combines investment analysis, risk management, regulatory understanding, and digital innovation.

Zayed University's Master of Science in Finance prepares professionals to navigate this changing landscape through advanced knowledge in finance, a CFA-aligned curriculum, and exposure to emerging areas including FinTech, artificial intelligence, digital finance, and financial transformation. Through applied learning, expert faculty, and access to resources such as the Bloomberg Finance Lab, students develop the analytical, quantitative, and strategic capabilities needed to evaluate complex financial challenges and contribute to the future of finance in the UAE.

Develop the expertise to lead in an evolving financial landscape. Learn more about Zayed University’s Master of Science in Finance or contact the College of Business at +971-2-599-3605 / dgs.recruitment@zu.ac.ae +971-2-599-3605 / dgs.recruitment@zu.ac.ae

References and Further Reading

• Bank for International Settlements (BIS). Annual Economic Report: Tokenisation and the Future of Financial Market Infrastructure.
  https://www.bis.org
• International Organization of Securities Commissions (IOSCO). Policy Recommendations for Crypto and Digital Asset Markets.
  https://www.iosco.org
• Monetary Authority of Singapore. Project Guardian: Exploring Tokenisation of Financial Assets.
  https://www.mas.gov.sg
• Abu Dhabi Global Market (ADGM). Virtual Assets Regulatory Framework.
  https://www.adgm.com
• Dubai Virtual Assets Regulatory Authority (VARA). Virtual Asset Regulatory Framework.
  https://www.vara.ae