Tokenised assets are already changing the way banking works and the technology has the potential to do more - if the right pieces can come together.
Banks are increasingly exploring use cases involving tokenised assets, with 93 per cent of institutional investors believing in their long-term value, according to a recent EY report.
But this new on-chain financial operating model is currently highly fragmented, with assets and services siloed across different blockchains that don’t always immediately work well together – or at all.
This communication problem limits the adoption of tokenised assets by making them inaccessible and illiquid, and complicating the integration process for financial institutions.
To realise the full benefits of tokenisation, the challenge for the industry is to ensure the underlying networks are interoperable.
The key to on-chain finance
According to the Bank for International Settlements (BIS), this theoretical “unified ledger” – which would represent the new type of financial market infrastructure I’ve written about before – could “capture the full benefits of tokenisation by combining central bank money, tokenised deposits and tokenised assets on a programmable platform”.
“As well as improving existing processes through the seamless integration of transactions, a unified ledger could harness programmability to enable arrangements that are currently not practicable, thereby expanding the universe of possible economic outcomes,” BIS said in a June report.
BIS foresees multiple ledgers – each with a specific use case – coexisting and interlinked to ensure interoperability. It has also advocated for joint innovation, including a focus on public-private collaboration to develop technological solutions, establish common platforms and ensure proper oversight and supervision.
Also in June, Swift worked with more than a dozen major financial institutions and Web3 services platform Chainlink to explore how it could facilitate interoperability between blockchains and existing financial infrastructure. The goal of the work was to provide institutions with a single point of access to multiple networks, minimising the operational challenges and investment required by institutions.
The collaboration sought to leverage existing Swift infrastructure and messaging implementation, in combination with Chainlink’s Cross-Chain Interoperability Protocol (CCIP), a blockchain interoperability standard that provides a simple, secure and scalable way for financial institutions to connect to multiple types of blockchain.
In addition, the group sought to improve the sector’s understanding of the technical and business requirements for interacting with business and public blockchains, and to explore the value of Chainlink CCIP.
ANZ was an active participant in Swift’s work. The lessons from this collaboration will inform the scope of future research and we hope will pave the way for greater adoption of tokenised assets.
Sibos is back again. After a successful post-pandemic return last year, the world’s premier financial services conference will bring the best minds in the business to Toronto in 2023 – and ANZ will be among them.
From September 18 to 21, the Sibos financial services conference will provide a forum for industry participants to set the agenda for banking in 2024 and beyond.
In the lead up to the event, ANZ Institutional Insights will provide thought-leading conversations from ANZ’s experts that will offer a sneak peek at the ideas set to dominate the conference – and future of the industry.
As a bank, ANZ sees real value in what could be achieved with tokenised assets. And in conversations with our customers, we know they do too. That’s why we’re actively exploring the use of decentralised networks through a ‘test-and-learn’ approach.
The bank’s work with its A$DC stablecoin and the tokenisation of real-world assets has already provided us with valuable lessons as we continue to investigate enterprise-grade use cases. Based on market activity, we expect the continued adoption of digital assets will result in the proliferation of multiple assets across many blockchain networks.
ANZ is at the forefront of this collaborative innovation and is working with industry partners and technology providers to explore how we can collectively facilitate interoperability.
Building on the lessons learned from the Swift initiative, ANZ recently worked with Chainlink CCIP to complete a test transaction to simulate the purchase of a tokenised asset, facilitated using A$DC and an ANZ-issued NZ-dollar-denominated stablecoin. This transaction involved technical integration of ANZ’s digital asset services technology stack with CCIP to realise cross-chain settlement of tokenised assets securely and efficiently.
While the technology solutions are still emerging, this collaboration is another important milestone for ANZ – showing the feasibility of technical interoperability, which can serve as a basis for further work on customer-led transactions.
At ANZ, we believe connecting existing blockchain networks will be critical for greater adoption of digital assets and the benefits that they can provide.
We’re looking forward to participating in further work with the wider industry as we all seek to test, learn and see what’s possible.
Nigel Dobson is Banking Services Lead at ANZ and a speaker at Sibos 2023 in Toronto.
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