Original author: Karen, Foresight News
The tokenization of RWA (Real World Assets) is not only the key to DeFi and Web3 going mainstream, but also has the potential to disrupt certain financial fields.
"Everything can be tokenized" is not just empty talk. On the blockchain, any tangible or intangible value can be represented on the chain, including gold, real estate, debt, bonds, art, carbon credits, and even ownership and content licenses. Due to the huge advantages of RWA tokenization, such as low cost, high efficiency, wide accessibility due to split ownership, high liquidity, and DeFi adoption, more and more financial giants are beginning to test and deploy in this field.
A recent research report released by Citi predicts that by 2030, there will be $4 trillion to $5 trillion in tokenized digital securities and $1 trillion in trade finance transactions based on distributed ledger technology. This radical forecast is based on the following assumptions:
1. A tokenized market of $1.9 trillion (1%) is expected to be in the $187 trillion non-financial corporate and quasi-sovereign bond market;
2. It is estimated that there will be a tokenized market of $1.5 trillion (7.5%) in the $20 trillion real estate fund market;
3. It is estimated that there will be a $0.7 trillion tokenization market (10%) in the $7 trillion private equity and venture capital fund market;
4. The estimated $1 trillion tokenization market (2%) is expected to account for the $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 deposits, 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 a tokenized green bond of HK$800 million. 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, financial institutions such as JPMorgan Chase, Goldman Sachs, DBS Bank, UBS Group, Santander Bank, Societe Generale, Hamilton Lane, etc. have entered the testing/actual combat stage from the research and exploration stage, while institutions such as Temasek, HSBC, and BlackRock are still in the exploration and preparation stage.
In recent years, several major Chinese banks have also adopted blockchain technology in the fields of supply chain finance, trade financing, and payment, and have launched related platforms such as blockchain trade finance platforms, asset securitization platforms, and Internet e-commerce financing systems, which are more used for digital transformation and improving the efficiency of financial services.
Overall, although asset tokenization is still a long way from reaching large-scale adoption, as some giants that dominate the financial market have gradually shifted from research, exploration, and experimentation to the promotion stage, the momentum of RWA tokenization adoption has changed significantly.
JPMorgan Chase: Tokenization is the killer app for 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 app for traditional finance," said Tyrone Lobban, head of JPMorgan Chase's digital asset platform Onyx Digital Assets, which best reflects the bank's firm vision and emphasis on RWA tokenization.
In an interview with CoinDesk in April, Tyrone Lobban said the company remains steadfast in its plans to tokenize traditional financial assets, largely unaffected by the crypto bear market and regulatory uncertainty. The bank has processed nearly $700 billion in short-term loan transactions using its Onyx Digital Assets platform. Clients using Onyx-based repo services include Goldman Sachs, BNP Paribas and DBS Bank, and fifteen more banks and broker-dealers are currently seeking registration. As the platform develops, Onyx will focus on assets that are traditionally 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 JPMorgan Chase in November 2020, Onyx Digital Assets is an enterprise-grade blockchain-based platform designed to tokenize traditional assets and unlock liquidity. Onyx Digital Assets' Tokenized Collateral Network (TCN) uses 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.
JPMorgan Chase's exploration of RWA is not limited to Onyx, but also includes:
In May 2022, Bloomberg reported that JPMorgan Chase was exploring the use of blockchain for collateral settlement. The first such transaction took place on May 20, when two subsidiaries of JPMorgan Chase transferred and settled tokenized BlackRock money market fund shares as collateral on their private chains. JPMorgan Chase plans to expand tokenized collateral to include stocks, fixed income and other asset types in the coming months.
In October 2022, JPMorgan Chase tokenized U.S. dollar deposits through JPM Coin, and plans to enable blockchain-based euro deposits soon. JPM Coin is a stablecoin anchored to the U.S. dollar, running on the Quorum blockchain, allowing JPMorgan Chase customers to transfer U.S. dollars deposited at JPMorgan Chase.
In November 2022, the Monetary Authority of Singapore (MAS) launched a digital asset pilot and decentralized finance (DeFi) service. The first industry pilot under its Project Guardian to explore potential decentralized finance (DeFi) applications in the wholesale financing market has completed the first live transaction and is testing asset tokenization and DeFi applications in broader use cases in the financial sector. Under the first industry pilot, DBS Bank, JPMorgan Chase and SBI Digital Asset Holdings conducted foreign exchange and government bond transactions for liquidity pools including tokenized assets.
Goldman Sachs: Entering RWA through the tokenization platform GS DAP
Goldman Sachs, another top investment bank on par with JPMorgan Chase, is also constantly exploring the RWA field.
In April 2022, Mathew McDermott, global head of Goldman Sachs digital assets, said at the Crypto and Digital Assets Summit that as the investment bank moves deeper into the cryptocurrency field, Goldman Sachs is studying NFTs, especially the "tokenization of physical assets."
According to a report by in June 2022, the GS Digital Assets division is using blockchain technology and smart contracts as the underlying technology to provide clients with digital issuance of debt, stocks, funds and derivatives, and digitize their subsequent end-to-end life cycle, including transactions, settlements, custody and asset services on distributed ledgers on public and private blockchains, including the establishment of the strategic GS DAP digital tokenization and lifecycle platform.
In November 2022, the European Investment Bank (EIB) announced that it had partnered with Goldman Sachs Bank Europe, Santander and Société Générale to launch Project Venus, a euro-denominated digital native bond. This €100 million two-year bond was issued, recorded and settled using private blockchain technology, representing the first issuance of Goldman Sachs' tokenization platform GS DAP.
In January this year, the digital asset platform GS DAP 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 Asset ensures that data is only shared with qualified stakeholders through its privacy protocol, while supporting the scalability required for globally connected assets.
In February this year, the Hong Kong SAR government announced the successful issuance of the HK$800 million Government Green Bond Program (GGBP) using Goldman Sachs’ tokenization platform GS DAP.
Citigroup: Asset tokenization is approaching a growth inflection point
In its March report “Currency, Tokens and Games,” Citigroup noted that the potential of tokenized assets through blockchain, while transformative, has not yet reached the point of mass adoption and is approaching a growth inflection point that is expected to be measured in billions of users and trillions of dollars in value.
Citigroup believes that if the tokenization theory holds true, the 21st century may see the creation of a regulated, global, token-based multi-asset network. As early as 2020, Citi analysts bluntly stated that with the creation of new liquid secondary markets, banks could explore opportunities such as loans secured by tokenized real estate assets.
In June 2022, Citi announced that it had selected Swiss cryptocurrency custodian Metaco to develop and pilot digital asset custody capabilities, 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 on a single platform in real time. Citi is a founding member bank of Contour.
DBS Bank: Participating in the Singapore Monetary Authority’s digital asset pilot and DeFi services
Singapore's DBS Bank is one of the earliest financial companies to enter the digital asset field. In the early stage, it mainly involved digital asset trading, security token issuance (STO) and custody services. Although STO also belongs to the tokenization of real assets, its purpose is to raise funds and is subject to more restrictions, such as being issued only on private chains and subject to strict regulatory restrictions.
In August 2020, DBS Group announced the launch of the digital exchange DDEx (DBS Digital Exchange) for qualified investors, financial institutions and family offices, providing tokenization, trading and custody services to institutions and qualified investors.
In June 2021, DBS Bank launched its first security token offering (STO) by issuing digital bonds, issuing US$11.35 million in digital bonds.
In November 2022, DBS Bank said it had completed a fixed-income product transaction through JPMorgan Chase-based Onyx, becoming the first Asian bank to use the network.
In November 2022, the Monetary Authority of Singapore (MAS) launched a digital asset pilot and DeFi service. Under the first industry pilot under its Project Guardian, DBS Bank, JPMorgan Chase and SBI Digital Asset Holdings conducted foreign exchange and government bond transactions for liquidity pools including tokenized assets.
Temasek: Preparing for tokenized assets
Temasek began exploring the application of blockchain technology and asset tokenization a few years ago, but has not yet launched formal services. It is worth mentioning that Temasek suffered heavy losses in the FTX collapse last year. The company invested a total of approximately US$275 million in FTX and FTX US from October 2021 to January 2022, and decided to write down all of it last year.
In January 2021, the Singapore Exchange (SGX) and Temasek announced the establishment of a joint venture (JV) that focuses on capital market workflows through smart contracts, ledgers and tokenization technologies.
In May 2022, Pradyumna Agrawal, managing director of Temasek Blockchain Investments, said that he did not hold Bitcoin, but was preparing for tokenized assets.
HSBC: Exploring use cases for asset tokenization
HSBC is relatively cautious in its exploration of asset tokenization, and the scope of its current asset tokenization is relatively limited.
In November 2022, HSBC announced plans to launch a DLT-based bond tokenization platform, HSBC Orion, a solution that enables the tokenization of digital bonds and currencies used for settlement, thereby achieving atomic settlement or delivery and payment (DvP). However, the digital bond plan does not involve cryptocurrency, but uses a licensed blockchain infrastructure.
In the first quarter of 2023, the European Investment Bank (EIB) partnered with BNP Paribas, HSBC and RBC Capital Markets to issue a pound-denominated digital bond on a private blockchain. The bank said the £50 million ($61.6 million) floating rate bond was registered on a private blockchain.
In 2023, HSBC posted a job posting for a product director for its global private banking and wealth business, a position that will focus on asset tokenization use cases.
HSBC was among the 16 companies from the financial, payment and technology sectors selected to participate in the first round of trials for the Digital Hong Kong Dollar Pilot Scheme launched by the Hong Kong Monetary Authority in May this year.
Fidelity: Aggressively deploying Crypto, but may take a wait-and-see attitude towards tokenization of real assets
As one of the world's leading asset management companies, Fidelity began researching and exploring the crypto field in 2014, and its layout is relatively aggressive. The Fidelity Digital Assets subsidiary launched in 2018 helps institutions adopt digital assets, provides digital asset custody, trading and asset management services, and launched the crypto investment product Fidelity Crypto 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 was later blocked due to regulatory issues.
However, Fidelity's layout and progress in the tokenization of real assets are not obvious, and it seems to be in a wait-and-see stage. However, with the development of real asset tokenization, Fidelity may further expand in this field in the future.
Singapore Exchange: Exploring Tokenized Asset Settlement with 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 its digital asset exchange, the Singapore Exchange held a 10% stake in the DBS Digital Exchange.
In January 2021, the Singapore Exchange and Temasek announced the establishment of a joint venture (JV) Marketnode, which focuses on capital market workflows through smart contracts, ledgers and tokenization technologies.
BlackRock: Exploring Tokenization of Stocks and Bonds
BlackRock, the leader in the asset management industry, is also relatively active in its layout in the Crypto field. For example, it has entered the Crypto market through blockchain ETFs, spot Bitcoin private trusts, providing a $17 million loan to Bitcoin mining company Core Scientific, and providing encrypted trading and custody services to its institutional clients through Coinbase Prime.
In terms of tokenization of real assets, although BlackRock has publicly stated that it is exploring this area, there has been no significant substantive progress so far.
In March 2023, BlackRock CEO Larry Fink stated in his annual letter to BlackRock shareholders that “BlackRock will continue to explore the digital asset ecosystem, especially in areas that are most relevant to our clients, such as permissioned blockchains and the tokenization of stocks and bonds.”
BNY Mellon: Tokenization has the power to revolutionize the financial landscape
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 official website of Bank of New York Mellon released a report titled “The Rise of Tokenization,” arguing that tokenization has the ability to completely transform the financial landscape and fundamentally change the way investments are managed, used, and monetized.
In May this year, Bank of New York Mellon stated that it is currently advancing initiatives involving distributed ledger technology, tokenization and digital cash, including providing custody and clearing services for digital assets, and realizing new use cases such as securities tokenization.
UBS: Substantial progress has been made in tokenized assets
As a multinational investment bank and wealth management company headquartered in Zurich, Switzerland, UBS has made substantial progress in tokenized 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 Group has provided a pilot program for more than 100 institutional clients 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, a three-year bond worth approximately US$370 million with a coupon rate of 2.33%. The bond will be issued on the SIX Digital Exchange blockchain-based platform and traded on SDX and SIX Swiss Exchange.
In December 2022, UBS London issued $50 million in tokenized debt securities on Ethereum to high net worth individuals and family offices in Hong Kong and Singapore.
Santander: Testing tokenization of bonds, agricultural products, used cars and real estate
In September 2019, Santander Bank announced the issuance of the first end-to-end blockchain bond (worth $20 million) on Ethereum.
In March 2022, Spanish multinational bank Santander partnered with Argentine agricultural product tokenization platform Agrotokeon to provide Argentine farmers with loans collateralized by tokenized commodities. The credit collateral is based on soybean (SOYA), corn (CORA) and wheat (WHEA) tokens launched by Agrotoken.
In October 2022, Santander Brazil began testing a tokenization system for used car and real estate transfers.
In January 2023, the European Commission and the German Banking Association 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 sectors, including Santander Bank.
Deutsche Bank: Launches Tokenized Fund on Memento Blockchain
In May 2021, Deutsche Bank Securities Services Singapore and Hashstacs (STACS) announced the completion of a proof of concept (POC) called "Project Benja", a "bond in a box" proof of concept that uses DLT for digital assets and sustainability-linked bonds. Deutsche Bank said the POC enabled it to evaluate the actual handling of tokenized assets and the opportunities and challenges that their commercialization in Singapore and other markets may bring.
In February 2023, Deutsche Bank launched a tokenized fund on the Memento blockchain.
Societe Generale: Participating in RWA Tokenized DeFi
Societe Generale has also maintained a positive attitude in the field of digital assets and is one of the few financial companies involved in DeFi.
In April 2019, Societe Generale SFH, a subsidiary of Societe Generale, issued a 100 million euro covered bond on Ethereum.
In May 2020, Societe Generale SFH issued a €40 million covered bond as a security token registered directly on a public blockchain.
In April 2021, Societe Generale launched structured products on the Tezos public blockchain.
In August 2022, MakerDAO agreed to provide a loan of up to $30 million to SG Forge, a digital asset subsidiary of Societe Generale. In January of this year, SG Forge withdrew the first batch of $7 million in DAI stablecoins as part of the loan.
In April 2023, SG-Forge, a subsidiary of Societe Generale, launched the euro-pegged stablecoin EUR CoinVertible for institutional clients. The EURCV stablecoin is only available to institutional investors who have joined Societe Generale through its KYC and AML procedures.
Hamilton Lane: Providing tokenized access opportunities through tokenized funds and partnerships
Hamilton Lane is a private market investment management firm headquartered in the United States that lowers investment barriers for clients by partnering with blockchain-based financial services companies to provide tokenized access opportunities.
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 established 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 private markets. 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 minimum investment amount has been reduced from US$5 million to US$20,000 and is deployed on Polygon.
State Street Bank: Creating a range of tokenized solutions
State Street Corporation 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.
The digital asset service platform called "State Street Digital" launched by State Street Bank in the United States provides a range 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 increase efficiency and accessibility for customers.
State Street has also invested in Securrency, a blockchain-based financial and regulatory technology company, and has created a range of tokenized solutions, including:
1. Proof of concept for tokenizing fund units with asset management companies;
2. Automating the OTC lifecycle of 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 Chinese banks have also adopted blockchain technology in the fields of supply chain finance, trade financing, and payment, and have launched related platforms such as blockchain trade finance platforms, asset securitization platforms, and Internet e-commerce financing systems, which are more used for digital transformation and improving the efficiency of financial services.
In August 2017, the Agricultural Bank of China launched an agricultural Internet e-commerce financing system based on blockchain.
In 2018, China Construction Bank tried "blockchain + finance" and completed the construction of the BCTrade blockchain trade finance platform, and then released the BCTrade 2.0 blockchain trade finance platform in 2019. The platform uses blockchain technology to realize the full electronic process of the transmission of transaction information, confirmation of claims and transfer of documents for trade finance businesses such as domestic letters of credit, forfaiting and international factoring, making up for the lack of relevant system platforms, avoiding the risks that may be caused by non-encrypted transmission, and improving business processing efficiency.
In June 2018, Bank of Communications officially launched the investment bank's full-process blockchain asset securitization platform "Jucai Chain". By deploying blockchain nodes for internal institutions of the group such as Bank of Communications and Bank of Communications Guoxin, as well as intermediary institutions such as PwC, Zhonglun, China Bond Credit Rating, and China Chengxin, it achieved dual chain-up of asset securitization project information and asset information, and simultaneously realized the process-based cross-institutional due diligence based on smart contracts, comprehensively reshaping the investment bank's asset securitization business operation process.
In December 2019, Bank of China completed the pricing of the first phase of 20 billion yuan of special financial bonds for small and micro enterprise loans in China, and the funds raised were used to issue loans to small and micro enterprises. In this issuance, Bank of China simultaneously used its self-developed blockchain bond issuance system. The system uses the blockchain network as the underlying platform and supports the on-chain interaction and storage 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 the China Trade Finance Inter-bank Transaction Blockchain Platform (CTFU Platform).
In January 2021, the "ICBC Xi Chain" blockchain platform independently developed by Industrial and Commercial Bank of China passed the five trusted blockchain technology assessments of the Ministry of Industry and Information Technology.
In March 2021, Pudong Development Bank, as the joint lead underwriter, jointly with China Central Depository and Clearing Corporation, used blockchain technology for the first time to support DBS Bank (China) Limited in issuing RMB 2 billion of secondary capital bonds.
In June 2021, China Merchants Bank launched the blockchain portal "One Chain". The blockchain application scenarios explored by China Merchants Bank include supply chain, electronic bills, funds settlement, cross-border finance, multi-party collaboration, contract notarization, etc.
Summarize
Although the current DeFi and Web3 markets still have a large gap compared to the size of traditional financial markets, RWA tokenization has the potential to introduce the next trillion-dollar market for Web3.
However, the current market size of asset tokenization involving mortgage lending, credit, composability and other attributes in DeFi is relatively small, and it also faces challenges such as poor liquidity, liquidity fragmentation, and imperfect infrastructure. In addition, more clarity from regulators and relative consistency of relevant standards are also crucial to stimulating the growth of RWA tokenization.