The world's financial giants are rushing to RWA tokenization

JPMorgan Chase, Goldman Sachs, Citigroup, the fields they try are often new financial vanes.

Written by: Karen, Foresight News

The tokenization of RWA (Real World Assets) is not only the key to the mainstream of DeFi and Web3, but also has the potential to subvert certain financial fields.

"Everything can be tokenized" is not empty talk. On the blockchain, any tangible or intangible value can be expressed on the chain, including gold, real estate, debt, bonds, artwork, carbon credits, and even ownership and content license. Due to the huge advantages of RWA tokenization, such as low cost, high efficiency, wide accessibility, high liquidity, and DeFi adoption due to split ownership, more and more financial giants have begun to test the water and layout in this field .

A recent research report released by Citi predicts that by 2030, there will be 4 trillion to 5 trillion US dollars of tokenized digital securities, and the trade finance transaction volume based on distributed ledger technology will also reach 1 trillion US dollars . This aggressive forecast is based on the following assumptions:**

  1. A $1.9 trillion tokenized market (1%) of the estimated $187 trillion non-financial corporate and quasi-sovereign bond market;

  2. It is estimated that there will be a tokenization market of US$1.5 trillion in the US$20 trillion real estate fund market (accounting for 7.5%);

  3. It is estimated that there will be a $0.7 trillion tokenized market in the $7 trillion private equity and venture capital fund market (accounting for 10%);

  4. A $1 trillion tokenization market (2%) out of an estimated $42 trillion securities financing and mortgage activity market.

  5. It is estimated that there will be a $1 trillion tokenization market in the $12 trillion trade finance market.

The Hong Kong Monetary Authority also mentioned in the Digital Hong Kong Dollar Pilot Program announced this month that 16 selected companies from the financial, payment and technology sectors will conduct the first round of trials this year to conduct in-depth research on the potential use cases of the Digital Hong Kong Dollar in six areas. Including comprehensive payment, programmable payment, offline payment, tokenized deposit, third-generation Internet (Web3) transaction settlement and tokenized asset settlement. In fact, in February this year, the Hong Kong Special Administrative Region government successfully issued 800 million Hong Kong dollars in tokenized green bonds. This is the world's first tokenized green bond issued by a government.

In this article, the author will summarize and sort out the exploration and layout of financial giants in RWA tokenization. Among them, **JPMorgan Chase, Goldman Sachs, DBS Bank, UBS, Santander, Societe Generale, Hamilton Lane and other financial institutions have entered the actual measurement/combat stage from the research and exploration stage, Temasek, HSBC, Beibei Institutions such as Ryder are still in the exploration and preparation stage. **

In recent years, several major banks in China have also adopted blockchain technology in the fields of supply chain finance, trade financing, and payment, and released related platforms such as blockchain trade finance platforms, asset securitization platforms, and Internet e-commerce financing systems. , and more are used for digital transformation and improving the efficiency of financial services.

**In general, although asset tokenization is still far from reaching mass adoption, as some giants that dominate the financial market gradually shift from research, exploration, and experimentation to the promotion stage, the momentum of RWA tokenization adoption has taken place more obvious changes. **

JPMorgan Chase: Tokenization is the killer app of traditional finance

As a multinational investment bank and financial services company headquartered in New York, JP Morgan is also actively testing and deploying in the RWA field.

"Tokenization is the killer application of traditional finance", the opinion of Tyrone Lobban, head of Onyx Digital Assets, JPMorgan Chase's digital asset platform, best shows the bank's firm vision and emphasis on RWA tokenization.

In an interview with CoinDesk in April, Tyrone Lobban said the firm remained steadfast in its plans to tokenize traditional financial assets, largely unaffected by the crypto bear market and regulatory uncertainty. The bank processed nearly $700 billion in short-term loan transactions using its Onyx Digital Assets platform. Clients using the Onyx-based repo service include Goldman Sachs, BNP Paribas and DBS, with fifteen other banks and broker-dealers currently seeking to sign up. As the platform develops, Onyx will focus on assets that have traditionally been difficult to finance, such as money market funds, and use them as collateral, and is expected to issue a wider range of blockchain-based assets, including private equity funds.

Launched by JP Morgan in November 2020, Onyx Digital Assets is a blockchain-based enterprise-grade platform designed to tokenize traditional assets and unlock liquidity. Onyx Digital Assets' Tokenized Collateral Network (TCN) leverages blockchain to enable the transfer of tokenized ownership interests in money market fund (MMF) shares, allowing asset managers and institutional investors to pledge or transfer MMF shares as collateral Taste.

JP Morgan's exploration of RWA is not only Onyx, but also:

  • In May 2022, Bloomberg reported that JPMorgan Chase was exploring the use of blockchain for collateral settlement, with the first such transaction occurring on May 20, when two JPMorgan subsidiaries Ryder money market fund shares were transferred and settled on its private chain as collateral. JPMorgan plans to expand tokenized collateral to include equities, fixed income and other asset types in the coming months.

  • In October 2022, JPMorgan Chase will implement tokenized US dollar deposits through JPM Coin, and plans to enable blockchain-based euro deposits soon. JPM Coin is a U.S. dollar-pegged stablecoin that runs on the Quorum blockchain and allows JPMorgan Chase clients to transfer U.S. dollars deposited with JPMorgan.

  • In November 2022, the Monetary Authority of Singapore (MAS) will launch digital asset pilots and decentralized financial (DeFi) services, the first industry pilot under its Project Guardian to explore potential decentralized financial (DeFi) in the wholesale funding market Applied companies have completed their first real-time transactions and are testing asset tokenization and DeFi for wider use cases in the financial sector. Under the first industry pilot, DBS, JPMorgan and SBI Digital Asset Holdings traded foreign exchange and government bonds against liquidity pools that included tokenized assets.

Goldman Sachs: Enter RWA through the tokenization platform GS DAP

Goldman Sachs, another top investment bank comparable to JP Morgan Chase, is also constantly exploring the RWA field.

  • In April 2022, Mathew McDermott, Global Head of Digital Assets at Goldman Sachs, said at the Encryption and Digital Assets Summit that Goldman Sachs is researching NFT, especially "the tokenization of physical assets," as investment banks go deeper into the field of cryptocurrencies.

*According to a report in June 2022, the GS Digital Assets division is using blockchain technology and smart contracts as the basic technology to provide customers with digital issuance of debts, stocks, funds and derivatives, and its subsequent terminal End-to-end lifecycle digitization, including transactions, settlements, custody and asset services on distributed ledgers on public and private blockchains, including the establishment of a strategic GS DAP digital tokenization and lifecycle platform.

  • In November 2022, the European Investment Bank (EIB) announced the launch of digitally native bonds denominated in euros in partnership with Goldman Sachs Bank Europe, Santander and Société Générale Project Venus, the €100 million two-year bond issued, recorded and settled using private blockchain technology, represents the first offering of Goldman Sachs’ tokenization platform GS DAP.

  • In January this year, GS DAP, a digital asset platform launched by Goldman Sachs, was officially launched. The platform is developed based on Digital Asset's Daml smart contract language and privacy blockchain Canton. Digital assets ensure that data is only related to qualified interests through its privacy protocol shared among peers while supporting the scalability required to connect assets globally.

  • In February this year, the Hong Kong Special Administrative Region Government announced the successful issuance of a HK$800 million Government Green Bond Program (GGBP) using the Goldman Sachs tokenization platform GS DAP.

Citigroup: Asset tokenization is approaching a growth inflection point

Citigroup (Citigroup) pointed out in the "Currency, Tokens and Games" report released in March this year that the potential of tokenizing assets through the blockchain, although transformative, has not yet reached the point of mass adoption and is currently underway. Approaching a growth inflection point. Promising to be measured in billions of users and trillions of dollars in value.

  • Citigroup believes that if the theory of tokenization holds, the 21st century may see the creation of regulated, global, token-based multi-asset networks. Back in 2020, Citi analysts bluntly stated that with the creation of new liquid secondary markets, banks could explore opportunities such as loans backed by tokenized real estate assets.

  • In June 2022, Citi announced that it had selected Metaco, a Swiss cryptocurrency custody company, to develop and pilot digital asset custody functions, with a focus on tokenized securities.

  • In April 2023, Citi India completed its first blockchain letter of credit (LC) transaction for its client Cummins India Limited. Contour is a global digital trade finance network powered by blockchain technology that enables multiple parties (banks, corporates and logistics partners) to collaborate seamlessly and securely in real-time on a single platform. Citi is a founding member bank of Contour.

DBS Bank: Participating in the Singapore Monetary Authority digital asset pilot and DeFi services

Singapore's DBS Bank (DBS Bank) is one of the first financial companies to enter the field of digital assets. In the early stage, it mainly involved services such as digital asset transactions, security token issuance (STO) and custody. Although STO also belongs to the tokenization of real assets, its purpose is to raise funds and is subject to more restrictions. For example, it may only be issued on a private chain and subject to strict regulatory restrictions.

  • In August 2020, DBS Group announced the launch of DDEx (DBS Digital Exchange), a digital exchange for qualified investors, financial institutions and family offices, providing tokenization, trading and custody services for institutional and qualified investors.

  • In June 2021, DBS Bank launched its initial security token offering (STO) by issuing digital bonds, issuing 11.35 million US dollars in digital bonds.

  • In November 2022, DBS said it had completed trades in fixed-income products through JPMorgan-based Onyx, becoming the first Asian bank to use the network.

  • In November 2022, the Monetary Authority of Singapore (MAS) will launch digital asset pilots and DeFi services. Under its first industry pilot under Project Guardian, DBS Bank, JPMorgan Chase and SBI Digital Asset Holdings will target assets including tokenized assets of liquidity pools traded forex and government bonds.

Temasek: preparing for tokenized assets

Temasek began to explore the application of blockchain technology and asset tokenization a few years ago, but has not yet launched a formal service. It is worth mentioning that Temasek suffered heavy losses in the FTX crash last year. The company invested a total of about US$275 million in FTX and FTX US from October 2021 to January 2022, and decided to write down all of them last year.

  • In January 2021, Singapore Exchange (SGX) and Temasek announced the establishment of a joint venture (JV), a new joint venture focused on capital market workflows through smart contracts, ledgers and tokenization technologies.

  • In May 2022, Pradyumna Agrawal, managing director of Temasek Blockchain Investment, said that he does not hold Bitcoin, but is preparing for tokenized assets.

HSBC: Exploring Asset Tokenization Use Cases

HSBC is relatively cautious in its exploration of asset tokenization, and the scope of asset tokenization is currently relatively limited.

  • In November 2022, HSBC announced plans to launch HSBC Orion, a DLT-based bond tokenization platform that enables the tokenization of digital bonds and currencies for settlement, enabling atomic settlement or delivery and payment (DvP ). However, the digital bond scheme does not involve cryptocurrencies, but instead uses permissioned blockchain infrastructure.

  • In the first quarter of 2023, the European Investment Bank (EIB), in partnership with BNP Paribas, HSBC and RBC Capital Markets, issued sterling-denominated digital bonds on a private blockchain. million) floating rate bonds are registered on a private blockchain.

  • In 2023, HSBC listed a job posting for a product director for its global private banking and wealth business, which will focus on asset tokenization use cases.

  • In the Hong Kong Monetary Authority's digital Hong Kong dollar pilot program launched in May this year, 16 selected companies from the financial, payment and technology sectors participated in the first round of trials, including HSBC.

Fidelity: Aggressive layout of Crypto, or a wait-and-see attitude towards the tokenization of real assets

As one of the world's leading asset management companies, Fidelity began to conduct research and exploration in the encryption field in 2014, and its layout is relatively radical. The Fidelity Digital Assets subsidiary launched in 2018 helps institutions Adopt digital assets, provide digital asset custody, trading, and asset management services, and launch Fidelity Crypto, an encrypted investment product for retail customers, in 2022. It is worth mentioning that Fidelity also planned to allow investors to open bitcoin accounts in their 401(k) last year, but it was later blocked by regulatory and other issues.

However, Fidelity’s layout and progress in real asset tokenization is not obvious, and it seems to be in the wait-and-see stage. However, with the development of real asset tokenization, Fidelity may further expand this field in the future.

Singapore Exchange: Explore the settlement of tokenized assets with the Monetary Authority of Singapore

  • In November 2018, the Monetary Authority of Singapore (MAS) and the Singapore Exchange (SGX) developed a Delivery Versus Payment (DvP) feature for settling tokenized assets across different blockchain platforms.

  • In 2020, when DBS Bank launched a digital asset exchange, Singapore Exchange held a 10% stake in DBS Digital Exchange.

  • In January 2021, Singapore Exchange and Temasek announced the establishment of a joint venture (JV) Marketnode. The new joint venture focuses on capital market workflows through smart contracts, ledgers and tokenization technologies.

BlackRock: Exploring the tokenization of stocks and bonds

BlackRock, the leader in the asset management industry, is also relatively active in the Crypto field, for example, through blockchain ETFs, spot bitcoin private trusts, providing $17 million in loans to bitcoin mining company Core Scientific, and through Coinbase Prime for its institutional clients Enter the Crypto market by providing various aspects such as encrypted transactions and custody services.

In terms of tokenization of real assets, although BlackRock has made it clear that it is exploring in this field, there is currently no obvious substantial progress.

  • In March 2023, BlackRock CEO Larry Fink stated in his annual letter to BlackRock shareholders, "BlackRock will continue to explore the digital asset ecosystem, especially in areas most relevant to our clients, such as Permissioned blockchains and the tokenization of stocks and bonds.”

Bank of New York Mellon: Tokenization has the power to revolutionize the financial landscape

The Bank of New York Mellon (BNY Mellon) has also been actively exploring and practicing in the field of Crypto and real asset tokenization, and is open to the application prospects of real asset tokenization. The bank is not only the main custodian of USDC reserves, but also approved by New York regulators to provide cryptocurrency custody services.

  • In September 2022, the Bank of New York Mellon's official website released the "Rise of Tokenization" report, arguing that tokenization has the ability to completely change the financial landscape and fundamentally change the way investments are managed, used, and monetized.

  • In May, Bank of New York Mellon said it was advancing initiatives involving distributed ledger technology, tokenization and digital cash, including custody and clearing services for digital assets and new initiatives such as the tokenization of securities. use case etc.

UBS: Substantial progress has been made in tokenizing assets

As a multinational investment bank and wealth management company headquartered in Zurich, Switzerland, UBS has made substantial progress in tokenizing assets.

  • In October 2019, finews.com reported that UBS was looking to tokenize assets in its securities division, including debt, structured products and physical gold.

  • In May 2021, UBS AG has offered more than 100 institutional clients a pilot program to tokenize physical assets. The project runs on the Ethereum platform.

  • In November 2022, UBS Group announced the listing of the first blockchain-based digital bond. The three-year bond is worth approximately US$370 million and has a coupon rate of 2.33%. The bond will be issued on SIX Digital Exchange's blockchain-based platform and traded on SDX and SIX Swiss Exchange.

  • In December 2022, UBS London Branch issued $50 million in tokenized debt securities on Ethereum to high-net-worth individuals and family offices in Hong Kong and Singapore.

Santander: Testing bonds, agricultural products, used cars and real estate tokenization

  • In September 2019, Banco Santander announced the issuance of the first end-to-end blockchain bond (valued at $20 million) on Ethereum.

  • In March 2022, the Spanish multinational bank Santander cooperated with Agrotokeon, an Argentine agricultural product tokenization platform, to provide Argentine farmers with loans collateralized by tokenized commodities. The credit collateral is based on soybeans launched by Agrotoken (SOYA) , corn (CORA) and wheat (WHEA) tokens.

  • In October 2022, Santander Brazil began testing a tokenization system for used cars and real estate transfers.

  • In January 2023, the European Commission and the Association of German Banks jointly launched an initiative on the importance of tokenization, with the participation of more than 20 well-known partners from the private, industrial, financial and digital industries, including Santander Bank.

Deutsche Bank: Launch Tokenized Fund on Memento Blockchain

  • In May 2021, Deutsche Bank Singapore Securities Services and Hashstacs (STACS) announced the completion of a proof of concept (POC), called "Project Benja", a "bond" that uses DLT for digital assets and sustainability-linked bonds in a box" proof of concept. Deutsche Bank said the POC enabled it to assess the practical handling of tokenized assets, as well as the opportunities and challenges that their commercialization in Singapore and other markets might present.

  • In February 2023, Deutsche Bank launched a tokenized fund on the Memento blockchain.

Societe Generale: Participate in RWA tokenized DeFi

Société Générale has also maintained a positive attitude in the digital asset field, and is one of the few financial companies participating in DeFi.

  • In April 2019, Société Générale SFH, a subsidiary of Societe Generale, issued 100 million euros of guaranteed bonds on Ethereum.

  • In May 2020, Société Générale SFH issued a €40 million covered bond as a security token registered directly on the public blockchain.

  • In April 2021, Societe Generale will launch structured products on the Tezos public blockchain.

  • In August 2022, MakerDAO agreed to lend up to $30 million to SG Forge, a digital asset company affiliated with Societe Generale. In January of this year, SG Forge withdrew its first $7 million in DAI stablecoins as part of a loan.

  • In April 2023, SG-Forge, a subsidiary of Societe Generale, launched EUR CoinVertible, a stable currency linked to the euro, for institutional clients. The EURCV stablecoin is only available to institutional investors who join Societe Generale through its KYC and AML procedures.

Hamilton Lane: Providing tokenized access through tokenized funds and building partnerships

Hamilton Lane, a U.S.-based private market investment management firm, works with blockchain-based financial services companies to lower investment barriers and provide tokenized access opportunities for clients.

  • In March 2022, Hamilton Lane partnered with digital securities exchange ADDX to provide tokenized access to the Hamilton Lane Global Private Assets Fund.

  • In October 2022, Hamilton Lane and digital asset securities firm Securitize entered into a partnership aimed at expanding investor access to Hamilton Lane funds through tokenization.

  • In October 2022, Hamilton Lane and blockchain financial services company Figure are preparing to cooperate to launch a blockchain-native registered investment fund focused on the private equity market. The fund uses Figure's Digital Fund Services (DFS) platform to digitize fund share ownership records on the Provenance Blockchain.

  • In January 2023, Hamilton Lane opened a tokenized fund whose investment minimum has been lowered from $5 million to $20,000 and deployed on Polygon.

State Street: Creating a range of tokenization solutions

State Street is one of the leading providers of financial services to institutional investors, with $37.6 trillion in assets under custody and $3.6 trillion in assets under management as of March 31, 2023.

  • A digital asset service platform called "State Street Digital" launched by State Street Bank of the United States provides a series of custody, fund management, collateral management, tokenization and payment tools.

  • In August 2022, State Street said it saw "significant opportunities" in tokenization and was committed to tokenizing funds and private assets in 2023 to improve efficiency and accessibility for customers.

  • State Street has also invested in blockchain-based financial and regulatory technology company Securrency and has created a range of tokenization solutions, including:

  1. Proof of concept for tokenizing fund shares with asset management companies;

  2. Automate the life cycle of over-the-counter foreign exchange non-deliverable forwards;

  3. Digital transaction processing on State Street Alpha, providing aggregated data, analytics and real-time insights.

China's domestic banking layout

In recent years, several major banks in China have also adopted blockchain technology in the fields of supply chain finance, trade financing, and payment, and released related platforms such as blockchain trade finance platforms, asset securitization platforms, and Internet e-commerce financing systems. , and more are used for digital transformation and improving the efficiency of financial services.

In August 2017, the Agricultural Bank of China launched a blockchain-based agriculture-related Internet e-commerce financing system.

In 2018, China Construction Bank tested the "blockchain + finance" and completed the construction of the BCTrade blockchain trade finance platform, and then released the BCTrade2.0 blockchain trade finance platform in 2019. Through the application of blockchain technology, the platform realizes the transmission of domestic letter of credit, forfaiting, international factoring and other trade financial business transaction information, the confirmation of creditor's rights and the full electronic process of transfer of documents, making up for the lack of relevant system platforms and avoiding non-encryption Risks that may be caused by transmission can be improved to improve business processing efficiency.

In June 2018, the Bank of Communications officially launched the investment banking full-process blockchain asset securitization platform "Jucai Chain". Intermediaries such as China Chengxin have deployed blockchain nodes to realize the dual chaining of asset securitization project information and asset information, simultaneously realizing the process of cross-agency due diligence based on smart contracts, and comprehensively reshaping the asset securitization business operation process of investment banks .

In December 2019, Bank of China completed the pricing of the first phase of 2019 20 billion yuan special financial bond issuance for small and micro enterprise loans, and the raised funds were specially used to issue small and micro enterprise loans. In this issuance, Bank of China simultaneously used the self-developed blockchain bond issuance system. The system uses the blockchain network as the underlying platform to support the on-chain interaction and deposit of key information and documents during the bond issuance process.

In August 2020, the China Banking Association organized the five major banks to jointly build a blockchain platform for China's trade finance cross-bank transactions (CTFU platform).

In January 2021, the "ICBC Xilian" blockchain platform independently developed by the Industrial and Commercial Bank of China passed the five credible blockchain technology evaluations of the Ministry of Industry and Information Technology.

In March 2021, Shanghai Pudong Development Bank, as the joint lead underwriter, and CCDC used blockchain technology for the first time to support DBS Bank (China) Co., Ltd. to issue 2 billion yuan of secondary capital bonds.

In June 2021, China Merchants Bank launched the blockchain portal "One Chain Link". The blockchain application scenarios that China Merchants Bank has explored include supply chains, electronic bills, fund settlement, cross-border finance, multi-party collaboration, and contract deposit certificates.

Summarize

Although there is still a big gap between the current DeFi and Web3 market and the traditional financial market, RWA tokenization is expected to introduce the next trillion-dollar market for Web3.

However, the current market scale of asset tokenization involved in mortgage lending, credit, and composability in DeFi is relatively small, and it also faces challenges such as poor liquidity, fragmented liquidity, and imperfect infrastructure. In addition, More clarity from regulators, relative consistency in relevant standards, etc. will also be crucial to spur the growth of RWA tokenization.

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