As digital assets have grown, financial regulations and user knowledge of security have struggled to keep up with the pace of change.

Consumers and investors have been the victims of scams and attacks that have exploited these weaknesses and dispelled trust in the industry.

According to the U.S. Federal Trade Commission (FTC), nearly 7,000 consumers have reported financial losses to cryptocurrency scams equalling over $80 million from October 2020 to May 2021. This is a 1,000 per cent increase from the previous six months.

Volatility also presents a challenge. The slump in crypto asset value, such as Bitcoin, which has now seen a 70 percent drop in value since its all-time high, would normally be a red flag. However, fund managers and banks are already starting to build confidence from investors.

Tokenization is one of the major viable use cases for blockchain within banks. Tokenization leverages blockchain technology to secure assets, both traded and non-traded.

Some of the key benefits this provides to banks are saved money, reduced counterparty risk, faster settlement, and bolstered risk management.

Blockchain provides a digital ledger that keeps the record of each shareholder's position. For banks and funds, this can be leveraged to improve the efficiency of many administrative processes. For example, profit sharing, buy-backs, and distribution of voting rights can happen more efficiently, reducing overall trading costs.

The market is growing and becoming more confident in the digital ledger. As this happens, in the future of wealth and asset management, the ledger will be considered the “golden copy” of transaction information. There is then the potential for reconciliation to be entirely obviated, as all parties involved in trading rely on and have faith in this ledger.

Asset tokenization also presents the benefit of reducing counterparty risk, for similar reasons. Tokenization could potentially result in faster clearing and settlement due to the almost real-time transfer of the ownership of assets and a continuous reconciliation of the ledger.

These increased efficiencies in clearing and settlement have great implications not only for time and money saving, but also for risk reduction. One of the wider disruptive implications of the blockchain will be that it reduces counterparty and operational risks.

With traditional banking, inefficiencies and risks appear because both sides of the trade need to maintain records of the data of the transaction. This results in counterparty risks, along with the cost of reconciling each party’s data at every stage of the transaction.

While some in the digital asset management industry are skeptical of regulation, many see that as a necessary part of the financial sector. When you don’t properly collateralize an asset, there is volatility, as we have seen with crypto.

Many of the problems that have surrounded digital assets (such as volatility) don’t originate from DeFi. The opposite is in fact, true; these issues are emulated from centralized spaces and poor risk management.

As an example, this year, we saw Coinbase lose half its value in a week as crypto slumps. An attractive alternative to fund managers is stablecoins. These are currencies that are tied to a reference asset. Coins such as Tether and USD coins are tied to the USD and present a possible future for digital assets in a regulated world with better risk management. They are more efficient in transacting than traditional currency, which will entice investors.