As a seasoned crypto investor with over a decade of experience navigating the digital asset landscape, I find myself intrigued by the recent developments in tokenized Treasurys and bonds. The European Central Bank’s tests with digital bond issuance are a significant step towards mainstream adoption, despite the initial hiccups regarding increased costs due to the interplay between traditional finance and blockchain systems.
The European Central Bank (ECB) recently conducted digital bond issuance tests with over 60 bond issuers and four central banks. However, the issuers reported that issuance costs increased when using blockchain systems, which primarily relied on wholesale central bank digital currency (CBDC) transactions.
During a conversation with CryptoMoon, Marat Faritov, Moody’s Ratings’ digital assets vice president, pointed out that the main reasons behind the rising costs are increased legal expenses, absence of on-chain settlement solutions, and intermediaries facilitating transactions to link traditional finance with blockchain systems. Faritov clarified:
“There was this gap of not having digital cash on the blockchain. So payments, interest, and principal payments, as well as the original settlement, were not fully onchain. So they had to trigger traditional banking systems for fiat payments.”
The analyst explained to CryptoMoon that simplifying the creation of blockchain bonds by minimizing the participants in the issuance process, and solely employing online-based settlement methods, might significantly decrease the cost of emitting tokenized bonds.
Tokenized Treasurys and bonds projected to grow
According to Faritov’s evaluation, current events in Hong Kong’s financial sector support this, as the Hong Kong Monetary Authority (HKMA) recently declared its intention to financially support the issuance of tokenized bonds. This is an effort aimed at encouraging businesses to convert their bond offerings into digital format, starting in November.
Even without cost reductions, the market for tokenized government securities is still expanding robustly. As per RWA.xyz, BlackRock’s USD Institutional Digital Liquidity Fund (BUIDL) currently holds an impressive market value of around $561 million.
By the year 2024, it’s anticipated that the managed assets in tokenized U.S. Treasuries will soar to approximately $3 billion. As per data from Dune Analytics, the current value of tokenized government securities stands at around $2.64 billion.
Most of these government securities are U.S. government debt funds, while a single fund, EUTBL on the Spiko protocol, primarily invests in Euro-denominated government securities.
The process of converting tangible assets like government bonds, digital currencies backed by assets (stablecoins), and digital representations of physical goods into blockchain tokens is projected to become an industry worth around $30 trillion by the year 2030.
Jesse Knutson, as head of operations at Bitfinex Securities, stated to CryptoMoon that the move towards tokenization is likely to be led by agile institutions first, and it’s these early movers that will eventually attract bigger institutional investors into the field.
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2024-12-12 19:54