World Bank report examines blockchain technology for financing infrastructure projects

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 financing 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 possibility of tokenized securities to finance real projects.

The study comes at a critical time, with the Global Infrastructure Hub projecting a massive $15 trillion funding gap for infrastructure projects between 2018 and 2040.

Democratization of infrastructure investments

Blockchain technology has the potential to address this funding gap through tokenization, which involves converting infrastructure securities into digital tokens. This process can significantly reduce issuance costs and improve efficiency, although the involvement of a specialist company will still be necessary.

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 financing, blockchain’s transparency can bring significant benefits to infrastructure projects. Using 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 budget level.

The report delves into the potential benefits of infrastructure tokenization, including improved liquidity, efficiencies, transparency and risk.

It explores the governance risks, legal status considerations and cyber security issues associated with scaling infrastructure finance solutions using emerging technologies. It also recognizes significant challenges, particularly in the regulatory area.

Despite the challenges of targeting private investors, reducing the minimum investment threshold has the potential to significantly expand the investor base, including accredited investors who can access it through regulated platforms. Public blockchains are seen as an ideal avenue for fractionalization of investments.

The mechanics of DeFi lending, already exemplified by pioneers such as Maker DAO, Aave and Compound, are now being used to fund traditional infrastructure projects. Funding these projects through blockchain technology is relatively easy compared to the enormous effort invested in building the underlying blockchain infrastructure. Read the full World Bank report on Infrastructure Tokenization.