Coinbase Betting Big on RWAs - New Institutional Tokenization Platform Revealed!

Friday already? It must be December - these weeks are flying by! 

The excitement over tokenization and RWAs might also have something to do with that. 😉

🎯🔥 Rapid Fire Takeaways:

🔵 Coinbase Launches Institutional Tokenization Platform in Abu Dhabi

⛔ Basel Committee on Crypto: All Permissionless Stablecoins Are High Risk

👍 Deutsche Bank’s DWS Plans Euro Stablecoin with AllUnity Digital Asset JV

🙈 S&P Global Reveals Stablecoin Ratings. Tether Penalized for Lack of Transparency

👀 Cantor Fitzgerald Confirms It Is Custodian for Tether Treasuries

⚙️ German development bank KfW planning tokenized bond in early 2024

Coinbase betting big on tokenization is something that was on our bingo card!🤩

Good news, too. We’re running short on days in 2023, so let’s hop right in.

🛣️ Institutional Inroads Widening 

Another week full of big moves, with BNY Mellon and Deutsche Bank teaming up to trial an electronic bill of lading. 

Does that language sound dated? Get this: less than 2% of global trade is digital – the world’s ports run on literal napkins and squid ink. 😱

Tokenization to the rescue! 

Europe is a big focus this week – the Eurosystem released an open call for DLT payment trails, even opening it up to non-banks. In October, the EU ran a survey to gauge potential interest in the trial and saw enough interest to move forward.

And they’re not alone. Across the channel, Fnality has launched a wholesale payment solution for the UK with the goal of facilitating a global payment system to rival traditional majors like Visa and Mastercard. So far, so good, but Fnality and the BOE clarified that they’d scale up to commercial operations, so we have at least another few years before Fnality rivals the majors. 

Hopping jurisdictions to Dubai, Coinbase announced Project Diamond, an initiative firmly focused on native digital assets. Coinbase is leveraging the Abu Dhabi Global Market (ADGM) RegLab sandbox, highlighting how traditionally US-based entities are now looking further afield for more referable jurisdictions. Project Diamond executed its first debt instrument back in November. 

😬 CBDCs and Stablecoins - A Rocky Relationship 

The Governor of the Reserve Bank of Australia is all in on central bank digital currencies (CBDC)  after they reviewed 16 CBDC pilot programs released in August. While they acknowledged potential regulatory issues, the Governor clarified that they prefer not to regulate and instead let the industry sort itself out.

Can someone ping Gary with this case study on clarifying a position? 

One thing that’s already abundantly clear is the degree to which risk controls must be in place for the existing financial system to view stablecoins as a viable financial tool. The Basel Committee on Banking Supervision issued guidance bumping permissionless blockchains and cryptocurrencies from Group 1 to Group 2, which requires much more reserve capital for assets. This move ultimately relegates stablecoins to bank balance assets, with the Committee scheduled to review the repo and reverse repo use of USDC and Paxos. 

Key term: Permissionless

The Committee has zero issue with Deutsche Bank’s plans to issue a Euro stablecoin for institutional and private use in the next 12-18 months with AllUnity. It all comes down to the ability of banks to carry out their expected due diligence and oversight when relying on third parties. The entire point of permissionless blockchains is for the buck to stop… nowhere, meaning this clash was inevitable and will become more acute. 

If transparency is what banks are after, that could spell bad news for certain industry actors. Grab an umbrella because it's…

☔ Tether Weather 

For the uninitiated, Tether (USDT) is the world's third-largest crypto by market cap and the largest stablecoin. It’s famed for its opacity, occasional depeg, and conspiracy theories. With this context and for the initiated, it should be no surprise that S&P Global penalized Tether in its stablecoin rating system for its lack of transparency. 

The American Institute of CPAs recently released its proposed criteria for stablecoins, including the recommendation that they maintain full transparency regarding jurisdiction, amounts, asset compositions, and custodian information.

Tether does exactly none of that, but we’re getting closer to some degree of transparency. 

American firm Cantor Fitzgerald’s CEO, Howard Lutnick, has gone on record stating that his firm is the custodian for Tether’s treasuries. Interestingly, Lutnick claimed only to be a fan of Bitcoin and mentioned nothing of tokenization or real-world assets, suggesting a more traditional financial view of Tether. 

It’s important to note that Tether’s opaque history has spurred the rise of many fanciful conspiracy theories regarding its origin. 

While it can be hard to know what’s fact or fiction regarding Tether, one hard truth is that governments and banks prefer to brew their own in-house, permissioned solutions. 

📜 Tokenized Bonds Galore

And they’ve certainly been brewing! It feels like there are more tokenized bonds this week than the rest of 2023 combined. We’re running out of time, so we’ll rapid-fire these:

• German state-owned development bank KfW issued a €20 million issuance using a centralized depository, and they plan to use a decentralized one next year. 

• Daiwa Securities and SBI R3 are collaborating on tokenized bonds for Japan’s Nikkei. Daiwa previously announced plans to issue bonds on public blockchains, highlighting their bond-centric thesis.

• Hitachi issued $69 million in green bonds – the largest issuance in Japan to date and an expansion on the issuance earlier this year. 

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Japan wins the tokenized bond race this week, but who's next? 

If you think Singapore has this tokenization thing in the bag, or you see Japan pulling ahead as a regional underdog, let us know on Twitter or LinkedIn.

Oh, and check out the RWA World Database – we’re now well over 300 projects and still growing weekly.