Global Rules of trading stocks and bonds on blockchains at scale will remain unfulfilled unless a global standard for cross-border activity is established. This sentiment was echoed in a report published on Thursday, highlighting the necessity for seamless movement of assets across blockchains. As banks and financial institutions look towards tokenised asset trading to enhance trading efficiency and transparency, the lack of cohesive global regulation presents a significant hurdle.
Tokenised Assets and Distributed Ledger Technology
What Are Tokenised Assets?
Tokenised assets are digital representations of underlying physical or financial assets. These assets are traded on distributed ledger technology (DLT) platforms, which are the same technologies that underpin cryptocurrencies. The promise of tokenised asset trading lies in its potential to make transactions faster, cheaper, and more transparent.
Benefits of Tokenised Asset Trading
- Speed: Transactions on a blockchain can completed much faster than traditional methods.
- Cost: Reduced need for intermediaries can lower transaction costs.
- Transparency: Blockchain’s immutable ledger provides a clear and transparent record of transactions.
The Need for Global Standards
Regulatory Challenges
Despite the potential benefits, the adoption of tokenised asset trading hindered by the lack of global regulatory standards. Different countries have varying client and compliance requirements
making it difficult to establish a uniform approach that can universally adopted.
Industry Insights
Georgios Vlachos, co-founder of blockchain interoperability firm Axelar, emphasized that the disparity in regulatory progress and focus areas across jurisdictions is a major impediment. The report
co-authored by Axelar and Metrika with contributions from major financial institutions like Citi, Deutsche Bank, Mastercard, and Northern Trust
underscores this issue.
Deutsche Bank’s Perspective
Deutsche Bank highlighted the importance of having industry-accepted approaches for risk assessments to facilitate the adoption of tokenised assets. However, they also cautioned against developing standards prematurely, as it could stifle innovation and lead to irrelevant solutions.
Current State of Tokenised Assets
Slow Progress
Industry executives at a recent event in Amsterdam noted that progress in tokenising assets is slow
with limited uptake so far. The lack of cohesive regulation and varying compliance requirements are significant barriers.
Market Size and Potential
Northern Trust predicts that by 2030, the digital assets market will constitute between 5% and 10% of the $13 trillion of assets it holds under custody. Currently, about $85.12 billion worth of assets, including government securities
fiat-backed stablecoins, and commodities, tokenised, according to data from 21.co on Dune Analytics.
Recent Developments
Ether, a leading cryptocurrency, saw significant gains, rising over 8% in a single day to nearly $3,780
after a 14% jump earlier in the week. This reflects the growing interest and potential in the digital asset space.
The Path Forward
Collaboration and Innovation
To realize the full potential of blockchain trading, global financial authorities and industry stakeholders need to collaborate on establishing regulatory frameworks that facilitate seamless cross-border transactions. This involves creating flexible and adaptive standards that can evolve with the technology.
Risk Assessment and Compliance
Developing robust risk assessment protocols and compliance standards that accepted across jurisdictions is essential. This will help in building trust and confidence among investors and financial institutions in the new trading ecosystem.
Conclusion
The vision of trading stocks and bonds on blockchains at scale hinges on the establishment of Global Rules standards that enable seamless asset movement across borders. While tokenised asset trading holds promise for making transactions faster, cheaper, and more transparent, regulatory challenges need to addressed. Industry collaboration and adaptive standards will be key to unlocking the potential of blockchain trading.
FAQs
What are tokenised assets? Tokenised assets are digital representations of underlying physical or financial assets traded on blockchain platforms.
Why are global standards necessary for blockchain trading? Global standards needed to ensure seamless cross-border transactions and to address varying regulatory requirements across different jurisdictions.
What are the benefits of tokenised asset trading? Tokenised asset Global Rules trading offers faster transactions
lower costs due to reduced intermediaries, and greater transparency through blockchain’s immutable ledger.
What challenges are hindering the adoption of tokenised asset trading? The primary challenges include the lack of cohesive global regulation, varying compliance requirements
and slow progress in establishing universally accepted standards.
What is the potential market size for digital assets? Northern Trust estimates that by 2030
the digital assets market could represent 5% to 10% of the $13 trillion of assets it holds under custody.