Written by: Ryan Chen, Louis Wan (Spinach Spinach)

This article is written by Ample FinTech and DigiFT Co-written

Foreword by authors:

Ryan Chen,

Head of Research and Innovation, DigiFT

In late 2023, we wrote a research report on Real World Assets (RWA). At that time, the main market players were still Web3 natives, and institutional participation was low. However, 2024 marks a turning point, with top global institutions such as Blackstone, UBS and Franklin Templeton entering the market. As industry practitioners, we have witnessed firsthand how competition has intensified and two different forces have begun to converge.

This phenomenon reflects the gradual integration of Web2 and Web3, and the increasingly diverse and frequent exchange of data, capital and human resources. As the regulatory environment in the crypto market continues to evolve and return to core financial principles, we believe RWA will become a key direction for future development. Through faster settlement systems, more transparent markets, and collaborative databases, blockchain technology will eventually become mainstream, making capital markets more efficient and bringing tangible value to the real world.

Louis Wan (Spinach Spinach),

Head of Research, Ample Fintech

Technological innovations like distributed ledger technology (DLT) and tokenization are significantly improving the efficiency of today's financial system. These advancements promise not only to streamline transaction processes, but also to enable new forms of financial interactions that are more transparent, inclusive, and secure. These technologies show the potential to reshape the foundations of the financial industry by reducing reliance on intermediaries, accelerating settlement times, and embedding compliance measures through programmability.

Today, we are witnessing unprecedented levels of public-private collaboration. Clearly, the driving force behind the tokenization of real world assets (RWA) is no longer just Web3 industry players, but also central banks, financial institutions and international groups.The joint efforts of the organization. Ample FinTech is fortunate to work with multiple central banks to explore real-world applications of tokenized currencies. Ample FinTech will continue to explore practical solutions based on digital currency and smart contract applications, aiming to bring the inclusive value of programmable payments and finance to more people.

Executive Summary

In recent months, the tokenization space has moved beyond proof-of-concepts (PoCs) and into commercialization, with leading financial institutions playing a role Leading role.

Although regulation of the global tokenization market remains unclear, major financial centers are developing more comprehensive frameworks, and tokenization efforts in some places have become More welcome.

This year, financial institutions like Blackstone, UBS, and Franklin Templeton have launched tokenization projects on public chains, joining Web3 native initiatives. compete.

Market opportunity, infrastructure maturity and licensing for innovative startups are key drivers for institutional adoption of public blockchains.

Private sector financial institutions are leading the way in asset tokenization, while there is increasing coordination between the private and public sectors when it comes to currency tokenization .

As the demand for cross-border payments increases, the global economy realizes the inefficiencies of existing cross-border payment systems. High costs, low speeds and lack of transparency are increasingly challenges that need to be addressed. The G20 developed a cross-border payments roadmap to improve the efficiency, transparency and accessibility of payment systems. Currency tokenization has become one of the key ways to improve payment efficiency and costs.

The tokenization of currency not only brings cost reduction and efficiency improvement to the payment system, but also enables programmability and automation through smart contracts. This technology can provide more innovative, transparent and speedy solutions to complex financial transactions, and related projects are being carried out on a large scale in the global public sector. Introduction: Beyond Speculation

Finance is built on trust, including trust in infrastructure, trust in companies, and trust in people. The emergence of cryptocurrency and blockchain technology aims to build a more efficient and transparent financial world, with a global trusted ledger as the infrastructure. If you look back at the initial design of Bitcoin, its goal was to create a peer-to-peer payment system. Ethereum's goal is to become a smart contract platform for decentralized applications.

Bitcoin[1]:

•Focus on creating a decentralized digital currency for security and low cost peer-to-peer transactions.

•Aims to remove financial intermediaries, promote financial inclusion, and establish a trustless financial system.

Ethereum[2]:

•Expand the application of blockchain to smart contracts and decentralized applications.

•Aims to revolutionize the financial system through programmable currency, asset tokenization and decentralized finance (DeFi) to achieve automated, transparent and secure finance Transactions and Services.

Both Bitcoin and Ethereum use blockchain technology to improve traditional financial systems and promote decentralization, transparency and efficiency.

In the past few years, the native cryptocurrency market has developed rapidly, experiencing various concept cycles such as ICO, DeFi, NFT and GameFi. The main innovations focus on asset issuance and trading models, but have little impact on the real world. As the market develops, it is clear that relying solely on crypto-native assets cannot meet the needs of investors. In addition, the advantages of new financial technologies enable various application scenarios for innovators to further explore. We can clearly divide this technology-driven digital assets into three stages: •The first stage, crypto-native assets, 2010 ~ 2019:

For example, DeFi Tokens, meme coins, and tokens native to the blockchain. These assets are essentially issued and traded on a public blockchain, enjoying all the advantages and disadvantages of blockchain technology.

•The second phase, digital native assets, 2020 ~ 2023:

For example, NFT and GameFi Token. These assets are connected to digital services or applications.

•Phase 3, Digital Twin, 2024 ~ Now:

Refers to reality World assets, equity interests in assets represented by ledger entries on the blockchain, such as gold tokenscoins and U.S. Treasury tokens. At this stage, tokens are data entries on a public blockchain-driven ledger that are connected to off-chain entities or assets to enable faster settlement, real-time transparency, and process automation on the ledger.

In the first two stages, Web3 was more like a casino, with hot money pouring into the market , leading to large price swings like meme coins. Adoption of Web3 needs to go beyond casinos, and it is important to distinguish between “cryptocurrency” and “blockchain technology”. As we enter the third phase, the challenges we face stem more from the unclear legal and regulatory environment than from technical issues affecting the real-world transition to the Web3 era.

There is significant room for improvement and innovation in traditional financial markets, which can be achieved through encryption and blockchain technology. For example, according to estimates from the Bank for International Settlements (BIS) [3], between 2003 and 2020, participants in the U.S. Federal Reserve Funds Transfer System used an average of $630 billion in intraday liquidity every day, with a peak of nearly $1 trillion. In the Eurosystem, daily average and peak intraday liquidity were $443 billion and $800 billion, respectively. Across the nine jurisdictions in the sample and over the 17-year time span, participants used an average of 15% of total daily payments or 2.8% of GDP to meet intraday liquidity needs. These huge numbers highlight the important role intraday liquidity plays in maintaining financial stability. The costs associated with providing this liquidity are approximately $600 million per year, primarily to meet the need for real-time payments, manage time mismatches, reduce settlement risk, and comply with regulatory requirements. The reason for this arrangement is primarily the inefficiency of the widely used clearing and settlement infrastructure, with simple transactions taking days to complete.

Blockchain-based clearing and settlement system can shorten the settlement time to T+0 [4] and even achieve real-time settlement, thereby significantly reducing intraday flows needs and reduce settlement risks.

In 2024, we see more institutions participating in this field, not only conducting proof-of-concepts (PoC), but also moving in a more commercial direction. When it comes to the adoption of blockchain technology and tokenization, there are two main areas: currency tokenization and asset tokenization. Several important milestones occurred in 2024 when it comes to asset tokenization. Mainstream financial institutions have made significant progress in the public blockchain space. From their perspective, they focus on blockchain technology as a new innovative ledger for recording ownership and reconciliation.

In terms of currency tokenization, we are not only seeing the adoption of stablecoins in the crypto market, but other meaningful use cases are being explored, such as purpose currencies and programmable currencies. .

This report focuses on the exploration, adoption and application of blockchain technology by mainstream financial institutions, especially public blockchain and decentralized finance (DeFi) , and is divided into two parts: asset tokenization and currency tokenization. The cases mentioned are mostly in their infancy, but we can clearly see how institutions differentiate between cryptocurrencies and blockchain technologies, as well as the emerging trends and application paths for these technologies.

Why choose to tokenize on a permissionless blockchain In a rapidly evolving digital technology environment, permissionless blockchain serves as a revolutionary concept It came into being, challenging the concept of traditional centralized systems and paving the way for a new era of decentralized applications. Permissionless blockchain is essentially a distributed ledger technology that allows anyone to participate in the network without the approval of a central authority. Bitcoin and Ethereum are the best-known examples of permissionless blockchains, attracting the attention of technology experts, investors, and dreamers around the world.

The key features that define permissionless blockchains are their open access and decentralized nature. These characteristics set it apart from traditional centralized systems and permissioned blockchains with limited participation.

When we talk about permissionless blockchain, people may think of cryptocurrency, which is an application case of permissionless blockchain, and decentralization DeFi applications. In essence, permissionless blockchain is an open shared database that we can leverage these technologies to achieve efficiencies. Mainstream financial institutions have realized that cryptocurrencies can be settled atomically in minutes, and it is likely that this property can also be applied to other assets represented in the form of tokens. Some of the benefits we can achieve with these technologies include:

•Higher liquidity and faster settlement

oIn traditional markets, standard T+2 or longer settlement cycles have been the norm, mainly due to the transfer of settlement risks between different counterparties. This settlement delay ties up capital and increases counterparty risk.

oTo shorten settlement time, a good practice is to open an account with the same bank or custodian as the counterparty. In this way, asset transfers between you and your counterparty can be carried out as book transfers within the bank, almostCan be settled immediately. But opening a bank account is not easy, especially with a financial institution. In contrast, blockchain-based systems can reduce transaction settlement time to T+0 or even seconds, almost instantaneously.

•Convenient and low-barrier accessibility

oThis open architecture is re- Define reachability, which traditional systems have always tried to achieve. Anyone with a smartphone can access a full suite of financial services on-chain, and that’s exactly what we’re seeing promised. Millions of people excluded from traditional finance are finding new economic opportunities through financial services on public blockchains. Small businesses can obtain funding without going through endless red tape. Individuals of all backgrounds can invest and earn meaningful returns without having a perfect credit score or a fancy suit.

•Automated and trustless operations

oAn important aspect of permissionless blockchains The advantage is its decentralized structure. Unlike traditional systems where "power" and "control" are concentrated in the hands of a single entity, permissionless blockchain decentralizes decision-making power throughout the network.

o Therefore, it is difficult for any single entity to control or disable the system because there is no "central" weakness. This creates a trustless environment where participants do not need to rely on the trust of a central authority. Instead, trust is embodied in the system itself, which is governed by transparent rules and cryptographic proofs.

o Smart contracts are a classic example of this trustless environment. They are self-executing contracts that write the terms of the agreement directly into the code. These contracts automatically enforce the terms of the agreement, reducing the need for intermediaries and minimizing the potential for disputes.

• Global open participation

o The open nature of permissionless blockchains makes these networks Able to operate around the clock, allowing cross-border transactions without being restricted by traditional banking hours or international transfer restrictions. This global accessibility has the potential to revolutionize remittances and cross-border payments, making them faster and more cost-effective.

oFor the world's unbanked and financially underserved populations, these systems offer a way to participate in the global economy without having to tap into traditional banking infrastructure. All that is required is an internet connection and a device capable of running the wallet application.

• Transparency and real-time monitoring

o Every transaction on the network is recorded on a public ledger visible to all participants. Unlike traditional financial systems Compared to traditional systems where transaction records are not easily accessible, this public nature increases trust among users because anyone can verify transactions and the overall status of the network to different counterparties in real time. Grant access to transaction data for monitoring and automation

Permissionless blockchain technology holds great promise, but like any emerging innovation, it also faces some limitations and obstacles that need to be overcome. As decentralized finance (DeFi) platforms develop and traditional financial institutions follow Moving forward, we are witnessing a dynamic financial ecosystem full of potential and challenges. Understanding these challenges is critical to risk mitigation and realizing the full potential of permissionless blockchains:

•Security and Privacy Issues

oPermissionless blockchains may face certain risks. For example, security risks like 51% attacks (in systems using proof-of-work and proof-of-stake consensus mechanisms).

o If smart contracts are not properly audited and tested, security risks may also be introduced.

oTransparency is a double-edged sword when it comes to privacy. All transactions on a public blockchain are visible to everyone, which can cause problems for individuals and businesses who need to keep it secret. p>

• Regulatory uncertainty

o The decentralized nature of permissionless blockchains requires different Joint regulation between jurisdictions creates a number of significant challenges for regulators. Efforts are still underway to determine how cryptocurrencies and blockchain-based assets will be classified and regulated. We will delve into more details about regulation in the next section.

oCrypto regulations exist to create stability, protect investors, and prevent illegal activities such as money laundering or fraud. Since the crypto market is highly volatile and largely decentralized, regulations help reduce investor risk and ensure exchanges and others. Crypto businesses operate transparently and fairly

o Additionally, the regulations aim to integrate cryptocurrencies into the existing financial system while maintaining oversight, reducing opportunities for abuse, and promoting wider adoption by enhancing trust in the system.Widespread adoption. The ever-changing nature of crypto regulations makes it difficult to predict, as each country and region views cryptocurrencies differently.

• Market Volatility

o Cryptocurrencies are often native to permissionless blockchains The asset is known for its extreme price swings, with even Bitcoin, the largest by market capitalization, seeing price fluctuations of up to 20% in a single day. Tokenized assets coexisting with volatile cryptocurrencies could transmit risks into the mainstream financial system, raising concerns from the U.S. Securities and Exchange Commission. For example, a large trader may use Treasury tokens as collateral, but due to severe market volatility, he may need to liquidate. This could lead to a sell-off of underlying assets in mainstream financial markets.

•Complex user experience

oWhile the potential benefits are many, it is not the same as license-free Interaction with blockchain remains difficult for many users. The process of setting up a wallet, managing private keys, and interacting with decentralized applications can be a challenge for non-technical users.

oThe irreversible nature of blockchain transactions means that the cost of user error can be high. Sending funds to the wrong address or losing access to your wallet can result in permanent loss of assets. This high-stakes environment can stress out users and hinder mass adoption.

•Lack of accountability

oPermissionless blockchain has a negative impact on anti-money laundering (AML) ) and know your customer (KYC) compliance, which are the cornerstones of financial regulation. Unlike traditional finance (TradFi) where intermediaries act as gatekeepers, these open networks allow anyone to conduct transactions without prior approval or identity verification. This anonymity, while attractive to privacy advocates, also creates an environment that can breed illegal activity. The lack of centralized regulation makes it difficult to track financial flows or identify parties in suspicious transactions, complicating efforts to combat financial crime.

oThe rise of decentralized finance (DeFi) on permissionless blockchains has further exacerbated these concerns. DeFi platforms offer financial services without the safeguards typically present in TradFi, such as identity checks or transaction monitoring. While this provides financial access to underserved populations, it also creates opportunities for bad actors to exploit the system. For example, money launderers can use complex DeFi transaction chains to conceal the source of funds, making it difficult for law enforcement agencies to trace the funds.Money flow. As regulators grapple with these issues, balancing innovation and security remains a key challenge amid the continued evolution of blockchain technology.

• Difficulty in upgrading

o Upgrading permissionless blockchain protocols is complex and risky higher process. Unlike centralized systems where upgrades can be implemented unilaterally, changes to blockchain protocols require consensus among diverse and decentralized participants.

o Difficulties in implementing upgrades can lead to technology stagnation, where known problems or limitations go unresolved because the community cannot agree on how to solve them. It also makes it difficult to respond quickly to newly discovered vulnerabilities or changing technical environments. Permissionless blockchain represents a breakthrough technology with the potential to improve our digital lives and revolutionize the future of investing. Their advantages provide huge benefits compared to traditional centralized systems. The innovative potential they unlock in areas such as decentralized finance and new economic models is exciting. However, these systems also face significant challenges and risks that pose substantial barriers to large-scale adoption.

Ultimately, the future of permissionless blockchains will likely go through a process of evolution and improvement. While they may not completely replace legacy systems in the short term, they have proven to have the potential to complement and enhance existing financial and technological infrastructure.

As the technology matures and solutions to current challenges emerge, we can expect permissionless blockchain technology to be implemented in various areas of the economy and society Wider integration.

This kind of integration takes time and requires careful consideration of the trade-offs between decentralization, efficiency, security, and user experience. When comparing decentralized finance to traditional finance, it is important to consider the evolution of traditional finance. The internet or online banking did not happen overnight, and the online brokerage and trading platforms we know today evolved over the years and experienced many regulatory issues. Large banks or players that entered the market early grew as traditional finance evolved and eventually became successful in the financial industry. This mentality also applies to decentralized finance and its blockchain integration with traditional financial ecosystems to achieve widespread adoption of decentralized finance.

Changes in Legal and Regulatory Trends - Regulatory Frameworks in Various Jurisdictions

The global legal environment surrounding the tokenization of real-world assets (RWA) is fragmented. The legal system needs to establish clear criteria for classifying tokens subject to securities laws. Tokens can replace traditional securities, in which case,The rules of securities laws need to be adapted and applied. Extending securities laws to tokens that are not securities could lead to undesirable outcomes and inhibit economic and/or technological innovation. Some jurisdictions take a traditional approach and distinguish between security tokens and cryptocurrencies under existing securities laws.

With the rapid development of decentralized finance (DeFi) and tokenization, global regulatory agencies are constantly improving the legal framework for digital assets and related financial activities. This trend not only reflects the growing needs of market participants, but also shows the importance of maintaining financial stability and protecting investor rights. With the prosperity of the cryptocurrency market and the application of tokenization technology, different regulatory agencies have different considerations and requirements for cryptocurrency-based cryptocurrencies and tokenization technology. We will look at some of the key jurisdictions and their stance on regulation, including the United States, Hong Kong, Singapore, the United Arab Emirates, the British Virgin Islands and the European Union.

United States

Regulatory agencies: Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC) and Financial Crimes Enforcement Network (FinCEN).

Crypto Regulation:

Security Tokens: Regulated by the SEC under U.S. securities laws. If a token is classified as a security under the Howey test, it must comply with registration requirements, exemptions (e.g., Regulation D, Regulation S), disclosure obligations, and standards of conduct.

Commodity tokens: such as Bitcoin (BTC) and Ethereum (ETH), are classified as commodities and are regulated by the CFTC.

Payment tokens (cryptocurrencies): If used for money transfer services, they are subject to FinCEN's Anti-Money Laundering/Counter-Terrorism Financing (AML/CFT) regulations.

Tokenized:

Tokenized securities: considered as traditional securities, must Comply with all SEC regulations regarding issuance, trading and custody.

Digital asset custodian: Must register and comply with SEC and CFTC regulations on digital asset custody.

Hong Kong

Regulatory agencies: Securities and Futures Commission (SFC) and Hong Kong Monetary Authority (HKMA).

Crypto Regulation:

The SFC regulates cryptocurrencies that qualify as securities or futures contracts under the Securities and Futures Ordinance (SFO).

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Virtual asset trading platforms: must apply for a license under the Anti-Money Laundering and Counter-Terrorism Financing Regulations (AMLO) and comply with Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) requirements

Regulatory Sandbox: Allow crypto platforms to operate under strict supervision to ensure they comply with regulatory standards.

Tokenization:

< p style="text-align: left;">Security Tokens: are considered securities under the SFO and are subject to securities laws, including licensing requirements for intermediaries, prospectus requirements and compliance with codes of conduct. < p style="text-align: left;">Stablecoin: HKMA A regulatory framework is being developed to treat stablecoins as deposit-of-value facilities (SVFs), requiring licensing and prudential requirements similar to those of payment providers Singapore

Regulators. : Monetary Authority of Singapore (MAS)

Crypto Regulation:

Payment Token: Also known as Digital Payment Token (DPT), it is regulated under the Payment Services Act (PSA). Crypto exchanges and wallet providers must obtain licenses and comply with Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) requirements

Security Tokens: If they qualify as securities or capital markets products, they are regulated under the Securities and Futures Act (SFA). Issuers must comply with prospectus requirements and obtain a license where exemptions do not apply

Tokenization:

Utility tokens: generally not regulated under the SFA. They must comply with AML/CFT unless they fall into a specific category that triggers regulation. and consumer protection laws

MAS supports security token offerings (STOs) and establishes a framework to facilitate the issuance of tokenized securities under the SFA. Regulated entity conducts STO offeringguide.

UAE

Regulators: Dubai Financial Services Authority (DFSA), Abu Dhabi Global Market (ADGM) Financial Services Regulatory Authority (FSRA) and Securities and Commodities Authority (SCA).

Crypto regulation:

Security tokens: in accordance with the financial market regulations of ADGM and DFSA supervision. Issuers and intermediaries must obtain licenses, comply with codes of conduct, and comply with anti-money laundering (AML) and counter-terrorism financing (CTF) requirements.

Virtual Asset Service Providers (VASPs): Must be registered with various regulatory authorities and comply with specific requirements (e.g. ADGM’s Virtual Asset Framework and DFSA’s Virtual Asset regulations).

Tokenization:

Fiat currency-linked tokens (FRTs): proposed according to ADGM Stablecoins and asset-backed token frameworks for regulation. These tokens must be fully backed by high-quality, liquid assets.

The UAE encourages security token offerings (STOs) within financial free zones (ADGM and DIFC) and has established clear compliance, investor protection and Issuance Rules.

British Virgin Islands

Regulatory authority: BVI Financial Services Commission (BVI FSC)

Crypto Regulation:

Security Token: Regulated in accordance with the BVI Securities and Investment Business Act 2010 (SIBA). Issuers and intermediaries must obtain licenses, adhere to codes of conduct, and comply with anti-money laundering (AML) and counter-terrorism financing (CTF) requirements.

Virtual Asset Service Providers (VASPs): If an issuer meets the definition of a VASP, it must obtain a license under the VASPs Act. In addition, the BVI FSC has issued guidance on registration applications for virtual asset service providers (“VASPs Registration Guidance”), as well as guidance on anti-money laundering, counter-terrorism financing and proliferation financing for virtual asset service providers.

Tokenization:

Security Tokens: Tokens that constitute securities or other financial instruments must comply with a variety of regulations, including (but not limited to) the VASPs Act, the Securities and Investment Business Act 2010" and the Financing and Money Services Act 2009.

EU

Regulatory agencies: European Securities and Markets Authority (ESMA), European Banking Authority (EBA) and regulators.

Cryptocurrency regulation:

The European Union has established the Cryptoasset Market Regulation (MiCA) , providing member states with a comprehensive regulatory framework for crypto-assets.

Asset-linked tokens (ARTs) and electronic money tokens (EMTs) must comply with requirements related to authorization, reserve management, capital adequacy and information disclosure obligations .

Cryptoasset Service Providers (CASPs): must obtain a license and comply with Anti-Money Laundering (AML)/Counter-Terrorism Financing (CTF) and Standards of Market Conduct.

Tokenization:

Security Token: If qualified as a financial instrument, e.g. Transferable securities are regulated under the existing Markets in Financial Instruments Directive (MiFID II).

MiCA also covers utility tokens and provides clear guidance on their issuance and trading requirements, while utility tokens may not fall within the scope of traditional securities regulation.

Summary

Each jurisdiction regulates cryptocurrencies and asset tokenization All have their own unique methods. Generally speaking:

Hong Kong and Singapore focus on a balanced approach that encourages innovation while ensuring investor protection and market integrity.

The regulatory environment in the United States is more fragmented, with multiple agencies regulating different aspects of cryptoassets.

The UAE provides a tailored regulatory framework within its financial free zone to promote digital assets and tokenizationregulated environment.

The British Virgin Islands has a clear system that relies on existing securities laws to manage security tokens and has a VASPs Act to manage virtual asset services.

With MiCA, the EU is moving towards a unified regulatory framework across member states, focusing on consumer protection, market integrity and financial stability.

Asset Tokenization: Institutions Enter Web3

Decentralized Finance (DeFi) is rapidly gaining attention due to its potential to completely revolutionize through blockchain technology and smart contracts. Transforming institutional financial services. Proponents of DeFi envision a new financial paradigm characterized by fast settlement, efficiency, composability, and an open and transparent network.

Despite the optimistic outlook, DeFi continues to make cautious progress in the development of regulated financial activities, mainly due to the changing macroeconomic and regulatory environment, as well as technology Development uncertainty. To date, most institutional DeFi initiatives remain in proof-of-concept or sandbox environments. However, successful implementations are starting to emerge, and the convergence of DeFi with digital assets and tokenization is expected to accelerate over the next one to three years.

Financial institutions have been preparing for several years, realizing the transformative potential of DeFi. As technology and regulatory frameworks mature, the convergence of DeFi and institutional finance is expected to unleash new levels of efficiency, transparency, and innovation. In this section, we will focus on securities, the main component of assets, to investigate how financial institutions are exploring this area.

From idea to reality: mainstream thinking on blockchain and tokenization

From an institutional perspective, tokenization is a form of data entry. Having certain advantages over traditional forms of book entry, blockchain is the ledger that records ownership and facilitates transactions.

As blockchain technology and the crypto industry continue to develop, the term "real world assets" (RWA) is becoming more and more common. RWA covers a wide range of areas, from tokenization of physical assets to mainstream financial instruments and even assets related to environmental, social and governance (ESG) criteria. In Web3, the first widely adopted real-world asset class was stablecoins, which we will discuss in the next section. This is closely followed by products related to U.S. Treasuries, as it is widely accepted as a safe asset and is more standardized. Over the past few months, we have seen rapid growth in on-chain U.S. Treasury bonds and money market funds, with the total value rising from 20From about $100 million in early '23 to $2.21 billion now.

Tokenization: A milestone for mainstream finance in 2024

Ethereum, Bitcoin and beyond Public blockchain establishes an open financial system that allows assets to be traded and moved freely. This open system has brought many financial innovations, but due to its anonymous and open nature, it also brings significant challenges to anti-money laundering (AML) and counter-terrorism financing (CFT) work. Mainstream financial institutions have invested a lot of time and energy in researching and exploring solutions, and are gradually starting to find the best solutions.

To address the above issues, financial institutions have developed some best practices to make regulators more comfortable allowing such flows to occur. Some examples include on-chain anti-money laundering screening, token whitelisting and blacklisting controls, etc.

These practices provide convenience for mainstream financial institutions to enter the DeFi field. 2024 appears to be a turning point, with a major milestone being the launch of the BUIDL token on Ethereum by Blackstone and Securitize[5], followed by Franklin Templeton’s tokenization on multiple blockchains[6], and U.S. Treasury bond fund issued by UBS in cooperation with DigiFT[7].

Factors driving this progress include the efficiency of on-chain operations and market opportunities, all made possible by the emergence of compliant on-chain market participants . Securitize, an SEC-approved transfer agent, utilizes public blockchain as its infrastructure, with the ability to register and record asset ownership on the blockchain. This enables Securitize to serve as Blackstone’s distributor, facilitating the tokenization and distribution of assets on the Ethereum blockchain, embedding Blackstone’s BUIDL token into the DeFi and Web3 sectors.

Previously, Franklin Templeton also used blockchains such as Polygon and Stellar for records, but mainly relied on its traditional account book entry form to record public blocks. The chain serves as a secondary ledger. However, Blackstone has adopted a public blockchain as its primary ledger, allowing tokens to be transferred directly on-chain and making ownership transfers valid. Shortly after Blackstone launched BUIDL, Franklin Templeton also released its token transfer capabilities and even supports token transfers on other blockchains such as Solana, Avalanche, Aptos, and Arbitrum to expand its customer base.

The structure of tokenization

Although similar funds are already common in the Web2 market, there are still many challenges in achieving tokenization because the operation of the fund involves dozens of relevant parties and key processes, as shown in the figure below

This process mainly consists of three The main components are:

Fund management: Fund managers will open accounts with institutions including banks, exchanges, brokers and custodians to invest and manage assets according to their strategies.

Fund administration: involves tasks such as net asset value (NAV) calculations, accounting and bookkeeping, investor services, compliance reporting, expense management and audit support .

Fund Distribution: Distribution channels act as a bridge between investment funds and investors, providing the infrastructure for selling, marketing and delivering funds. In Web3, distribution channels will distribute funds into the Web3 ecosystem in a token format.

In the process of tokenization, fund distribution is the most directly related. However, in order to complete the distribution, activities such as KYC linking, anti-money laundering (AML) checks, data updates, dividend payments and distributions are closely connected with other stages.

In the above diagram, we can divide it into on-chain and off-chain parts. The processes on the right are all related to the chain, including:

On-chain anti-money laundering and KYC

Link the customer's wallet address with off-chain KYC and add the address to the whitelist.

Ownership record

The token represents the ownership of the fund and is guaranteed by a legal contract. This way, on-chain transfers to another address are legally binding.

Token contract design

The token contract will be managed and controlled by the fund manager and has roles Functions such as setup, forced transfer, token minting or destruction, whitelisting and blacklisting functions.

Distributors will be able to add or remove whitelists, and mint or destroy fund tokens.

End investors typically have only rights Transfer tokens (to another whitelist address or redeem the contract)

On-chain data availability

The process typically involves an oracle that converts off-chain data such as fund shares into NAV) is published on the chain.

As shown above, institutional asset tokenization involves multiple parties, requires multi-party efforts, and is not simple and intuitive for some institutions. has streamlined the process and successfully launched its fund token in 2024. We see 2024 as a key turning point

2024: Major milestones Blackstone and Securitize launch BUIDL

Blackstone is the first major financial institution to directly adopt fund tokenization, doing so through a partnership with Securitize.

The fund is called BUIDL (BlackRock USD Institutional Digital Liquidity) and is issued by Blackstone's entity in the British Virgin Islands. The fund is a sub-fund that invests in a fund of funds managed by Blackstone Asset Management as an SEC-licensed company. Approved transfer agent, serving as the tokenization platform, transfer agent and sole distributor of the fund

Fund tokens can serve as representatives of fund shares. On-chain transfers between whitelisted addresses. With this transferability, Circle, the issuer of the stablecoin USDC, added a real-time redemption smart contract to BUIDL, providing USDC liquidity of $100 million. BUIDL tokens are transferred into smart contracts and USDC liquidity is obtained after the transaction is confirmed on the Ethereum blockchain. This feature demonstrates the advantages of fast and efficient settlement of public blockchain technology.

To invest in the fund, investors must be a qualified purchaser (QP) with a minimum investment of $5 million. The fund uses an allocated share class structure, with each BUIDL fund share token always equaling $1 , and with Monthly distribution of income in the form of BUIDL token airdrop

Franklin·Templeton launches FOBXX on multi-chain

It is generally accepted that transfers on public blockchains are legally binding. However, this is not the case. In some jurisdictions, the law requires harmonization of general provisions on the transfer of intangible assets with the actual operation of blockchain technology. This will be achieved by integrating on-chain transfers into universally applicable rules. For Franklin Templeton, its fund tokenization project has gone through this process.

Franklin Templeton tokenized its U.S. Treasury bond fund on the Polygon and Stella blockchains in 2021, using the tokenization platform Benji , which provides wallet and custody solutions to retail customers. The fund is open to U.S. retail investors.

Initially, Franklin Templeton’s Benji tokens could not be transferred directly on-chain. Benji only uses blockchains like Polygon and Stella as secondary ledgers, still relying on its own centralized system.

Shortly after Blackstone launched BUIDL, they opened the local on-chain transfer function and supported other blockchains such as Ethereum, Arbitrum, Aptos and Avalanche C chain .

UBS partners with DigiFT to distribute tokenized funds

The project was originally a pilot project of the Monetary Authority of Singapore (MAS) "Project Guardian". In this project, UBS builds in-house capabilities for tokenization on public blockchains. Recently, UBS formed a partnership with DigiFT, a DeFi distributor of USD money market fund tokens, and another distributor (SBI) for token distribution.

The fund token represents shares in a Variable Capital Company (VCC), a widely used fund structure in Singapore known for its flexibility.

Partnering with DigiFT enables UBS’s money market fund tokens to attract a wider range of customers in Web2 and Web3, with DigiFT’s trading smart contracts providing real-time redemptions Ability, all DigiFT users can provide liquidity to the contract to meet the needs of real-time redemption and achieve seamless interaction with the DeFi ecosystem.

DTCC partners with Chainlink to launch smart NAV pilot

DTCC and Chainlink announced the successful completion of a Smart NAV pilot in 2024[9]. The program aims to tokenize mutual funds and automate the distribution of Net Asset Value (NAV) data using Chainlink’s blockchain technology. NAV is a daily valuation of mutual fund assets. Traditionally, the process of distributing NAV data has been manual, error-prone, and slow. The Smart NAV pilot delivers on-chain NAV on public and private blockchains using Chainlink’s CCIP. Data, changes that.

The pilot also involves key industry players such as JPMorgan Chase, BNY Merrill Lynch and Franklin Templeton, who are testing. Learn how blockchain-based automation can improve transparency and efficiency in financial operations

Key achievements of the pilot include:

Interoperability: Chainlink’s CCIP ensures NAV Data can be distributed seamlessly between different blockchain networks, avoiding data silos and improving access and scalability. This cross-chain functionality is critical to the future of tokenization, as it allows traditional financial markets to interact with each other. Centralized platform for secure interaction

Real-time data access: by converting NAV. With data on the chain, financial institutions obtain real-time pricing information, improving market efficiency. This not only speeds up decision-making, but also paves the way for the tokenization of mutual funds, making them easier to trade and manage.

Operational efficiency improvements: The pilot automates many aspects of NAV data distribution, reducing manual errors and operational costs. Being able to deliver historical data on-chain also enhances transparency and efficiency. Record keeping is critical

Chainlink’s partnership with DTCC represents forward-thinking efforts to integrate blockchain technology with traditional finance. By automating the transmission of key financial indicators such as NAV data, the partnership demonstrates the The potential for greater efficiency, transparency and innovation in financial markets, with the participation of major financial players such as JPMorgan Chase, BNY Merrill Lynch and Franklin Templeton. The pilot clearly demonstrates the growing interest of institutions in blockchain-based solutions

After tokenization - what are the application scenarios?

Why are these mainstream finance? Are institutions concerned about tokenization? What if tokens are issued on public blockchains?Efficiency will not be gained simply by maintaining records and asset ownership. One of the immediate benefits is entering a new market, thereby increasing their assets under management (AUM). The narrative of institutional DeFi is also an area of ​​exploration, where there will be more use cases for tokenized assets that can truly solve some of the pain points of the traditional financial system.

Institutional DeFi not only needs time to solve business and technical issues, but also legal and compliance issues. It’s DeFi players who are moving fast. Going beyond tokenization, DeFi players are adding more use cases for the tokens issued by these institutions.

Real-time settlement capability

Real-time settlement is an ideal scenario for the capital market. If settlement can be completed in one atomic transaction, then we can reduce settlement risk to almost zero. But among mainstream systems, only a small fraction of them are able to achieve this. The hurdle lies in the clearing, settlement and reconciliation process between the different parties to the transaction. These processes take time because each party has its own ledger and lacks trust in each other.

But on a public open ledger, real-time settlement is possible. After the launch of Blackstone BUIDL, Circle established a real-time redemption contract for any BUIDL holder, providing 100 million USDC liquidity for instant redemption[10]. They will manage the BUIDL tokens they receive and replenish the liquidity pool when needed.

DigiFT has established an internal real-time redemption contract for asset token holders, allowing them to obtain USDC liquidity instantly, and in the background, the smart contract will trigger Redeem normally to replenish the liquidity pool.

Stablecoin Reserve Assets

Security tokens like Treasury Fund Tokens and Money Market Fund Tokens are more suitable for use than highly volatile cryptocurrencies. The currency refers to the reserve asset of the stablecoin.

Sky (formerly MakerDAO) was the first decentralized stablecoin to adopt off-chain assets and now uses tokenized assets as its stablecoin reserve[11 ]. Recently, they launched the RWA Grand Prix, planning to allocate 1 billion USDC to the RWA token [12]. UBS, Blackstone, Franklin Templeton and other companies competed for the allocation of 1 billion USDC.

Other examples include Mountain Protocol’s stablecoins USDm and Ethena’s stablecoin UStb[13].

Asset packaging and segmentation

In the financial supply chain, distributors serve as channels, lowering the entry threshold for specific assets and improving efficiency. An example of a distributor in Web3 is Ondo Finance, which is the distribution channel of Blackstone BUIDL and currently has a total locked-up value of more than $200 million.

Ondo packages BUIDL into a fund token called OUSG, allowing access to U.S. professional investors. Unlike BUIDL, which requires a minimum subscription of $5 million, OUSG accepts a minimum of $5,000 and enables real-time USDC subscription and redemption. In this case, Ondo helps BUIDL broaden its audience.

Margin mortgage

In mainstream finance, safe and profitable assets, such as U.S. Treasury bonds and corporate debt, are often used as high-end margin trading and derivatives trading. Liquidity Collateral.

Take CME, for example, which accepts a variety of assets as collateral, including bonds, funds, and other securities.

Currently, short-term U.S. Treasury fund tokens or money market fund tokens are used as margin , instead of using stablecoins or cash, can offset the cost of funding for margin trading.

In 2023, Binance partnered with some crypto-supporting banks to provide U.S. Treasury bonds as collateral for transactions to its institutional clients[15], but the entire The system is still based on traditional trading venues such as Sygnum Bank.

In Web3, institutions and cryptocurrency exchanges are more familiar with tokenized assets, and with the emergence of highly liquid and secure assets such as BUIDL, they Start using tokenized assets as collateral for certain trading purposes. The liquidation process will also not be an obstacle due to instant redemption liquidity.

Brokers like FalconX[16] and Hidden Road Partners[17] are already developing such use cases to attract institutional investors.

Asset Tokenization—What’s Next?

WithAs we enter 2024 and beyond, asset tokenization promises to revolutionize the financial landscape by unlocking unprecedented liquidity, efficiency, and accessibility. We can clearly see some emerging future trends.

Web3’s native tokenized ecosystem is gradually maturing. Traditional financial markets have matured, with participants in different roles. In 2024, we see some startups borrowing business models and moving to Web3. For example, rating agencies (e.g. Particula) and accounting and auditing firms (e.g. Elven, The Network Firm).

In addition to U.S. Treasuries, Web3 investors have also become interested in high-yielding assets as U.S. interest rates begin to fall. These assets will compete with Web3 native yields to attract investment.

Tokenization platforms and distribution channels are also focusing on traditionally illiquid products, such as trade finance products and venture capital funds. In the process, traditionally illiquid markets will also be democratized.

Compliance and licensing is also a major trend, as we see Web3 companies obtaining licenses in friendly jurisdictions like the UAE and the EU. As compliance players emerge in the ecosystem, mainstream institutions can also partner with them to explore new market opportunities.

As institutions adapt to Web3 and blockchain infrastructure, on-chain liquidity and real-time settlement will also become a reality at scale, and the settlement process Will be gradually migrated to the chain.

Currency Tokenization

As the global economy continues to be digitized, the currency system is at the forefront of another major change. From dematerialization to digitization, and now to tokenization, the form and function of money are undergoing profound evolution. In the past few years, we have seen how the tokenization of real world assets (RWA) can make asset management and financial services more efficient, and mainstream financial institutions such as BlackRock, Franklin Templeton, etc. are also actively exploring tokenization application scenarios. However, in addition to the tokenization of assets, the tokenization of currencies has gradually become a major trend that has attracted much attention, demonstrating its huge potential to transform payment systems and financial markets.

Various pain points in the current payment system, such as high cross-border payment costs, slow settlement speeds, and the complexity of liquidity management, are driving financial The industry seeks more efficient and smarter solutions. monetaryTokenization is the core of this exploration. Through blockchain and smart contract technology, currency can achieve programmable, automated, efficient and transparent payment and settlement. Digital currency introduces new efficiency and flexibility into the existing financial system, can speed up the flow of funds, improve transparency, and reduce dependence on intermediaries, thereby injecting new vitality into the global financial system.

New horizons: cooperation and innovation in digital currencies

The discussion about digital currencies and their application scenarios has attracted widespread attention in the early days of the rise of blockchain technology. With the rapid development of blockchain technology, the idea of ​​digital currency has also become a hot topic in many financial technology forums and experiments. However, due to the immature understanding of blockchain technology and the way to digitize currencies in the past, as well as the lack of corresponding legal and regulatory frameworks, many attempts failed to succeed, thus causing the discussion in this field to gradually cool down.

Since 2017, the industry has experienced many failed attempts and adjustments to the regulatory environment, and discussions about currency digitization and practical applications of blockchain have gradually cooled down. . However, the rise of the decentralized finance (DeFi) wave has changed this situation. The development of DeFi has rekindled people's interest in blockchain and tokenization. With the continuous improvement of blockchain infrastructure, the discussion of digital currencies has heated up again and entered a new stage of development.

In the past few years, many emerging technologies and standards have gradually matured. For example, cross-chain technology allows assets and data to flow seamlessly between different blockchain networks. , zero-knowledge proof enhances the privacy and security of transactions, and the new token standard further improves the diversity of asset and currency tokenization. The gradual improvement of these infrastructures paves the way for the practical application of digital currencies and promotes further exploration of currency innovation and blockchain technology.

In 2020, the G20 signed a roadmap on strengthening cross-border payments[18], recognizing the importance of efficient payment systems for global economic growth and financial inclusion sex. The core objectives of the roadmap are to solve challenges in cross-border payments, improve payment speed and transparency, increase accessibility to cross-border payment services, and reduce their costs. The G20 plan has promoted the development of digital currency, and the attention and support of major global economies have also provided a solid guarantee for innovation in this field.

Goals and Vision of the Group of Twenty (G20) Plan

The goal of the Group of Twenty (G20) Cross-border Payments Roadmap is to fundamentally improve global payments Efficiency, transparency and accessibility of the system, especially in the area of ​​cross-border payments. The program aims to achieve several key objectives[19]:

Costs

Before 2027, the global average cost of remitting $200 will not be More than 3%

Before 2030, the global average payment cost will not exceed 1%

Speed

By 2027, 75% of cross-border wholesale payments will arrive within 1 hour of initiation, and the rest will be completed within one working day; cross-border retail payments and remittances will also be completed Should be completed within a similar time frame.

Access

Ensure that at least 90% of Individuals have access to cross-border electronic remittance means, and all end-users have at least one option to send and receive cross-border payments. Financial institutions should also offer at least one cross-border wholesale payment option in each payment channel.

Transparency

Before 2027, all payment service providers (PSPs) ) is required to provide minimum information, including transaction costs, estimated arrival time, payment status tracking, and terms of service.

Pain points of current payment systems

Despite the growing importance of cross-border payments, existing payment systems face many pain points and challenges that seriously affect payments efficiency, cost and accessibility. According to the analysis of the Committee on Payments and Market Infrastructures (CPMI) of the Bank for International Settlements, the main challenges facing cross-border payment systems include [20]:

1. High costs :

Current cross-border payments involve multiple intermediaries, and each link will increase transaction costs. High costs make many small-value payments uneconomical, hindering the spread of cross-border remittances.

2. Low speed:

Cross-border payments usually require a long transaction chain ,Clearing and settlement across multiple parties results in a slow payment process, with batch processing and a lack of real-time monitoring further extending transaction times.

3. Limited transparency:

There is a lack of transparency in many aspects of the payment process. It is difficult for users to obtain detailed information about payment status and fees, increasing payment uncertainty and trust costs.

4. Limited accessibility:

It is difficult for users in many regions to obtain cross-border Payment services, especially in developing countries, have insufficient coverage of financial institutions and payment services, leading to widespread accessibility issues for cross-border payments.

5. Compliance and complexity:

Cross-border payments involve anti-money laundering ( Complex compliance requirements such as AML) and Counter-Terrorism Financing (CFT), as well as inconsistent regulatory requirements in different jurisdictions, make payment service providers face huge compliance challenges.

6. Traditional technology platforms:

Existing payment infrastructure mostly relies on traditional The technology platform lacks real-time processing capabilities and unified standards for data transmission, resulting in low efficiency in cross-border payments.

The application trend of distributed ledger technology (DLT) and digital currency

As cross-border payment technology continues to evolve, distributed ledger technology (DLT) plays an important role in digital currency The application is becoming an important trend. DLT provides a reliable solution that can effectively meet the challenges of the current payment system, especially in cross-border payments, with significant advantages. Through DLT, the payment system can achieve data sharing, transparency and real-time, which are currently lacking in the payment system.

The application of DLT has gradually made three main types of digital currencies a reality: central bank digital currency (CBDC), tokenized bank deposits and stablecoins[21 ]:

1. Central Bank Digital Currency (CBDC):

Issued by the central bank digital currency, CBDC Aims to enhance financial inclusion by providing reliable digital payment tools while reducing reliance on cash. as realizationOne of the technology options for CBDC, the DLT-based CBDC architecture can enable efficient and low-cost cross-border payments while ensuring compliance and security. CBDC is regarded as a liability on the central bank's balance sheet, which reflects the central bank's direct responsibility to the public and is endorsed by credit, ensuring a high degree of stability and trust.

2. Tokenized Bank Deposits:

This is the right The digital representation of traditional bank deposits uses DLT technology to enable bank deposits to be traded and settled in the form of certificates. Tokenized bank deposits not only improve payment efficiency, but also enable real-time clearing between banks, reducing the cost of using funds. Tokenized bank deposits are liabilities on the balance sheet of commercial banks. Similar to traditional bank deposits, the commercial bank is responsible for repaying depositors. Its value is based on the credit of the commercial bank and is affected by the bank's liquidity and regulatory framework.

3. Stablecoins:

Stablecoins are anchored to fiat A digital currency that represents the value of a currency or other asset and is designed to maintain price stability. Stablecoins are often used in decentralized finance (DeFi) ecosystems to provide fast, low-cost payment solutions. DLT enables stablecoins to be efficiently transferred globally, reducing the friction and intermediary costs of traditional payment systems. Stablecoins are usually issued by private companies and represent the issuer's liability to the holder, backed by collateral assets held. Its credit depends on the quality of the collateral and the creditworthiness of the issuer, and is usually anchored to legal currency or other assets.

Advantages of digital currency

The rise of digital currency is accompanied by many advantages, making it an important part of the financial system. Specifically, digital currency has shown significant advantages in the following aspects[22]:

Shared ledger

Digital currencies utilize distributed ledger technology (DLT) to provide a unified infrastructure for cross-border and payments. Compared with information islands in traditional systems, DLT can effectively reduce operating costs.

Reduce transaction time

The decentralized nature of DLT allows transactions to take place in seconds to minutes. Completed within minutes. For example, traditional cross-border payments usuallyIt takes 2-5 days to process, but digital currencies can reduce this time to seconds to minutes.

Atomic Settlement

Digital currencies and DLT have the characteristics of atomic settlement (Atomic Settlement). Ensure that the funds and assets of the transaction are delivered at the same time, which greatly reduces counterparty risks, especially in cross-border payments and high-frequency transactions. This mechanism can ensure that both parties to the transaction will only execute when the conditions are met at the same time, preventing some failed transactions. .

Transparency

The transparency of DLT greatly improves the visibility of transactions, all transactions Records can be viewed and verified by all parties involved. The blockchain platform can reduce transaction reconciliation time from days to seconds, which means reduced counterparty risks, especially in supply chain finance and trade finance scenarios where multiple parties are involved.

Eliminate intermediaries

Digital currencies are traded in a peer-to-peer manner, reducing the need for intermediaries dependence. For example, traditional international remittance systems often go through multiple banks or payment processors, while digital currencies allow senders and receivers to transact directly, reducing fees and delays.

Financial inclusion

World Bank data shows that 1.4 billion people around the world still lack access to banking services [23], but more than 60% of people have mobile phones. Digital currencies can provide low-cost, accessible payment solutions through mobile devices. Especially in areas with underdeveloped financial infrastructure, digital currencies like stablecoins allow users to participate in the global economy without a bank account, promoting global financial inclusion.

Compliance and security

Digital currency realizes automated compliance and security through smart contracts Secure transactions, reducing human errors through pre-programmed rules, reducing fraud and security risks. For example, in financial markets, smart contracts can automate KYC (Know Your Customer) and AML (Anti-Money Laundering) processes to ensure compliance in cross-border transactions.

Programmability

The programmability of digital currency allows conditions and logic to be attached to the currency, making the payment system more flexible and efficient. For example, programmability allows financial institutions to build highly customized payment processes, thereby improving the performance of supply chain finance and cross-border payment processes. In addition, smart contracts can also embed compliance checks to ensure that AML (anti-money laundering) and anti-money laundering are automatically completed when transactions are executed. KYC (know your customer) requirements to further enhance payment security and compliance

The new paradigm of programmable currency

Digital currency not only enables the transfer of value, issuers can also embed various programming logic into it, which brings a variety of advantages, such as improving user experience, increasing the transparency, efficiency and accessibility of financial services, and promoting Novel and creative applications in payment transactions, such as automating conditional payments, pre-authorization, creating conditional escrow deposits, foreign exchange for cross-border payments and complex financial operations

This is completely different from the definition of digital currency in the traditional financial technology system. In the traditional system, digital currency is generally established through database entries. In order to achieve "programmability" under this system, a system must be developed. An additional technical system that is independent of the database and connects it to the database, either internally to the entity responsible for database maintenance or externally to the client through an application programming interface (API), which the application exposes the program logic to. Traditional database API Interact with database records [24]. To put it simply, in the traditional system, value storage and programming logic are independent, but in the decentralized ledger (blockchain), due to the value storage and programming logic of "programmable currency" Programming logic merges into one, enabling a new paradigm.

Although digital currencies bring many benefits, the ability to simply attach programming logic to monetary units remains controversial. This controversy mainly revolves around the " "Singleness" principle. According to this principle, all different forms of money, whether the currency is held in a bank account, banknotes or coins, must be exchanged for each other at face value. In other words, the value of dollars in one person’s bank account must be equal to the value of dollar coins in another person’s pocket. The same is true for digital currencies, and maintaining their homogeneity is crucial. Therefore, if we want to perform some complex usage logic on programmable currencies, such as using ERC-20 standard stablecoins for custodial payments, or just for a certain purpose, since the ERC-20 standard does not support such complex capabilities, Requires additional customized development and deployment of new contracts, then the programmable currency may lose its "singleness". Imagine if a programmable currency that can only buy Apples is matched with aIs the ERC-20 standard programmable currency fungible?

In general, the challenge of programmable payments is that in order for programmable currency to implement more complex programming rules, the programmable currency itself needs to be customized. This behavior will not only cause the currency to lose its "singleness", but will also cause problems with public trust, and even lead to excessive control of rights by institutions that manage the execution mechanism [25]. In order to solve this challenge, the Monetary Authority of Singapore (Monetary Authority of Singapore) proposed a new currency tool "Purpose-Bound Money [26]", trying to explore the expansion of the programmability of currency without affecting the homogeneity and "singleness" of the initial assets, and Several current programmable payment forms are explained:

Programmable payment: Programmable payment refers to payment that is automatically executed after preset conditions are met. For example, you can set daily spending limits or recurring payments, similar to how direct debits or standing subscriptions work. Typically, programmable payments are implemented by setting up database triggers or an application programming interface (API) gateway that sits between the ledger system and the client application. These interfaces interact with traditional ledgers and adjust account balances based on programmed logic to achieve automated fund management. Programmable payment already has a wide range of application cases in banks and Internet payment platforms, such as:

Regular bill payment: Bank customers can set up automatic payment functions for Make regular utility bills, rent or loan installments. As long as the scheduled date is reached and the account balance is sufficient, the system will automatically deduct the money and complete the payment without manual operation by the user.

Personal financial management: Users can set daily or weekly consumption limits for themselves. For example, if a user sets a daily limit of $50, once the consumption reaches $50 that day, the system will automatically reject further spending requests, helping users better control their spending.

Sub-account management and allocation: Some banks and Internet payment platforms allow users to create sub-accounts and set different payment conditions for each sub-account. For example, users can set up sub-accounts to pay for their children’s education expenses or a fixed monthly allowance, and all payments will be made automatically based on preset conditions.

Programmable currency: Programmable currency refers to storing valueIt is an exchange medium that combines storage and programming logic. These programming rules define or limit its use, such as transfer, authorization, destruction, whitelist and other functions defined in the ERC-20 standard. Or define rules so that value stores can only be sent to whitelisted wallets.

The implementation of programmable currency includes stablecoins, tokenized bank deposits and CBDC. Unlike programmable payments, in programmable payments, programming logic and value The storage itself is detached and programming logic needs to interact with it and transfer value outside of the value storage system, whereas programmable currency is self-contained and contains both program logic and acts as a store of value, meaning that when transferring programmable currency to another When one party is involved, the logic and rules will also shift.

Intentional currency: Programmable currency refers to an exchange that combines value storage and programming logic media, these programming rules define or limit its use, such as transfer, authorization, burn, whitelist and other functions defined in the ERC-20 standard, or define rules so that Stores of value can only be sent to whitelisted wallets.

The implementation of programmable currency includes stablecoins, tokenized bank deposits and CBDC. Unlike programmable payments, in programmable payments, programming logic and value The storage itself is detached and programming logic needs to interact with it and transfer value outside of the value storage system, whereas programmable currency is self-contained and contains both program logic and acts as a store of value, meaning that when transferring programmable currency to another When one party is involved, the logic and rules will also shift.

Intentional currency has a wide range of usage scenarios, covering everything from daily consumption to complex financial transactions . The following are several typical application scenarios [27]:

Coupon: Intent currency can be used to issue and manage digital coupons. For example, a mall could design coupons as intended currencies that can only be used by specific merchants, products, or time periods. When a consumer makes a qualifying purchase, the funds in the intended currency will be automatically released to cover part or all of the cost.

Cross-border payment and foreign exchange exchange: Cross-border payment has always beenFace high handling fees and foreign exchange transaction fees, accompanied by onerous compliance requirements and manual processes. However, these issues are mitigated through the adoption of purpose-bound currencies (PBMs), which leverage smart contracts to coordinate cross-border anti-money laundering (AML) and know-your-customer (KYC) compliance needs through their “built-in compliance.” For example, PBMs can preset usage conditions to comply with fund flow rules (such as FATF travel rules) and automatically complete KYC verification and whitelisting/sanctions checks of users and their wallets when achieving transaction purposes, or when implementing currency controls , PBMs can also introduce consumption limits to comply with local regulations.

Not only that, PBM can also achieve compliant foreign exchange exchange through composability with decentralized exchanges (DEX). Users can pay in one currency and then automatically convert it into another currency via a smart contract. This foreign exchange exchange process can be completed through a DeFi protocol (such as an automated market maker (AMM), order book (Order Book) or vault (Vault) form), and the exchange rate is automatically and dynamically adjusted based on the liquidity of the specific currency pair. Although this method requires a large number of currency pairs and sufficient liquidity pools on the chain, with the popularity of digital currencies and the development of decentralized ledger (blockchain) technology, this model will become more and more mature, providing Global cross-border payments bring higher efficiency, lower costs and stronger compliance protection.

Programmable escrow payment: Escrow payment has been widely used in global economic activities. For example, in international trade scenarios, trading entities use tools such as letters of credit to The transaction method of "cash on delivery" uses the credit of the bank as a guarantee, and the payment can only be received after the seller fulfills its obligations. Or in an e-commerce scenario, during the user's shopping process on the e-commerce platform, after the buyer places an order and pays, the funds will not be immediately transferred to the seller's account, but will be hosted by a third-party platform. Funds will be released from the escrow account to the seller only after the buyer confirms receipt of the item and is satisfied. If the buyer does not confirm receipt of the goods within a certain period of time, the system will confirm by default, and then the funds will be automatically transferred to the seller, and the buyer retains the right to pay until he receives and confirms that he is satisfied with the goods.

Under the trend of programmable payments, intention currency (PBM) provides innovative solutions for this process. Through PBM, payment can be provided in advance and transferred to the other party in "programmable packaging form", and the packaging will be automatically unpacked after the buyer confirms receipt, and the funds will be released to the supplier. This "programmable escrow" mechanism ensures that funds will not be withdrawn before pre-set conditions are met, and once the transaction is completed, the payee can receive payment immediately. Since the escrow funds are visible to both parties to the transaction, they canProgrammability will significantly reduce the possibility of fraud. In addition, tokenized custody funds can also be used as collateral, similar to factoring, helping merchants more easily obtain credit support and improve financial resilience.

Charitable/Public Purpose Funds: For the management of charities or public funds, intention currency can ensure that the use of funds is strictly consistent with the designated purpose. For example, a charity or charity could set relief funds to be used only in specific supermarkets or pharmacies, and limited to the purchase of basic daily necessities or medicines. This feature of intention currency prevents the misuse and misappropriation of funds and ensures that every donation can be used for its original purpose. At the same time, the built-in compliance module can also ensure that the issuance and use of funds are transparent, traceable, and in compliance with relevant regulatory requirements.

Project cases of digital currencies and smart contracts

The programmability potential of combining digital currencies with smart contracts is huge. This combination can significantly improve the efficiency of financial transactions. , transparency and security. The automation feature of smart contracts allows the delivery of funds and assets to be completed automatically when preset conditions are met, reducing human intervention and operational risks. This efficient and secure transaction model has shown great application value and development potential in trade finance, cross-border payments, supply chain management and other fields. At present, many public and private institutions have launched a series of explorations internationally. The following are several typical application scenarios:

Simplifying trade and supply chain financing:

Project Dynamo: Project Dynamo, initiated by the Bank for International Settlements Innovation Center, the Hong Kong Monetary Authority and Linklogis, creates an innovative SME financing solution on DLT by utilizing Digital Trade Tokens and smart contracts. The project aims to simplify the supply chain financing process through electronic bills of lading and programmable payment mechanisms, helping small and medium-sized enterprises obtain more efficient and transparent financial support. In addition, each node in the supply chain can automatically release funds through smart contracts, reducing the risk of default [28].

Australian Tokenized Invoice CBDC Pilot Project: The Australian CBDC pilot project is jointly sponsored by the Australian Central Bank, the Digital Finance Cooperative Research Center (DFCRC) and Launched by Unizon, the pilot project demonstrates the use of tokenized invoices for third-party sales and payments, involving a wholesale car dealer (supplier), third-party financiers, and wholesale car buyers. The supplier generates a tokenized invoice representing the buyer’s payment request and sells it in pieces to a third-party financier to optimize the supplier’s working capital. When the invoice is due, the buyer pays using a stablecoin backed by the pilot central bank digital currency (CBDC), and the system automatically settles the payment to both the supplier and the financing institution [29].

Cross-border payments:

Project Agorá: Project Agorá is a major project jointly launched by the Bank for International Settlements (BIS) and seven central banks, based on the unified ledger proposed by BIS The concept aims to explore how the functions of wholesale central bank currency and commercial bank deposits can be integrated on a programmable platform to improve the operation of the monetary system through tokenization and smart contract technology. Participating central banks include the Bank of France (representing the Eurosystem), the Bank of Japan, the Bank of Korea, the Bank of Mexico, the UBS, the Bank of England, and the Federal Reserve Bank of New York. The project also cooperates with more than 40 private financial institutions such as SWIFT, VISA, and Mastercard to Promote the modernization of the monetary system [30].

Project mBridge: Project mBridge is a cross-border payment platform jointly developed by multiple central banks, aiming to improve the efficiency of cross-border payments through central bank digital currency (CBDC) and cost. The project was co-sponsored by the central banks of Hong Kong, Thailand, and the United Arab Emirates, with the goal of simplifying the payment process in multilateral cross-border transactions through the use of CBDC [31].

Project DESFT: Project DESFT was launched by the Monetary Authority of Singapore, the Bank of Ghana, Ample FinTech, StraitsX, G+D, Liquid Group and Proxtera to reduce the The threshold for enterprises to participate in international trade and cross-border payments. In this project, digital currency and smart contracts are used in cross-border payment scenarios between Singapore and Ghana. By using purpose-bound money (Purpose-Bound Money), the interoperability of Singapore’s stable currency and Ghana’s CBDC eCedi is achieved to ensure digital Currency will only be released when certain conditions are met, improving the transparency and security of transactions, reducing credit risks in cross-border payments, and promoting financial interconnection between different economies [32].

Project Mariana: Project Mariana is a collaboration between the Bank for International Settlements (BIS) and the National Bank of France, Singapore and Switzerland to test wholesale through decentralized finance (DeFi) technology. Cross-border transactions and settlement of central bank digital currency (wCBDC). The project successfully implemented the unified technology token standard, cross-network bridge and automated market maker (AMM) mechanism.The wCBDC of Euro, Singapore Dollar and Swiss Franc simulates seamless transactions and settlements between financial institutions, demonstrating the huge potential of DeFi technology in cross-border payments [33].

Green Finance

Project Genesis: Project Genesis is a green finance project launched by the BIS Innovation Center in partnership with the Hong Kong Monetary Authority (HKMA) and the United Nations Global Innovation Center on Climate Change. Aims to explore how to digitize green bonds through blockchain and smart contract technology. As part of the project, Project Genesis 2.0 developed two prototypes for tracking, delivering and transferring digital equity interests (MOIs) linked to carbon abatement contracts. MOIs are the carbon abatement credits attached to green bonds. Emission instruments, bond issuers promise to use carbon credits for future repayments through these contracts, aiming to enhance the transparency and environmental integrity of the green bond market [34].

Final Thoughts

The native crypto market has stagnated with little innovation; to crypto enthusiasts, the tokenization of real-world assets may seem tedious . However, for the broader financial system, asset tokenization represents a significant evolution in financial infrastructure, and exploring tokenization on public blockchains is particularly important.

In this report, we examine the practices and innovations of various market participants from the perspectives of asset tokenization and currency tokenization. We envision a future where all assets are tokenized on a public blockchain. Currently, real-world assets on public chains, including stablecoins, only reach $200 billion. McKinsey analysis suggests that the tokenization market could grow to approximately $2 trillion by 2030. This shows that the market potential is huge and there are many new application scenarios waiting to be explored.

Special thanks to Kenneth Lim, Marko Quintero, Weiling Lee, Adimas Yosia Prasetiyo and Ivy Huang for their contributions and support. Without them, this study would not be as comprehensive.

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