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⌚ Institutional Hiccups Delay Tokenization?

RWA World Newsletter - Apr 12, 2024

Author

Ray Buckton
April 12, 2024

The entire industry and beyond is now banging the BlackRock drum. 🥁

Tokenization is inevitable, but that doesn’t mean it happens without hiccups. 🥴

🎯🔥 Rapid Fire Takeaways:

Some naysayers and nuance are causing some roadblocks, but keep your wits about you – tokenization isn’t going anywhere. 🔍

The world’s brightest minds are on the case as the world continues to digest what this all means for the palette of traditional finance. 👅

👋 Why the Warm Welcome? 

If Satoshi started Bitcoin to beat the banks, isn’t celebrating BlackRock a bit odd? 🤔

Not at all. The Bitcoin of 2009 is long gone. Romanticizing a bygone era doesn’t bring $650 trillion worth of assets on-chain. ⛓️

To do that, we need liquidity. And Peter Gaffney, Head of Research at Security Token Advisors, has a terrific piece outlining that BlackRock is our best bet. Their involvement legitimizes tokenization for a wider audience and is a watershed moment for blockchain. Well written, and excellent data, Peter and STA team! 👏

But… has anyone stopped to ask why BlackRock is so eager to jump into tokenization now? 🧐

The U.S. CPI recently came in hotter than expected at 3.5%, sending equity markets reeling, economists scratching their heads, and Main Street dwellers shouting at their televisions. 📺

Could the world’s largest firm by assets under management be hedging its bets against an increasingly unpredictable global environment? 📊😮

What Would We See? 📸

If they are, expect assets like Truflation, which tracks consumer asset inflation metrics and was recently listed on KuCoin, to see their day in the sun soon enough. ☀️

What else would you expect to see if BlackRock and friends were hedging their bets? 

Probably something like:

Well, that’s…conveniently convincing. 👀

But will it all get done in time? 😟

As the astute team at Ledger Insights reports, major financial organizations remain dispassionately skeptical of tokenization. 

  • The BoE is unsure if incumbents can manage with DLTs.

  • The BIS is unconvinced as to whether blockchain can scale.

  • The IMF is worried about digital asset fragmentation. 

Never fear – the halls of authority aren’t conspiring to undermine our beloved industry… most of the time. Gensler’s SEC sent DeFi exchange Uniswap a Wells notice on Wednesday. 🥶

If global regulators other than Gary have anything to say about it, the systems will be in place to scale up asset tokenization as needed to benefit all compliant markets. 📜👇

🧑‍⚖️ Regulatory Rescue – An Unexpected Way Forward?

The Global Financial Markets Association (GFMA) and the Institute of International Finance (IIF) have defended permissionless blockchain networks, with both organizations “respectfully disagreeing with the conclusion” of the Basel Committee on Banking Supervision (BCBS) to tack on an adjustable risk premium for using permissionless ledgers. 😯

That’s a significant boon – they’re comparing public permissionless blockchains with the early internet. A global culture of protecting digital innovation is taking strong roots around the globe. 💾😊

This historical parallel also helps explain some of the trial metrics and outstanding questions from regulators. 🗣️

The European Securities and Markets Authority (ESMA) must wait until June for MiCA-authorized e-money tokens to take effect before they can start their trials in earnest. 😴

They’ve taken this extra free time to signal that they’re not huge fans of the asset concentration risk of crypto, citing the following statistics:

  • Binance accounts for 49% of trading activity.

  • Tether (USDT) accounts for 80-90% of stablecoin volumes.

  • Bitcoin, Ether, and Tether account for 73% of the total market cap and 55% of the total volume.


Regulators don't like to see tax haven-domiciled exchanges and massive asset concentrations. While we could throw the Panama Papers at this one, it’d be unfair to excuse immature asset distribution in a race to the bottom. ⛔

Our industry can, will, and is doing better each quarter. 👏

By the way, the EBC isn’t experiencing the same delays—German institutions have dominated the trials so far, comprising 70% of the pack. Participating German institutions include: 

  • Deutsche Börse’s Eurex Clearing

  • DZ Bank

  • Landesbank Baden-Württemberg (LBBW)

  • Deutsche Bank

  • DekaBank

  • B Metzler

  • JP Morgan Germany

Alles gut für die Tokenisierung in Deutschland! 💪

However, other nations are already sprinting towards their own central bank digital currencies (CBDC) at lightning speed, with variable qualities and narratives included. 🤨

💰 Whose Currency is it Anyway? 

We have a lightning round of CBDC updates for you this week. ⚡

Zimbabwe

Zimbabwe, famed for its trillion-dollar notes, has proposed a new solution to its economic woes. This time, they’re trying gold-backed digital tokens to backstop the beleaguered domestic economy. 💽

The challenge? Trusting a nation that already has two hyperinflationary episodes under its belt with your assets. Let’s hope there’s actual gold in those vaults. 😬

India

India has officially expanded its CBDC wallet to non-banks, with a surprising volume coming from peer-to-peer transactions. The Indian government is particularly interested in using its digital rupee for cross-border payments, with the subcontinent receiving around $145 billion in remittances annually. 💱

Russia 

The Russian bear has been grappling with privacy concerns regarding its CBDC, but that hasn’t stopped progress. Scaling is set to begin next year in 2025, and the state seems keen to use the technology to circumvent sanctions, prompting an OFAC response sanctioning the domestic entities handling the CBDC. 🐻

Switzerland

The world’s most neutral nation says a retail CBDC is off the table, but is pushing full force towards a wholesale CBDC in the third stage of their Project Helvetia. After settling municipal bonds for four Swiss jurisdictions, all that’s left for the central bank to decide is when to roll out the real thing… or whether that’s the best option at all. ⚖️

Japan

Despite the Japanese publics dismal recognition (3.1%) of CBDC as a concept, Sony Bank is nevertheless trialing stablecoins on Polygon. Recall last week that Hokkoku Bank launched the first deposit-backed stablecoin in Japan. This move by Sony Bank seems well-timed given the relatively insulated Japanese market. 🗻

Across the Globe

Regardless of whether it’s gold-backed tokens, sanction-busting digital assets, or proven Swiss-grade tokenization, the Atlantic Council asks that all governments consider interoperability. 🙏

Their concerns are well founded - without clear standards we run the risk of building walled financial gardens. That’s the sort of economic protectionism that leads to using tanks and missiles to defend isolated economic interests. 🔫

Keynes may be controversial in Austrian economic circles, but even the most diehard Mises heads would concur with that fact. Let’s keep things interoperable best we can, shall we?🤝

🌖 A Wild Week Waning - Your Tokenization Take-Home 

See? That wasn’t so bad! 🩹

Tokenization is facing a few hiccups, but they’re all well-founded and navigable with time and thoughtfulness. It can’t be only excellent news week over week. ⚖️

Ebbs and flows in all things… including asset tokenization. 🧘

Make sure to join us at 2pm EDT on Thursday for our Wolf Web3 X Space, where we’re running a weekly RWA 101 Space! We had an excellent discussion this week with Unlockd Finance, BlockApps, some friends from Van Eck and more! 🚀

We’ll see you there! 😘