Institutional Adoption of Digital Assets Is Happening Fast — Digital Asset Network
Since the explosion of innovation that blockchain has brought, we are witnessing many creative solutions that are aiming to disrupt whole industries or industry segments. Perhaps the best-known attempt at disruption is that of the transformation of currency. Naturally, this leads quickly towards its related industry, wealth management. The crypto assets and tokenization innovation was immediately identified as a great technology to influence the asset management industry.
Hence, digital assets have entered the scene, or more precisely tokenized assets. While we are witnessing the early stages of the industry, it cannot be overlooked that existing players in the ‘old world’ assets have shown incredible interest in digital assets in tokenized form. These assets can undeniably offer direct economic interest, speedy settlement, and reduced costs. The addressable market can be quantified as a multi-trillion-dollar opportunity. It is not surprising, then, that many of the big players are working hard on embracing this technology.
We can say that these efforts are developing on two major fronts — infrastructure and deal-making. Capital markets are as we can see in dire need to automate on both levels.
Infrastructure build up in big institutions happens at the same time as in a startup market
Companies like Fidelity and State Street have worked hard to offer custodian services to the industry for crypto and tokenized assets. This has been a defining moment, as once custodian services in compliance with relevant regulatory framework entered the scene the car got wheels and it could start rolling.
At the same time, other market participants started working hard on grasping this opportunity. Swiss-based SIX has been building a tokenized securities exchange on R3 for some time now. Stuttgart Stock Exchange is very actively pursuing this angle and has launched the Bison app as a trading pilot. Almost every other global exchange is in one or another involved.
invested in Tokeny and is bringing Tokeny’s technology closer to their 20 exchanges. London Stock Exchange is working hard on redefining the capital markets with that recently launched a platform known as Aurora, which fully automates capital markets and brings efficiency to a higher level and fully redefines custodian services. Sony Ventures, MUFJ, SBI, and Nomura have all invested in Securitize.
The transformational power of tokenization from the operational side is tremendous. Tokenization will change the way in which the contractual obligations and dissemination of the subsequent data works (smart contracts), or how records are kept, reporting done and audits are performed.
Some institutions have already implemented the technology to different usage applications. For example, the trade finance application of HSBC is run on a blockchain utilizing smart contracts instead of the former paper-based documentation.
The Austrian Raiffeisen Bank is working on a project that should boost their payment systems after their Russian subsidiary has introduced the blockchain platform for corporate settlements. JPMorgan coin is probably the most well-known example of digital payment coins. , a joint initiative of 14 banks including that by using utility settlement coin (USC), is cutting intermediaries, reducing FX risks and lowering costs for international transactions, and what more can you ask for than to have cheaper, faster and less risky financial services.
When we are talking about financial institutions we should mention Marco Polo a joint undertaking of TradeIX, R3 and some of the leading global financial institutions that introduced the blockchain to trade and working capital finance. Let me mention just a few of the members of this interesting project: Bank of America, Bayern LB, BNP Paribas, , Bradesco, Commerzbank, Credit Agricole, Danske Bank, ING, Intesa Sanpaolo, LBBW, Mastercard, MUFG, National Bank of Fujairah, National Australia Bank, Natixis, Natwest, OP Financial, Raiffeisen Bank, SMBC, S-Servicepartner, Standard Bank, Standard Chartered, and others.
Deal flow generation and cross selling front office push has already started and is expected to grow
As all for-profit businesses are made to profit in the end, asset management is not in any way different. The core business generators or deal makers could not overlook the tokenization of the assets, as they offer not only higher liquidity and global investor outreach, but also creative deal structuring with fractional ownership, or new business models with security or utility tokens, native currencies, etc. That is why we have seen a surge in interest, so let me just mention some of them.
We have seen multiple bond issuances settled on blockchain technology done by Societe General, or Santander. Let us also mention that The World Bank supported a $100m bond issuance, and that BTG Pactual that tokenized their REIT structures while testing their own network ready to tap into $1bn opportunity.
There are many rumors of tokenization of funds, as this seems to be a good application for early days of this cutting edge technology, being a better fit than early-stage startups due to the maturity of the industry and high specialization of the people working in it. Apart from the tokenization of funds like we have also seen big institutional players like Franklin Templeton approaching the space. They filed a request for the tokenization of a fund with the SEC.
It is safe to say, that almost all relevant institutions in the capital markets space are testing in one or the other way the promise of blockchain and tokenization technology, and exploring higher efficiency and lower costs. This is driving the digital assets market to grow and develop quickly, and puts pressure on the transformation of ‘old world’ assets. No matter how far away from the overhyped startup market these developments are, they are meaningful and significant and should not be ignored.
These changes will affect our near future and the way in which we shall trade and own assets. Let me finish this article with my personal favourite quote by Jay Biancamano from State Street: ‘We are seeing assets start to become digitized …. and it trickle, trickle, trickle and then we believe there will be a flood.’ We are looking forward to this flood and we hope that once we are past the basic transformation and increased efficiency, more creative cross assets, and new asset classes will emerge.
Originally published at https://blog.assetnetwork.com on March 16, 2020.