tokenized assets

HSBC to Expand Tokenized Asset Offerings — CEO Says He’s ‘Very Comfortable’ With Tokenization

April 16, 2024 Bitcoin.com

Real Estate-Backed US Dollar Stablecoin Built on Polygon Loses 47% of Its Value After Suffering Serious Depeg

October 12, 2023 The Daily Hodl

US Congressman Issues Warning on CBDCs, Says They Pose an ‘Existential Threat’ to Western Civilization

August 18, 2023 The Daily Hodl

Blockchains need an interoperable standard to evolve, say crypto execs

April 17, 2023 Coin Telegraph

Coin Telegraph

Blockchains without interoperability are like computers without an internet connection — incapable of transferring data and value, a Chainlink Labs executive says.

Blockchain technology needs a benchmark communications standard that can be easily integrated by every network in order for a complete transition from Web2 to Web3 to occur, industry commentators say.

Many expect there will be multiple blockchains and such an ecosystem requires communication protocols similar to the Transmission Control Protocol/Internet Protocol (TCP/IP) used on the internet.

Ryan Lovell, director of capital markets at crypto price oracle solutions firm Chainlink Labs, told Cointelegraph that blockchains without interoperability are like what computers are without the internet — isolated machines thacannot transfer data and value across networks.

“To realize a fully interoperable blockchain ecosystem at scale, there needs to be an open communication standard analogous to the TCP/IP, which currently serves as the internet’s de facto connection protocol.”

Lovell believed a similar standard for blockchain networks would “pave the way for a seamless, internet-like experience” for the platform and their applications.

This is particularly important given that the last bull market saw a host of new layer-1 blockchains make their mark. However, nearly all of them operate in isolation from one another.

Lovell stressed that blockchain interoperability is “crucial” for financial institutions looking to tokenize real-world assets because that would ensure that liquidity isn’t “stifled” by only existing in a “siloed ecosystem.”

Brent Xu, the founder and chief executive of Umee — a lending platform backed by Cosmos’ Inter-blockchain Communication Protocol (IBC) — tolCointelegraph that before real-world assets are brought on-chain, proper risk management systems need to be put in place to facilitate this interoperability.

Xu explained that financial institutions would need to tick off Know Your Client (KYC) credentials to ensure the authenticity of the real-world assets before being tokenized on-chain and then make sure that they can be identified by an on-chain proof-of-reserve audit.

In order to avoid an on-chain catastrophe, he stressed the risk of cutting corners simply isn’t worth it:

“Think of the ‘08 mortgage crisis. Tremendous financial value was lost due to a broken legacy system. Imagine if this value was ported into the blockchain ecosystem, we would see tremendous value loss due to the contagion.”

Cross-chain bridges, independent layer-2 sidechains and oracles are three of the most commonly used blockchain interoperability solutions to date. The first two operate solely on-chain, while the latter feeds off-chain data on-chain.

There have been issues with some of these solutions, however, most notably cross-chain bridges.

An October report highlighted that half of all exploits in decentralized finance (DeFi) took place on a cross-chain bridge, the most notable example being the $600 million Ronin bridge hack in March 2022.

Xu noted that many of these hacks have come from multi-signature security setups or proof-of-authority consensus mechanisms, which are considered to be centralized and much more vulnerable to attack.

He added that many of these interoperability solutions favored “speed of development” over security early on, which backfired.

The key, Xu said, is to incorporate interoperability within the platform, as that will result in a more secure end-to-end transaction than through the use of third-party bridges:

“Bridges are particularly susceptible because they provide two ends at which hackers can potentially infiltrate any vulnerabilities.”

Among the most commonly used blockchain interoperability protocols are Chainlink’s Cross-Chain Interoperability Protocol (CCIP); the IBC, which leverages the Cosmos ecosystem; Quant Network’s Overledger and Polkadot.

Magazine: ZK-rollups are ‘the endgame’ for scaling blockchains, Polygon Miden founder

Approach with caution: US banking regulator’s crypto warning

December 9, 2022 Coin Telegraph

Banking

The Office of the Comptroller of the Currency (OCC) said the digital asset industry was maturing but was “not yet robust” in its risk management.

A United States banking industry regulator warned banks of the “emerging risks” of cryptocurrencies saying the sector should take a “cautious approach” and seek permission in some cases when engaging with crypto or crypto firms.

Citing “dislocations” in the crypto market over 2022 the Office of the Comptroller of the Currency (OCC) highlighted what it said were “several key risks” of crypto in its Dec. 8 Semiannual Risk Perspective for Fall 2022 report.

Its three main concerns are that “stablecoins may be unstable,” the crypto industry lacks mature risk management practices and has a high risk of contagion due to the “high degree of interconnectedness.”

Check it out! The @USOCC reported the key issues facing the federal banking system in its Semiannual Risk Perspective for Fall 2022. Read more at https://t.co/CcfoiQM8xe pic.twitter.com/0WnAt5psXU
— OCC (@USOCC) December 8, 2022

The space’s lack of “consistent or comprehensive regulation” and the volatility of crypto along with the increased range of firms offering “bank-like products and services” using crypto and tokenized assets were also cited as concerns, which the OCC believes raises questions regarding financial stability.

The depeg and collapse of the TerraClassicUSD (USTC) algorithmic stablecoin in May was given as an example of stablecoins’ “run risk,” and how asset-backed stablecoins also saw minor depeg events as a result.

It highlighted stablecoin backings have “incrementally evolved” since, but believes most “remain susceptible to run risk.”

Discussing risk management the OCC said practices at crypto firms were maturing but are “not yet robust” with firms appearing “unprepared for the stresses and surprises” over the past year that saw losses for millions of investors, it added:

“Hacks and outages are frequent, and fraud and scams remain high throughout the industry. In some cases, ownership rights, custody arrangements, and financial representations have created a high degree of confusion.”

The crypto market over 2022 also revealed the industry’s “interconnectedness [...] through a variety of opaque lending and investing arrangements” according to the OCC.

It remarked crypto participants “may be engaging in highly leveraged trading” which resulted in the noted contagion risk.

In its advice to banks, the OCC said institutions considering engaging with crypto or crypto companies “should take a careful and incremental approach.”

The OCC advised national banks that crypto-related plans should be discussed “with their supervisory office” before they engage in any activities as some potentially require permission.

Crypto companies have moved to improve transparency in the wake of the bankruptcy of FTX with many exchanges introducing proof-of-reserves so users can verify crypto backings along with some conducting public third-party audits.

Almost everything could be tokenized in 5-10 years — Matrixport co-founder

September 27, 2022 Coin Telegraph

Blockchain

Cost efficiencies, improved liquidity, 24/7 market access, and the removal of intermediaries were the main advantages' cited which blockchain infrastructure has over current legacy systems.

In five to ten years, almost every “real world” asset class could be tokenized in the form of a nonfungible token (NFT) according to Cynthia Wu, co-founder of digital asset service platform Matrixport.

Speaking to Cointelegraph, Wu said the best case for NFTs would see the widespread representation of real-world assets to be stored and traded on-chain:

“Eventually all the major financial asset classes are going to be represented on this new financial infrastructure [and] NFTs could be our instrument to represent off-chain assets like real estate deeds, equities or bonds.”

The move on-chain would make these real world assets “more liquid and more tradable” which would improve price discovery and transaction activity, Wu added.

But Wu said that while it’s great that we’ve created over two trillion worth of digital native assets on-chain from Bitcoin (BTC), Ethereum (ETH) and other tokens, the only niche to have generated NFT transaction activity has come from digital collectibles — which hasn’t really helped institutional adoption:

“We haven't really been seeing off-chain assets being represented on-chain [...] we're now really only at the first 3-5% of it.”

But nonetheless, Wu is confident that the tide will turn.

Earlier this month, a report from Boston Consulting Group (BCG) estimated the total size of tokenized illiquid assets to reach $16.1 trillion by 2030.

BCG predicted much of this tokenization to come from pre-initial public offering (IPO) stocks, real estate, private debt, and revenue generated from small to medium-sized businesses.

However, while the tokenization of real-world assets has piqued the interest of financial institutions, Wu said some have been a bit reluctant to move on from the legacy systems that have served them well over the years.

Wu pointed out the traditional financial system hasn’t accounted for the trading of nonfungible assets because they can’t easily be exchanged the same way a fungible or divisible asset can, but tokenization on the blockchain provides a solution for that.

She also argued that blockchain infrastructure is the superior option to legacy systems, citing cost efficiencies, improved liquidity, 24/7 market access, and the removal of intermediaries as the main factors that would lead to a more streamlined financial system.

Matrixport was established in Feb. 2019, and currently manages between $3-4 billion in digital assets from a broad mix of retail and institutional clients.

Australian Securities Exchange takes step towards tokenized asset trading

August 16, 2022 Coin Telegraph

ASX

“There's a strong value proposition here that we can essentially tokenize any asset and bridge that into the ASX ecosystem,” said Zerocap CEO Ryan McCall.

Companies on the Australian Securities Exchange (ASX) could be able to trade tokenized bonds, equities, funds, or carbon credits after a successful proof-of-concept trial led by the digital asset investment platform Zerocap.

On Monday, Melbourne-based digital asset investment platform Zerocap told Cointelegraph it had successfully used Synfini to bridge over its custody infrastructure onto the platform as part of a trial program, allowing for the trading and clearing of Ethereum-based tokenized assets.

The trial is part of ASX’s distributed ledger technology (DLT)-based settlement project Synfini which was launched in November. The platform offers clients access to ASX’s DLT infrastructure, data hosting and ledger services, enabling them to build blockchain applications off of it.

Zerocap co-founder and CEO Ryan McCall stated that it occurred last year and that “it got a lot of interest” in the institutional sphere, particularly from companies that are exploring ways to tokenize and trade bonds, funds or carbon credits.

“Thinking beyond Bitcoin, Ethereum and other crypto assets, the tokenization of bonds, equities, property, carbon credits, private equity, and anything that's essentially illiquid, there's a strong value proposition here that we can essentially tokenize any asset and bridge that into the ASX ecosystem.”

McCall outlined that the companies dealing with especially “opaque and difficult to access markets” such as bonds and carbon credits are seeking out ways to efficiently cut costs, save time on issuance and open up broader investment access via tokenized offerings.

Questioned on whether the ASX would be able to offer crypto trading via Synfini, McCall stated “yes” but that he hasn’t seen any indicators of interest in this field, as the ASX and others are primarily focused on tokenizing traditional/real-world assets.

It is worth noting however that Synfini is a separate initiative from ASX's blockchain-based CHESS system replacement that is yet to be implemented after facing years of technical issues.

McCall went on to suggest that Zerocap could be looking to officially launch asset tokenization and trading services via Synfini to institutions in the near future, as it has just cleared the necessary steps for legal approval.

“Since then we've been going through the certification process to get into the production environment, which as you can probably imagine, for any sort of enterprise software, but certainly for an exchange, it's a fairly stringent process. So we've just cleared the production certification. So getting ready to deploy this now,” he said.

McCall also highlighted that with the ASX being a reputable source to host digital asset trading, doing so would likely dampen institutional concern over counterparty risk relating to the crypto sector.

Such risks have been thoroughly prevalent this year due to several major crypto firms either facing liquidity issues, or going completely bankrupt in the case of Celsius, Voyager Digital, and Three Arrows Capital.

“So counterparty risk, you know, credit risk specifically I guess is the biggest talking point in crypto at the moment with the 3AC disaster. And I think that just demonstrates the use case for what the ASX is trying to do here.”

“You know, thinking about the ecosystem and investor protections and all the things that it offers, there's definitely a need for something like that in digital assets,” he added.

The Zerocap CEO also suggested that Synfini will likely be utilized by a wide range of firms, as the platform is user-friendly and removes a lot of variables for companies.

“If a custodian or a fund manager or any application developer wants to come and build a blockchain application, they can do that on this Synfini platform without having to really worry about managing any of the infrastructure, which is pretty cool,” he said.

Zerocap recently had a hand in a tokenized carbon credit transaction in late June, with the firm providing market-making services and liquidity for an exchange between major Australian family office Victor Smorgon Group and BetaCarbon, a blockchain-based carbon trading platform.

The deal was also facilitated via A$DC, a fully AUD collateralized stablecoin developed by “big four bank” Australian bank ANZ.

Iran to Pilot ‘National Cryptocurrency,’ Considers Blockchain Tech for Stock Market

January 22, 2022 Bitcoin.com

Ripple Launching Liquidity Hub Despite SEC Lawsuit Over XRP

November 11, 2021 Bitcoin.com

Arca Labs partners with Securitize on regulated, tokenized financial products

September 24, 2021 Coin Telegraph

Arca

As part of its partnership with Arca Labs, Securitize will help launch tokenized financial products for the firm, starting with Arca’s registered tokenized treasury fund.

Arca Labs, the innovation arm of digital asset investment firm Arca has partnered with blockchain tech firm Securitize to launch regulated, tokenized financial products.

According to a Sept. 23 announcement, Securitize has signed on to provide a smart contract and issuance platform for the firm, starting firstly with Arca’s tokenized fund dubbed “Arca U.S. Treasury Fund” that was launched in July 2020.

Arca touts it as the first treasury fund registered under the Investment Company Act of 1940 to issue shares as digital assets via the blockchain. The fund meets the same regulatory requirements as a mutual fund, but differs by offering exposure via Ethereum-based digital asset security tokens called “ArCoin.”

Arca states that the fund will typically “invest a minimum of 80% of assets in U.S. Treasury securities.”

Securitize has taken over the fund’s transfer agent role from TokenSoft, and will be tasked with managing regulatory compliance mandates such as investor verification, know your customer and anti-money laundering policies, along with onboarding clients and issuing the fund’s shares via ArCoin. Securitize is a registered transfer agent with over 200 clients and nearly a half-billion dollars in regulated securities issued in the past three years

The transition has seen the fund’s existing outstanding balances burned and automatically reissued under Securitize’s new smart contract to each shareholder.

Additionally, there will be jointly-offered tokenized financial products that will be announced at a later date.

“Institutions have struggled to meet investor demand because few tokenization companies have met the rigorous regulatory and operational thresholds required by investors,” the announcement stated, adding that the firms are “seeking to channel the growth of fast-developing blockchain technologies within the existing financial services regulatory framework, which we believe to be key for increased investor trust and adoption.”

Share this video