Institutional Digital Assets: The Future of Finance Is Here

A
“crypto
year”
is
often
said
to
pack
one
year
of
innovation
into
a
time
span
that
would
normally
take
seven.
Like
dog
years.
That
said,
institutions
don’t
move
in
crypto
years
when
adopting
innovation.
They
test
and
slowly
build
behind
the
scenes
and
those
projects
are
starting
to
bloom
just
like
spring
flowers
and
cherry
blossoms.

The
most
recent
headline
was
BlackRock,
the
world’s
largest
asset
manager,
joining
the
forward
thinking
business
minds
in
launching
a

blockchain-based
tokenized
fund
backed
by
U.S.
Treasuries
(BUIDL)
and
on
a
public
blockchain
to
boot.
Giants
like
Franklin
Templeton,
Hamilton
Lane
and
Wisdom
Tree
have
tokenized

‘40
Act
funds.
KKR,
Apollo
and
Hamilton
Lane
have
also
tokenized
private
equity
funds.
Tokenization
of
the
repo
market
and
real
cost
shavings
has
been
shown
by
JP
Morgan.
Societe
Generale,
HSBC
and
the
European
Bank
have
issued
tokenized
bonds.
These
are
only
a
few.

Annelise
Osborne
is
a
speaker
at


Consensus
2024

and
the
author
of
“From
Hoodies
to
Suits:
Innovating
Digital
Assets
for
Traditional
Finance,”
out
in
June
and
available
for


purchase

now.

Many
proof
of
concepts
are
being
done
like
Citi,
WisdomTree
and
Wellington’s
collaboration
in
the
private
market
space.
Project
Guardian
brings
together
numerous
banks
and
counterparties
to
revolutionize
wealth
management.
Many
institutions
have
experimented
in
settlement
and
clearing
including
the
DTCC,
SWIFT,
BlackRock,
Barclays,
JP
Morgan,
Barclays,
Citi
and
Vanguard.
The
list
is
more
expansive
but
you
get
the
picture.

Advances
have
been
and
are
being
made
to
capital
market
efficiency
through
the
use
of
blockchain
technology
and
digital
assets.
This
is
not
a
passing
fad.

Let’s
dive
into
two
key
use
cases:
1.
digital
money
or
stablecoin
and
2.
the
tokenization
of
traditional
investments
opportunities,
often
referred
to
as
“real
world
assets”
(RWA).

Stablecoins
are
a
cryptocurrency
designed
to
have
a
“stable”
value
typically
backed
by
a
currency
or
bucket
of
stable
assets.
The
backbone
of
capital
markets
is
money
and
a
stablecoin
is
a
digital
replication
of
money.
Stablecoins,
as
all
cryptocurrencies,
transfer
ownership
immediately
as
opposed
to
later
settlement
or
a
float.
They
are
also
programmable.
The
stablecoin
market
cap
is
a

sizable
$157
billion.

The
reliance
on
cash
or
fiat
money
has
significantly
decreased
since
the
adoption
of
credit
cards
and
the
movement
towards
debit
cards
and
mobile
wallets.
For
point
of
sales
retail
in
2023,
U.S.
cash
payments
account
for
only

12%
of
transactions.
Most
bank
transfers,
salary
payments
and
bills,
are
a
series
of
numbers
transferred
between
banks
and
accounts
as
opposed
to
a
truckload
of
$100
bills
or
gold
bars.
How
much
cash
do
you
keep
on
hand?

More
importantly,
financial
markets
are
global.
Stablecoins
open
the
window
for
24/7/365
market
hours.
The
institutional
interest
in
stablecoins
can
be
highlighted
by
settlement,
treasury
management,
and
cross
border
payments.

The
Fed
is
offering
an
instant
payment
service,
FedNow,
to
banks
which
highlights
that
the
float
period
of
money
transfer
is
an
issue.
The
rollout
has
had
mixed
reviews
and
does
not
offer
the
flexibility
of
programmable
money
that
stablecoin
does.
The
Fed
and
the
Treasury
Secretary
have
been
looking
into
Central
Bank
Digital
Currency
(CBDC)
which
would
be
a
digital
asset.

JP
Morgan
has
an
internal
stablecoin,
JPM
Coin,
backed
by
depository
receipts
that
can
be
used
inside
the
bank
for
payment
transfers
and
settlement.
Transaction
volume
of
JPM
Coin
has
hit

$1
billion
a
day
with
savings
reported
in
repo
transactions
of

$20
million
for
2023.

Societe
Generale
has
launched
a
Euro
denominated
stablecoin
SG-FORGE
which
is
on
a
public
blockchain
and
available
on
the
BitStamp
exchange.

PayPal
launched
a
stablecoin
(PUSD)
last
year
to
its
435
million
customers,
allowing
them
to
exchange
stablecoin
for
bitcoin
and
to
pay
for
retail
purchases.
Soon,
it
will
likely
enable
cross-border
payments.

Figure
Technologies
is
issuing
an
interest
bearing
stablecoin
that
is
denominated
as
$0.01
per
token.
This
stable
would
require
KYC/AML
whitelists
and
SEC
approval.
This
structure
appears
similar
to
the
Arca
U.S.
Treasury
Fund,
which
issues
ArCoin,
a
tokenized
low-volatility
security
backed
by
U.S.
Treasuries.

Recently,
a

bill
for
stablecoin
regulation
was
introduced
by
U.S.
legislators
which
calls
for
1-1
financial
backing
on
stablecoins
and
prohibiting
algorithmic
stablecoins.
Stay
tuned.

With
the
world’s
largest
asset
manager
tokenizing
their
first
fund,
markets
are
starting
to
pay
more
attention.
Tokenization
entails
issuing
a
digital
representation
of
an
asset
or
instrument.
It
is
exciting
to
see
institutions
create
as
reality
what
the
digital
asset
world
has
been
talking
about
since
2018.

The
initial
sizable
steps
being
made
are
the
tokenization
of
‘40
Act
funds
with
the
thought
process
for
improved
efficiency.
Tokenized
U.S.
Treasury
funds
have
surpassed
$1
billion.
Franklin
Templeton

reports
that
their
‘40
Act
Fund
“continues
to
see
operational
efficiencies
through
use
of
a
blockchain-integrated
system,
including
increased
security,
faster
transaction
processing
and
reduced
costs,
benefiting
Fund
shareholders.”

Tokenized
bonds
have
been
more
prevalent
outside
the
US
due
to
regulatory
uncertainty.
HSBC
tokenized
a
HK$600
Billion
government
bond
issued
in
four
different
currencies.
The
natively
digital
bond
decreases
settlement
time
to
one
day
(T+1)
from
five
(T+5).
Rating
agency
Moody’s
has
rated
a
number
of
tokenized
bonds
adding
legitimacy.

Tokenized
mortgages
have
shown
up
in
the
U.S.
The
largest
in
this
space
is
Figure
Technologies
who
not
only
tokenize
HELOCs
and
mortgages
but
has
done
a
rated
tokenized
securitization.
They
have
also
launched
their
DART
system
which
is
both
a
lien
and
e-note
registry
to
disrupt
the
current
monopoly
MERS
has
on
the

$19.3
trillion
U.S.
mortgage
market.

Even
investment
banks
are
offering
their
clients
tokenization
services,
most
notably
Citi
and
Goldman.
And
this
is
just
the
beginning.

Institutions
are
building
and
delivering
digital
asset
tokenized
products.
The
benefits
of
blockchain
technology
are
impossible
for
capital
markets
and
institutions
to
ignore.
Change
is
hard
as
is
upgrading
old
banking
tech
infrastructure.
But,
this
is
the
future
of
finance.