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How Is Crypto Forcing Banks And Institutions Towards Tokenization?
Swiss investment bank UBS recently launched a “tokenized” investment fund as part of a pilot project by the Monetary Authority of Singapore.
This digital contract, registered on the Ethereum blockchain, is set to enhance the processes for fund issuance, distribution, and redemptions.
Major global financial institutions such as UBS and US fund management giant Franklin Templeton are exploring blockchain to improve efficiency.
Franklin Templeton developed a money market fund called Benji, the first US-registered mutual fund using a public blockchain, Ethereum, for transactions and share ownership recording.
Despite its early stages, Benji’s operation cost is 10 times lower than traditional funds, leading to higher yields for investors.
The “tokenization” of real-world assets, including funds, currencies, bonds, commodities, and carbon credits, is trending in financial services.
Despite setbacks like the FTX crypto exchange failure, financial giants like PayPal are entering the space, creating their own stablecoins, a tokenized form of the US dollar.
PayPal believes this new money form can “transform payments” in web3, the emerging internet area.
Cryptocurrencies, including bitcoin and ether, have a capitalization of $US1 trillion ($1.6 trillion), but real-world assets markets are far larger, estimated at about $US800 trillion.
Boston Consulting Group projected last year that tokenized assets could reach $US16 trillion by this decade’s end.
BlackRock CEO, Larry Fink, stated that tokenization of securities is the future for markets and securities.
Large financial institutions are increasingly exploring the technology that originally aimed to remove them as intermediaries.
Technology like Bitcoin, introduced during the global financial crisis, is being adopted by banks to push mainstream financial markets towards near-instant and free settlement.
This adoption can potentially eliminate intermediaries like registries and clearing houses.
Blockchain technology can also free up billions of dollars tied up in regulatory capital due to delayed traditional market transactions.
More investment banks are joining in, with Goldman Sachs announcing in January that its Digital Asset Platform is live on a private blockchain built by Digital Asset.
JPMorgan is already trading between $US1 billion and $US2 billion in digital assets each day on its Onyx blockchain.
In Australia, large banks and regulators are exploring tokenization, with the Reserve Bank piloting use cases for a central bank digital currency (CBDC), a tokenized form of central bank money known as the eAUD. Read more here.
Blockchain smart contracts 101: Transformative tools for the digital age.
Huge: US Federal Reserve Bank releases paper on real-world asset tokenization benefits.
Tokenization 101: The future of ownership?
Commodity Tokenization: Putting commodities on crypto tokens could boost African nations.
Tokenizing the world is a $5T opportunity in 5 years.
The Future Of Assets Is Crypto Tokenization
“The best way to predict the future is to create it.” – Peter Drucker.
This sentiment reflects the digital revolution now occurring in the financial sector, with tokenization and blockchain at its forefront.
Some years ago, blockchain technology was the greenhorn in town, primarily linked with cryptocurrencies and swamped in tech lingo.
Now, it isn’t just the tech-savvy who are keeping an eye on it.
Key international financial institutions, ranging from Swiss investment bank UBS to the American fund management behemoth Franklin Templeton, are exploring the world of blockchain with keen interest.
What’s the reason for this newfound interest?
In basic terms, blockchain has the potential to completely change how we manage assets.
Consider as an example, UBS’s recent experiment with a “tokenized” investment fund.
By establishing a digital contract on the Ethereum blockchain, UBS aims to improve the processes for fund issuance, distribution, and redemptions.
In a similar vein, Franklin Templeton has developed ‘Benji’, the first US-registered mutual fund to use a public blockchain for transactions and share ownership recording.
These are not standalone occurrences, but rather part of an increasing trend in financial services: the “tokenization” of tangible assets.
Using the words of scientist and visionary Arthur C. Clarke, “Any sufficiently advanced technology is indistinguishable from magic.”
True to his word, the magic of blockchain technology is its capacity to do away with intermediaries like registries and clearing houses, thus liberating billions of dollars tied up in regulatory capital.
It’s a straighter route from point A to point B, with fewer detours, obstacles, and middlemen.
Though there may be challenges to face, especially with traditional blockchain technology, the future of finance appears to be increasingly digital, with even PayPal making moves in this sector, developing their own ‘stablecoins’ – a tokenized version of the US dollar.
Ironically, a technology aimed at abolishing the need for middlemen like these institutional goliaths is now being embraced by these institutions.
Whether they can hold onto this grasp is uncertain, but no doubt they will try.
Amidst this flurry of excitement, let’s not overlook the potential of new digital assets like Zucoins.
Unlike traditional blockchains, Zucoins are constructed on the Splitchain network, a unique ground-up rethink, which offers quick real-time settlements and reduces the time for network node caches to sync, enhancing efficiency and enabling peers on the network to self-serve data amongst themselves.
Zucoin does away with the need for mining and transaction fees, leading to lower operational costs – similar to Franklin Templeton’s blockchain-driven fund, Benji.
In contrast to Ethereum, Splitchain doesn’t need smaller offshoots of what’s known as “layer 2” extensions, often centrally controlled, in order to scale the underlying blockchain.
As we venture towards a world where tangible assets are increasingly tokenized, Zucoin displays the potential for tokenizing services and goods in the future.
By providing real-time transaction settlements, they help cut down on delays and potential capital tie-ups in liquidity-holding clearing houses.
This is where inter-bank transfers usually take a few days to cross-coordinate and settle behind the scenes—even though transactions look instant when you pay for goods.
Whether it’s major financial institutions, tech giants like PayPal, or new digital assets like Zucoins, those who embrace innovation and harness the power of new technology are best positioned to spearhead the next revolution.
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All the best,
Peter & Rob
MyZucoins
Disclaimer: Of course, this is not advice, financial or otherwise. It’s also important to consider the risks and challenges associated with any potential benefits.