Tokenization of RWAs — Following the smart money.
Tokenization of real-world assets — The growing buzz surrounding this ground-breaking blockchain innovation has captured the interest of cryptocurrency enthusiasts and tech aficionados alike. This phenomenon is increasingly hailed as ‘crypto’s killer use case.’
As this innovation gains momentum, prominent financial institutions worldwide are directing their attention toward it. This article delves into the key figures spearheading this emerging technology, highlights household names investing in it, and explores where the money is being directed within the realm of tokenization.
A recent report claims that tokenization will result in improved capital efficiency, democratisation of access for investors, operational cost savings, enhanced compliance, audibility, transparency, and cheaper and more nimble infrastructure. Predictions indicate the tokenization market could surge from $2 trillion in 2021 to $27 trillion by 2027.
The World Economic Forum suggests that by 2030, about 10% of the global GDP could be transacted on blockchains; these astonishing predictions alone make tokenization a technology you cannot afford to ignore. As challenges like interoperability and regulations are resolved, tokenized assets are poised to create a truly vast new market.
So, with such lofty projections, which are the companies involved in bringing this digital asset revolution to life and where does their focus lay?
Typically, when you hear the word tokenization you will think Real Estate, after all the benefits this technology brings are well suited to revolutionise this outdated, inaccessible, and highly illiquid market. However, at this early stage in the tokenization era, interest, and investment from giants in the finance and banking industry seem to be concentrated around the tokenization of market instruments such as bonds, funds, equities and commodities. Let’s explore some household names making moves in this area of the market.
The London-based financial powerhouse, has ventured into gold tokenization. The bank initiated the tokenized ownership of physical gold stored in its London vault, using distributed ledger technology (DLT) for trading these assets. This method creates a controlled digital representation of clients’ physical gold holdings, with each token on HSBC’s gold tokenization platform equivalent to 0.001 troy ounce.
The tokenized physical gold is tradeable between HSBC and institutional investors via the HSBC Evolve platform. This move isn’t the first blockchain endeavour for HSBC. The company previously collaborated with Wells Fargo to use a shared settlement ledger for processing transactions in multiple currencies. In November 2022, HSBC disclosed plans to launch the HSBC Orion tokenization platform, enabling institutions to issue digital bonds.
John O’Neill, HSBC’s head of digital assets strategy, markets, and securities services, highlighted the growing interest in tokenization solutions linked to real-world assets such as gold, in addition to the demand for native digital assets.
The U.S. banking giant, introduced its in-house blockchain-based tokenization app, the Tokenized Collateral Network (TCN), as reported by Bloomberg on October 11. TCN conducted its initial trade for the asset management behemoth, BlackRock.
The Tokenized Collateral Network serves as an application enabling investors to utilise assets as collateral. This system, facilitated by blockchain technology, allows the transfer of collateral ownership without physically relocating the assets within the underlying ledgers.
During its maiden public collateralised trade involving JPMorgan and BlackRock, TCN converted shares of a money market fund into digital tokens. These tokens were subsequently transferred to Barclays bank, serving as security for an over-the-counter derivatives exchange between the two entities.
The major U.S. banking entity, has initiated a tokenization service using blockchain technology and smart contracts for cash management and trade finance purposes aimed at institutional clients, the bank announced back in September 2023.
According to the bank, the smart contracts function similarly to traditional bank guarantees and letters of credit. In a test phase, Citigroup collaborated with shipping company Maersk and a canal authority to streamline processes notorious for their drawn-out nature due to paperwork and manual procedures.
The bank expressed that institutional clients seek ‘always-on’ programmable financial services, and their Citi Token Services will offer round-the-clock cross-border payments, liquidity, and automated trade finance solutions.
In a report from March 2023, Citigroup projected that the tokenization of digital securities could reach a market size of $4 trillion to $5 trillion by the year 2030.
Deutsche Bank, a major player in the banking sector, has forged a global partnership agreement with Taurus SA, a Swiss-based crypto infrastructure firm. The collaboration aims to offer digital asset custody and tokenization services to the bank’s clientele.
As the largest bank in Germany, overseeing assets worth over €1.3 trillion ($1.4 trillion), Deutsche Bank intends to incorporate Taurus’ custody and tokenization technology. This integration will enable the management of cryptocurrencies, tokenized assets, and digital currencies, as highlighted in an official statement. Paul Maley, the Global Head of Securities Services at Deutsche Bank, emphasised the significance of the digital asset arena, anticipating it to encompass trillions of dollars in assets. Maley underlined the necessity for custodians to adapt their services to support their clients in this evolving space.
Recognising the exponential growth potential of the digital asset market, Deutsche Bank stressed the imperative for traditional financial institutions to evolve and align with this transforming landscape.
Visa — In partnership with HSBC and Hang Seng Bank, has successfully concluded a pilot test in Hong Kong, exploring tokenized deposits utilizing central bank digital currencies (CBDCs).
Part of the “Digital Hong Kong Dollar” initiative led by the Hong Kong Monetary Authority (HKMA), this pilot program aimed to assess the potential of this technology in interbank business-to-business (B2B) payments, according to a press release from Visa last Wednesday (Nov. 1)
The pilot involved two primary use cases: property payments and settlements between payment institutions and merchants. As per the release, it highlighted the benefits of B2B payment tokenization, such as faster payment processing, improved management and control of settlement risks, enhanced resilience in the payment network, and increased transaction transparency.
Standard Chartered is initiating a pilot on trade finance tokenization, as part of an initiative by the Monetary Authority of Singapore (MAS) aiming to explore the economic potential and beneficial use cases of issuing tokens linked to assets.
Under the umbrella of Project Guardian, introduced by the Singaporean regulatory body earlier this year, the bank spearheads a project to digitalize the trade distribution market. The objective is to convert trade assets into transferable instruments, making them more transparent and readily accessible to investors.
Kai Fehr, Standard Chartered’s global head of trade and working capital, highlighted;
“Digital assets are here to stay, and we see its potential to play a greater role in supporting the real economy. By transforming trade assets into transferable instruments, we aim to improve accessibility to an asset class which has largely been the domain of banks with participation from a broader range of investors. Not only can we potentially narrow the US$1.7tn global trade finance gap, this also offers investors the option to balance their portfolio with a digital token that has traceable intrinsic value.”
CMC Markets PLC
A FTSE250 Global financial service provider renowned for its retail brokerage brand and institutional platform technology announced in June 2023 its investment and partnership in StrikeX Technologies, a customer-centric blockchain solutions start-up with a key focus on the tokenization, self-custody and trade of publicly listed market instruments. The London-based firm acquired a significant 33% stake in StrikeX. The strategic investment combines StrikeX expertise in tokenization and self-custody technologies with CMC’s global financial services offerings.
“This is a major strategic investment in the growing Web 3.0 technology space of which StrikeX Technologies gives us access to the very best technology and advancements,” said Lord Cruddas, the CEO at CMC Markets.
The extensive exploration of the tokenization market by these major financial institutions reveals a significant shift in the financial landscape. These institutions are strategically focusing on transforming traditional assets into digital forms and advancing areas such as trade finance, payments, and custody services.
For those seeking to understand this rapidly growing trillion-dollar market, recognizing where these key players are directing their focus is crucial, their moves serve as a guiding light, providing insights into potential future value and opportunities within the tokenization market.
For more information and educational material regarding the tokenization of real-world-assets, be sure to explore our blog at blog.strikex.com
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— Joe Jowett, CEO of StrikeX
Learn more about our company on strikex.com
StrikeX Technologies Ltd is a leading provider of blockchain solutions, specialising in blockchain technology, DeFi, and tokenised assets. The company is dedicated to bridging the gap between traditional finance and Web3, empowering organisations to embrace the transformative power of blockchain.
About CMC Markets
CMC Markets Plc, whose shares are listed on the London Stock Exchange under the ticker CMCX , was established in 1989 and is now one of the world’s leading online financial trading businesses. The Group serves retail and institutional clients through regulated offices and branches in 12 countries and offers an award-winning, online, and mobile trading platform, enabling clients to trade up to 10,000 financial instruments across shares, indices, foreign currencies, commodities, and treasuries.