Tokenization Revolution: Chile's Pension System Transformation with Blockchain Technology

Chile has served as a pension reform laboratory for four decades. The 1980s individual capitalization model transformed Latin American retirement systems, creating deep capital markets through mandatory contributions managed by private AFPs. Santiago became a financial hub with sought-after sovereign bonds and frequent IPOs. However, prestige declined as median replacement rates dropped to 17% (2015-2022), fueling AFP distrust over high fees and mediocre returns. The pandemic triggered three extraordinary withdrawals totaling over $50 billion - representing 20% of pension funds and 16% of 2022 GDP - creating household relief but market disruption. March 2025's landmark pension reform replaced multifunds with generational funds implementing life-cycle investing. Young savers start with equity-heavy portfolios, gradually shifting to bonds with age. The reform adds employer contributions, enhances the Universal Guaranteed Pension, and intensifies competition through biennial fee auctions. While improving rationality, the approach maintains saver passivity with limited transparency and cumbersome provider switching. Tokenization emerges as the transformative solution, representing bonds/shares on digital ledgers for faster settlement, lower costs, and enhanced transparency. Chile's 2023 Financial Technology Innovation Law established regulatory frameworks, while the AUNA Blockchain consortium - involving Santiago Stock Exchange, Central Securities Depository, and GTD - tests tokenized securities. This positions Chile as a potential institutional crypto investment hub, boosting initiatives like ScaleX Santiago Venture and Start-Up Chile through digital savings channels. Bitcoin inclusion remains contentious, requiring legal amendments recognizing digital assets and Central Bank approval. Prudent exposure through regulated ETFs/ETNs with initial 1% caps could gradually expand to 25% of equity allocations, mandating licensed custody, asset segregation, and comprehensive risk disclosure. Germany's 20% crypto allowance for pensions and New Zealand's KiwiSaver ETF experiments offer precedents, while Canada's FTX/Celsius losses highlight necessary caution. Chile's dual-path approach could balance innovation with stability through regulated tokenization and controlled crypto exposure.