December witnessed significant strides in tokenization across diverse sectors, marking pivotal advancements and collaborations. The Ethereum Improvement Proposal (ERC3643) attained ‘final’ status, a crucial milestone allowing representation of real-world assets. Reports projected a substantial $400 billion potential in alternative investments through tokenization, amplifying interest in this transformative technology. Government initiatives played a key role, with the UK unveiling a blueprint for tokenizing authorized funds, signaling a leap forward in adoption. Société Générale’s groundbreaking issuance of a digital green bond on the Ethereum blockchain exemplified a shift towards environmentally conscious financial instruments with enhanced transparency and many more:
ERC3643 is one of the primary tokenization token standards. Read more on why we at Nyala believe in it here: Why we believe in ERC 3643 ERC3643 is a token standard for the Ethereum blockchain that enables the issuance, management, and transfer of permissioned tokens that represent real-world assets (RWAs) such as securities, commodities, e-money, and loyalty programs. It is designed to ensure compliance with securities laws and regulations by using an on-chain identity system that validates the eligibility of investors and issuers. ERC3643 has achieved the ‘final’ status in the Ethereum Improvement Proposal (EIP) process, which means that it has been reviewed by the core developers and the community and has been implemented by multiple clients. This is a significant milestone for the tokenization of RWAs, as it demonstrates the maturity and stability of the standard and opens new possibilities for the future of finance. [1]
According to a report by Bain & Company and Onyx by J.P.Morgan, tokenization can create a $400 billion opportunity for the alternative asset management industry by expanding the distribution of alternatives to individuals, especially the mass affluent segment. This opportunity can benefit both the managers and distributors of alternatives, as well as the individual investors, who can diversify their portfolios and enhance their returns with alternatives. However, to realize this potential, tokenization requires overcoming several challenges, such as regulatory uncertainty, market fragmentation, cybersecurity risks, and customer adoption. The report also suggests that wealth managers and wholesalers, who have established relationships with individual investors, may be well-positioned to lead the tokenization of alternatives and capture the value it creates.[2]
The UK government’s Asset Management Task Force has published a report detailing a “blueprint” for the implementation of tokenization for FCA-authorized funds. This move has been hailed as a “milestone in the implementation of tokenization” by Michelle Scrimgeour, Chair of the Working Group and CEO at Legal & General Investment Management. The report was published by the Technology Working Group, which was established by the Economic Secretary to the Treasury’s Asset Management Taskforce in April 2023 to examine the impact of new technology on the asset management sector. The group of industry experts, working closely with the Financial Conduct Authority and HM Treasury, have focused the first phase of their work on creating a blueprint for implementing fund tokenization in the UK, recognizing the revolutionary potential of this technology to propel the asset management sector forward. [3]
Société Générale, the third-largest bank in France, has issued its first digital green bond as a security token on the Ethereum public blockchain. This bond, which has a value of 10 million euros and a maturity of three years, is intended to finance or refinance projects and activities that have a positive environmental impact. The bond was registered by Forge, a subsidiary of Société Générale, on November 30, 2023. By using blockchain technology, the bond offers increased transparency and traceability on the environmental, social and governance (ESG) data of the issuer and the investors. The bond also allows for on-chain settlement through a euro-pegged stablecoin issued by Forge, as well as carbon footprint tracking through the bond’s smart contract.
The issuance of this bond demonstrates Société Générale’s commitment to drawing on its financial structuring expertise and on SG-FORGE’s technologic capabilities to contribute to building an innovative sustainable bond market. [4]
Coinbase Asset Management has launched Project Diamond, a smart contract-powered platform for institutions to create, buy, and sell digitally native assets. The platform is designed to enable institutions to manage digital assets “directly on-chain” and is built on the Coinbase technology stack and Base, an Ethereum layer-2 blockchain. The platform is aimed at bridging the gap between digital and traditional markets and promoting institutional engagement in digital assets. The first debt instrument on the platform was executed in preparation to enter the Abu Dhabi Global Market RegLab sandbox. [5]
The International Monetary Fund (IMF), the World Bank, the Bank for International Settlements (BIS), and Switzerland’s central bank have joined forces to explore the concept of tokenization. This collaboration aims to leverage tokenization technology to streamline financial processes and enhance global economic development. The primary aim of the partnership is to streamline procedures that aid underprivileged regions globally. Specifically, the partnership aims to tokenize the “promissory notes” used when richer countries donate to the World Bank’s funds, per the report. By digitizing these notes, the transfer of funds can be expedited, ensuring that development money reaches emerging and developing economies in a timelier manner.
Tokenization also presents an opportunity to encode policy and regulatory requirements into a common protocol. By embedding these rules into the tokenization process, the collaboration aims to address challenges such as international money laundering. The collaboration also touches upon the emergence of central bank digital currencies (CBDCs). As CBDCs gain traction worldwide, there is a growing need for global standards and technology compatibility to ensure seamless interoperability with existing payment systems. [6]
1 https://eips.ethereum.org/EIPS/eip-3643
2 https://www.bain.com/insights/how-tokenization-can-fuel-a-400-billion-opportunity-in-distributing-alternative-investments-to-individuals/
3 Technology Working Group publishes report on fund tokenisation – GOV.UK (www.gov.uk)
4 https://www.societegenerale.com/en/news/press-release/first-inaugural-digital-green-bond-public-blockchain
5 https://thetokenizer.io/2023/12/14/project-diamond-launches-smart-contract-platform-for-digitally-native-assets/
6 IMF, World Bank and BIS in first ‘tokenisation’ collaboration | Reuters
