Several financial institutions including JPMorgan, Citigroup, and Franklin Templeton are reportedly exploring the tokenization world.
This comes amid the backdrop of regulatory uncertainties in the US. 

At the just-ended Sibos 2023 conference at the Metro Toronto Convention Centre (MTCC), there were many discussions on tokenization and the exchange of real-world assets (RWA). For a simple explanation, tokenization is an exchange of sensitive data for non-sensitive data called “tokens”. This can basically be used in “databases or internal systems without bringing it into scope.” The fast-evolving blockchain technology which has been largely patronized by banks and financial institutions has, unfortunately, been underutilized. 

According to reports, these institutions have limited their blockchain activities to permissioned networks. Interestingly, the fast-rising tokenization concept has appealed to them as they explore its roadmaps to subject money market funds, illiquid private markets, etc. to digitization. According to Sergey Nazarov, the co-founder of the decentralized oracle network Chainlink, public blockchain protocols that need diversified collateral could emerge as the biggest market for real-world assets from banks. 

I think the public blockchain protocols are the ones that will be willing to pay the biggest premium for this diversified collateral. The yield from the public blockchain world will be very attractive to banks and public chains will greatly benefit from the assets that the banks tokenize and put into their protocols, making those protocols more resilient and reliable.

With the current regulatory environment in the US, institutions are reportedly treading cautiously in this regard. Regardless, Citigroup has announced that it is piloting tokenized and a trade finance application. For now, the bank’s tokenization pilot is running in the US and Singapore. Ryan Rugg, a former executive at IBM and banking blockchain specialist R3 who was recently hired to head the bank’s new token services unit, spoke about the demand of its clients. In his submission, Rugg disclosed that the clients are more interested in multi-bank, multi-jurisdiction, and cross-border liquidity. 

JPMorgan and Franklin Templeton

For JPMorgan, tokenization has been its mission since 2015 when it started its blockchain program and released Quorum. It is important to note that Quorum is the permissioned fork of the Ethereum code. According to JPMorgan’s head of Onyx Digital Assets, Tyrone Lobban, the public Ethereum chain has come under serious evolution from Proof of Work to Proof of Stake. JPMorgan’s Onyx Digital Assets platform is known for using JPM Coin for settlement. Since its launch about a year ago, it has facilitated over $900 billion of transactions. 

An asset manager with a $1.4 trillion asset under management, Franklin Templeton, has also moved to public blockchain. According to Franklin Templeton’s head of digital assets, Sandy Kaul, the company is running a side-by-side pilot. 

We ran a side-by-side pilot, demonstrating to the [U.S. Securities and Exchange Commission] that the books and records that we’re keeping on the public blockchain are correct and equal to the traditional transfer agency book of records. We got them comfortably, and we have been running that fund for a year and a half now as a token on a public blockchain.

He also stated that the public Ethereum chain and the recent shift to PoS ensure that anyone running a node on the network gets free benefits. 

The recent buzz around tokenization signals that most of these financial institutional giants may end up trading on the Ethereum and the Ripple networks.

---

Filed under: Bitcoin - @ September 29, 2023 9:15 am