By Andrew Forson, President, DeFi Technologies
The most important thing to understand about tokenisation is what it is not. It is not a speculative crypto trade. It is the digital representation of an existing security or asset on a programmable ledger. The bond remains a bond; the fund remains a regulated fund; the investor’s rights still depend on securities law, custody, disclosure and enforceable documentation. What changes is the market infrastructure around ownership, transfer, settlement and servicing.
That distinction matters for the Gulf. The UAE and Saudi Arabia are not exploring tokenisation because they want to import the volatility of unbacked digital assets into their financial systems. They are examining whether distributed ledgers can make conventional markets more efficient, accessible and interoperable. In economies with ambitious diversification agendas, large pools of capital and a desire to deepen domestic markets, tokenisation is best understood as an upgrade to the operating system of finance.
Start with liquid, trusted assets
Sovereign debt and exchange-traded funds are the logical place to begin. Tokenisation succeeds most readily when the underlying asset is already liquid, familiar and easy to value. Government securities provide benchmark pricing and high-quality collateral; ETFs provide a transparent, diversified wrapper with established creation, redemption and market-making mechanisms. Combining the two could give investors digital units backed by baskets of sovereign bonds, while preserving the regulated fund structure that institutions already understand.
This is more than putting a familiar label on a blockchain. A tokenised sovereign-debt ETF could support near-real-time transfer between approved investors, automated income distributions, auditable ownership records and potentially smaller investment denominations. It could also create a common instrument through which regional and international investors gain diversified exposure to GCC government debt. If designed around delivery-versus-payment and high-quality settlement assets, it could reduce counterparty and reconciliation risks rather than merely relocate them.
The global market is moving from pilots to platforms
The international evidence is now substantial enough to inform policy. Hong Kong issued the world’s first government tokenised green bond in 2023, followed by approximately HK$6 billion of digitally native green bonds in 2024 across Hong Kong dollars, renminbi, US dollars and euros. It then continued to scale the programme: by September 2026, its fourth digital green-bond offering reached roughly HK$20 billion and incorporated tokenised deposits into settlement for the Hong Kong-dollar tranche. Just as importantly, Hong Kong connected digital issuance to established channels such as Euroclear and Clearstream and adopted the International Capital Market Association’s Bond Data Taxonomy. The lesson is clear: adoption accelerates when digital issuance is interoperable with conventional market infrastructure rather than placed on a technological island.
Singapore’s Project Guardian offers a complementary model. The Monetary Authority of Singapore has worked with financial institutions and overseas regulators to test tokenised fixed income, funds and foreign exchange, while emphasising open networks, common standards and cross-border interoperability. In the private market, Franklin Templeton’s on-chain US government money-market fund has demonstrated that a regulated fund can maintain its share register on public blockchain infrastructure. BlackRock has moved from its BUIDL institutional liquidity fund to tokenised share classes and money-market products that invest in cash, short-dated US Treasuries and Treasury-backed repo. These products are not necessarily ETFs in the strict legal sense, but they validate the core proposition: investors want regulated, yield-bearing government exposure that can also function inside digital financial markets.
The Bank for International Settlements estimated in July 2025 that tokenised government-bond issuance was still only about US$8 billion, yet it also found lower bid-ask spreads than for comparable conventional bonds and broadly similar issuance costs. That is the right signal to read. The market remains early, but the efficiency case is becoming measurable—and the largest gains will come when tokenised securities, money and collateral operate on compatible rails.
What the GCC can do differently
The GCC has an opportunity to design for regional scale from the outset. A practical first step would be a regulated pilot ETF holding short-dated, local-currency sovereign bonds and sukuk from one or more GCC issuers. The UAE already has scheduled dirham T-Bond and T-Sukuk programmes, a primary-dealer network and retail sovereign sukuk listed for secondary trading; Saudi Arabia has a large government sukuk programme, an electronic debt market on Tadawul and post-trade infrastructure through Edaa. These are not tokenised markets today, but they provide the underlying instruments, issuance cadence and institutional plumbing on which a tokenised fund can be built. Units could initially be issued on a permissioned network to qualified investors, with settlement through tokenised commercial-bank deposits or another regulated settlement asset. Existing exchanges, central securities depositories, custodians and authorised market makers should remain central to the design.
A second phase could add cross-border distribution, subject to aligned investor onboarding and transfer rules. Today, tokenised assets often remain trapped inside the platform where an investor completed know-your-customer checks. A buyer on another venue may have neither visibility nor permission to transact. The answer is not to weaken compliance, but to make verified identity portable: common data standards, mutual recognition of eligible-investor credentials and interoperable whitelisting would allow regulated tokens to move across approved venues without repeating the entire onboarding process.
The ETF wrapper can also address a recurring weakness in tokenisation: liquidity fragmentation. Authorised participants can create or redeem units against the underlying bonds, while designated market makers quote prices on regulated venues. That mechanism will not manufacture liquidity where none exists, but it can connect on-chain demand to the depth of the underlying sovereign market and improve price discovery. The region should prioritise instruments with transparent valuations, repeat issuance and an active repo market before moving to less liquid assets such as individual properties.
Do not digitize the silos
Technology alone will not deliver these benefits. The crucial questions are legal and prudential. Does the token confer the same enforceable claim as a conventional fund unit? Can it be pledged, perfected and liquidated as collateral? Will banks, central counterparties and auditors recognise it consistently? If tokenised sovereign exposure receives inferior regulatory-capital or accounting treatment, it may be excluded from repo and collateral markets—the very markets that make government debt systemically useful.
Valuation is another pressure point. A sovereign-debt ETF needs robust, independently governed price inputs and clear rules for stale or disrupted markets. If an oracle reports an unreliable net asset value, automated liquidations can turn a temporary pricing gap into a forced-selling spiral. Controls should therefore include multiple price sources, challenge mechanisms, circuit breakers, transparent valuation policies and the ability to pause automation under predefined conditions. Cybersecurity, wallet recovery, smart-contract governance and operational accountability must be treated as market-infrastructure issues, not outsourced as technical details.
Regulators should also insist on clear segregation of client assets, resilient custody, controlled smart-contract upgrades, sanctions screening and credible resolution arrangements if a platform fails. A token that can move around the clock still depends on institutions that may not. Operating hours, redemption windows and liquidity facilities must be designed so that the promise of continuous transferability does not become an illusion during stress.
A regional market, not another pilot
The prize for the GCC is not a headline-grabbing token. It is a regional market in which trusted sovereign assets can move efficiently across borders, serve as collateral, reach new pools of capital and connect to global investors without sacrificing regulatory control. The right sequence is clear: begin with liquid sovereign instruments, use a familiar ETF structure, build compliance and interoperability into the architecture, and expand only after the collateral, valuation and settlement arrangements have been tested under stress.
If the UAE and Saudi Arabia can align their exchanges, regulators, sovereign issuers and financial institutions around those principles, tokenised sovereign-debt ETFs could become a practical bridge between domestic capital-market development and the global digital-asset economy. Tokenisation would then be judged not by novelty, but by the oldest tests in finance: liquidity, trust, legal certainty and usefulness.
