A recent report published by the World Bank has highlighted the potential of blockchain. The report titled ‘Infrastructure Tokenization: Does blockchain have a role in the financing of infrastructure?’ was published this year and released this month.
It highlights the potential of emerging technology to play a role in the future of infrastructure finance. It also evaluates the feasibibility of tokenized securities to finance real-world projects.
The study arrives at a critical time, with the Global Infrastructure Hub estimating a massive $15 trillion financing gap for infrastructure projects between 2018 and 2040.
Democratizing Infrastructure Investment
Blockchain technology has the potential to address this funding gap through tokenization, which involves converting infrastructure securities into digital tokens. This process could significantly reduce issuance costs and improve efficiencies, although the involvement of a special purpose vehicle would still be required.
Tokenization also offers the opportunity to democratize access to infrastructure investment, making it more accessible to a wider range of investors beyond institutions or ultra-high-net-worth individuals.
Blockchain Transparency to improve infrastructure project management
In addition to funding, blockchain’s transparency can provide significant benefits for infrastructure projects. By utilizing blockchain technology, data related to purchase orders and invoicing can be shared between subcontractors and contractors, minimizing potential disputes and improving project management at the budgetary level.
The report delves into the potential advantages of tokenizing infrastructure, including enhanced liquidity, efficiency gains, transparency, and risks.
It explores the governance risks, legal status considerations, and cybersecurity concerns associated with scaling infrastructure finance solutions using emerging technology. It also acknowledges significant challenges, particularly in the regulatory realm.
Despite the challenges in targeting retail investors, reducing the minimum investment threshold has the potential to greatly expand the investor base, including accredited investors who could access it through regulated platforms. Public blockchains are seen as an ideal avenue for fractionalizing investments.
The mechanics of DeFi lending, already exemplified by pioneers such as Maker DAO, Aave, and Compound, are now being applied to fund traditional infrastructure projects. Financing these projects through blockchain technology is comparatively straightforward when compared to the immense effort invested in building the underlying blockchain infrastructure. Read the full World Bank report on Infrastructure Tokenization.
