Today Digital Asset announced the latest tokenization pilots of its DLT-based Canton Network involving Euroclear, the World Gold Council and 27 market participants. The goal was to create digital twins of gold, British gilts and Eurobonds, to enable them to be used as collateral. Plus, they aimed to demonstrate enhanced liquidity and efficiencies.
The Canton Network provides interoperability between separate DLT networks that have deployed Digital Asset’s technology.
Using DLT for collateral mobility for high quality liquid assets (HQLA) has already been proven by HQLAᵡ. While there are many bank participants in HQLAᵡ, not all institutions are involved. Hence, in future there will be multiple ways to tokenize collateral around the world.
The trading volume of gold averages $162 billion daily, and it’s an area that has attracted particular attention in the DLT realm. HSBC, another Digital Asset client, has used DLT to tokenize gold for both institutional trading and private investors. Another bank is even exploring tokenized gold for cross border payments (stay tuned!).
“By digitising gold, we can overcome the perceived restrictions on moving and storing the physical metal, enabling this high-quality asset to be mobilized and used seamlessly within financial markets,” said Mike Oswin, Global Head of Market Structure and Innovation at the World Gold Council, which is looking to standardize the gold tokenization process. The organization has adopted blockchain in various ways.
Meanwhile, the Canton trials included seven registry apps and five margin apps and involved 500 transactions.
“We recognise the immense value in industry experimentation to showcase the advantages of DLT for the market,” said Olivier Grimonpont, Head of Product Management, Market Liquidity, Euroclear. “As we strive to deliver even better and faster collateral mobilisation for our clients, digital technologies like DLT will be key enablers for us to achieve this.”
Tokenization and legal aspects of digital twins
The trials specifically involved tokenization, or digital twins of existing assets, versus digitally native issuances. Apart from the technical experimentation, Clifford Chance provided legal input for this aspect.
“With certain approaches and platforms, a digital twin is not a separate asset and so the impact for master agreements, trading relationships, close-out processes, and valuation approaches are minimised, but it is always important to ensure the digital twin is catered for and reflected into existing product and platform documentation,” said Paul Landless, Partner and Co-Head of Fintech at Clifford Chance.
“As an operational and record-keeping tool rather than an asset, some of the legal and regulatory issues can be reduced while avoiding extensive surgery or a wholesale reset of established product and asset documentation.”
The latests experiments build on earlier ones for tokenized Treasuries as collateral in the United States and other Canton Network pilots.
