This panel is moderated by Mariano Giralt, Head of EMEA Digital at BNY Mellon. Prashant Malik, Senior Technology Lead – Digital Assets at HSBC, Joe Leung, VP of Blockchain & Digital Assets at JP Morgan, and Esther Teuber, Senior Legal Counsel at ABN AMRO provide their insights on digital asset tokenization.
What Are the Benefits of Digital Assets Tokenization?
The speakers acknowledged that tokenization and DLT can address barriers in capital markets. Esther highlights that cost reduction is one of the main advantages of tokenization, driven by the elimination of intermediaries, digitization, and automation.
Joe agrees with Esther and adds that tokenization can bring efficiency, liquidity, and new utility to financial systems and markets. He points out that the ability to instantaneously transfer value, fractionalize assets, and provide transparency are other key benefits.
From a client’s perspective, Prashant highlights that tokenization enables access to previously inaccessible assets and creates new, more efficient, and secure products. Tokenizing assets also fosters interconnectivity, and interoperability, and sparks creative conversations within organizations to explore new product offerings.
What Initiatives Are Banks Working On?
JP Morgan has initiated several projects on tokenization. The bank has issued on-chain bonds, built a cash-on-chain system called JPM Coin, and developed a digital financing app for intraday repo. They are working on building tokenized collateral networks (TCNs) to tokenize money market funds (MMFs) for use as collateral in derivative trades. In 2022, JP Morgan also conducted the first institutional DeFi trade in collaboration with other entities.
Esther mentions that ABN AMRO issued one of the first tokenized digital bonds on a public blockchain in the Netherlands. Prashant shares that HSBC has issued a £50 million blockchain bond on their bond tokenization platform Orion, which allows for native issuance, coupon payments, redemption, and secondary trading. They also issue commodity tokenization, where the platform integrates with the traditional trade life cycle to enable clients to benefit from fractionalized commodities.
What Are the Challenges of Tokenizing Digital Assets?
Prashant says that it’s difficult for digital tokenization platforms to integrate with traditional legacy systems. Managing expectations around delivery and release will be essential. Additionally, the diversity of digital assets across different platforms may pose challenges in terms of custody and standardization.
Speaking from a legal perspective, Esther thinks that fragmented regulatory frameworks across jurisdictions and the need for a robust regulatory framework for market infrastructure are the two main challenges of tokenization. Prashant states that the regulatory complexities are even more challenging than building technical infrastructure.
Working in a large corporation, Joe says that it’s important to coordinate and align various teams across different functions. He emphasizes the importance of staying focused on building, identifying suitable use cases, and partnering with partners in this busy and noisy crypto environment.
What Is the Future of Tokenization?
Esther states that the future of tokenization relies on achieving scale and interoperability in the market. Legal frameworks, such as the DLT pilot regime and Markets in Crypto-Assets (MiCA), are expected to pave the way for new business models and market growth.
In 2023, JP Morgan will keep identifying valuable use cases for tokenization and they aim to collaborate with internal and external groups, drawing inspiration from the public space. Prashant says that externally, it’s important to bring various participants together and work on standardization while internally, it’s essential to acquire adequate talents to execute innovative ideas.
More EBC insights on regulations, cryptos, and DeFi:
- MiCA and the Challenges of Regulating Crypto
- The Potential of Stablecoins and the Impact of MiCA Regulation
- The Future of Crypto Market-making: What’s the Role of Regulations and AI?