Post trade body Euroclear has partnered with blockchain firm Digital Asset and the World Gold Council in a pilot to tokenise gilts, gold and Eurobonds.
The "collaborative initiative" took place over June and July and involved 27 market participants. Five types of cross-application transactions were connected on the Canton Network, a public chain built on Digital Asset's technology.
More than 500 transactions were completed during the pilot.
According to those firms involved, the collaboration "demonstrated the ability to create a digital twin of these previously immobile real-world assets (RWAs) and use those tokenized assets as collateral in atomic, real-time transactions".
The project took place at a time when the use of gold as a traded asset has increased with average daily trading volume reaching $162bn worldwide.
“We recognise the immense value in industry experimentation to showcase the advantages of DLT for the market," said Olivier Grimonpont, head of product management, market liquidity, Euroclear. "As we strive to deliver even better and faster collateral mobilisation for our clients, digital technologies like DLT will be key enablers for us to achieve this.”
“Our work with the pilot participants has demonstrated that tokenized assets can be used with immediate effect to meet intraday margin calls outside of normal settlement cycles, processing times, and time zones," said Kelly Mathieson, chief business development officer at Digital Asset.
“By digitising gold, we can overcome the perceived restrictions on moving and storing the physical metal, enabling this high-quality asset to be mobilized and used seamlessly within financial markets,” said Mike Oswin, global head of market structure and innovation at the World Gold Council.
Law firm Clifford Chance was also involved in the project and commented on the legal implications of using a 'digital twin' of an RWA.
“With certain approaches and platforms, a digital twin is not a separate asset and so the impact for master agreements, trading relationships, close-out processes, and valuation approaches are minimised, but it is always important to ensure the digital twin is catered for and reflected into existing product and platform documentation," said Paul Landless, partner, co-head of Fintech at Clifford Chance.
"As an operational and record-keeping tool rather than an asset, some of the legal and regulatory issues can be reduced while avoiding extensive surgery or a wholesale reset of established product and asset documentation.”