The National Bank of Kazakhstan will provide clients the “ability to spend crypto tokens” by the end of this year, announced Assel Marchenko, CTO and deputy of CEO, National Bank of Kazakhstan, at Sibos today.
Tokenisation has gained significant traction in recent years, with some estimating that volumes could reach $16 trillion by 2030. This innovation – the process of replacing sensitive data with a surrogate value known as a token – promises to create new sources of capital, increase liquidity, enhance portfolio construction, and add operational efficiencies through smart contracts.
This was the topic of an industry session – ‘Towards a tokenised future’ – on the first day of Sibos 2024. Sharing insights on active projects, alongside Marchenko, was Luc Renard, head of securities services Southeast Asia, BNP Paribas; Nikhil Sharma, executive director, head of growth, Onyx Digital Assets, J.P. Morgan; David Durouchoux, deputy CEO business development, Société Générale; and Sophie Gilder, managing director blockchain and digital assets, Commonwealth Bank of Australia.
As securities continue their digital evolution, some questions remain: How can digital currencies facilitate securities settlement? Will tokenisation foster a convergence between digital securities and digital currencies?
Scaling the markets
Moderator Sanda Ro, CEO, Global Blockchain Business Council (GBBC), first sought to pick apart the challenges and opportunities of scaling digital asset markets. The panel agreed that difficulty in measuring processes and the lack of a clear first-mover advantage are hampering progress.
Gilder felt that “the upside for a specific business type is often really hard to measure, because they may not have a complete end-to-end picture of the cost and time of the existing process. So, you can say, theoretically, the new process will be much more efficient, but it's sometimes very hard to size that…It's hard to do the cost-benefit analysis.”
Gilder added there is also uncertainty about when to investigate new spaces – with no clear first-mover advantage. She predicted that seeing scale markets work for others would encourage greater investment.
Other cooling factors, introduced by Ro, included liquidity fragmentation and the regulatory landscape. She asked after the importance for regulatory clarity and the role of Central Bank Digital Currencies (CBDC) in speaking to these issues. The panel reached the consensus that a built-for-purpose regulation is needed generate a framework for measured digital asset scaling.
Durouchoux argued for the “dual framework” approach for financial assets regulation, and the imperative of linking “capital market liquidity” with “crypto market liquidity”.
Financing and market dynamics
Clearly, this is a space that is constantly shifting – particularly the volatile crypto sphere.
Marchenko acknowledged the “complexity” and “busy nature” of the current landscape, as evidenced by the advent of stiff competition and new stablecoins to the market.
The panel acknowledged that measured development and growth will be enjoyed if the industry pays special attention to – and invests in – compliance; particularly anti-money laundering (AML) measures.
Another means to improve the security of blockchain technology was introduced by Sharma – namely “account abstraction” which enables users to manage their funds using smart contracts without giving up control.
Renard added: “This is where a provider, like all of us, can play a part to share technologies [and insights].” He expressed the need to work toward a global industrial standard for smart contracts.
Government bodies and banks
Solutions such as JPM Coin and CBDCs were also analysed – such as their roles in streamlining cross-border payments, while reducing costs and operational friction. The panel then analysed the potential impact of CBDCs on global economies and the need for greater trust in new platforms.
Trust was a repeating theme across this discussion. Renard, for his part, claimed that by removing the risks associated with digital assets, “you bring confidence into the market, you bring capital, you bring liquidity, and naturally you bring new investors. This is what CBDCs can bring.”
Turning to JPM Coin – “essentially a bank account on blockchain” – Sharma described its role in creating a “sub-ledger” within the bank. “You can move money out, cross-border, cross-branch, without actually being beholden to banks,” he said. Indeed, JPM Coin was initially conceived to create efficiencies for clients on the payment side. To the settlement side, Sharma introduced the concept of a “unified ledger” whereby users can place tokenised assets and cash on the same “level”.
Regional challenges and opportunities
The challenges of setting up use cases in different jurisdictions were explored. Gilder noted issues in the Asia-Pacific region: “You have advanced economies, developing economies, tiny ones…” She proceeded to argue for a “sub-regional” approach – rather than generalising across the region. However, this could raise the problem of interoperability, the panel asserted.
Renard, meanwhile, spoke to the opportunities in Asia-Pacific: “There is very strong demand from retail investors, compared with Europe and the US. We are looking at a region with a very large population of young, tech savvy, financially interested individuals.” He went on to argue that Japan, Hong Kong and Singapore are the key areas driving and inspiring change. “This is all very different to what we are seeing in Europe.”
The future of tokenisation
So, what can we expect from tokenisation and digital assets in the next 5-10 years?
Ro underlined the key areas of cross-border payments, liquidity, governance, and financial inclusion. Marchenko pointed to the role of tokenised deposits and the need for central settlement assets – and Sharma re-stated the potential for CBDCs to cut costs and operational friction.
This session, ‘Towards a tokenised future’, left the industry and regulators with four action points:
- Explore opportunities to develop internal bank products that leverage tokenisation, such as tokenised loans and bank deposits;
- Continue working with central banks on CBDC pilots and explore how it can interact with private sector digital assets;
- Collaborate with groups and regulators to drive clarity and harmonisation for digital assets across different jurisdictions; and
- Investigate ways to increase liquidity and interoperability between different blockchain-based platforms and traditional financial systems.
The session was rounded off with Gilder’s closing remark: “Tokenisation is here, it’s just not evenly distributed.”