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Australia readies for the Tokenization wave
Treasury will prioritise ‘token mapping’ work for the remainder of the year to better understand and identify how crypto assets should be regulated, after the Albanese Government announced “the first step in a reform agenda” for crypto this week.
The news comes after Melbourne firm Zerocap recently announced the completion of a ‘proof-of-concept’ on the ASX distributed ledger technology (DLT) as a service platform, Synfini, specifically for the custody and administration of digital assets.
ASX listed companies will have the ability to trade tokenized assets. The tokenization revolution is in its infancy but predicted to hit mainstream finance very quickly.
According to the Government this hasn’t been done anywhere else in the world, “so it will make Australia leaders in this work”.
The token-mapping exercise will help better regulate the sector, develop a standard licensing framework, review organisational structures and custody obligations for third party custodians of crypto assets and improve consumer safeguards.
EY recently released a research report, ‘Tokenization of Assets‘ which discusses the opportunities stemming from tokenization as it unlocks illiquid assets to a new demographic of investors reducing global wealth disparities.
“Tokenization converts the value stored in tangible or intangible object into a token that usually can be manipulated along a DLT/Blockchain system,” the report highlights. “In simple words, tokenization can turn almost any asset, either real or virtual, into a digital token and enables the digital transfer, ownership and storage without the necessary need of a central third party/intermediary.”
Tokenisation enables fractional ownership of illiquid or alternative assets that traditionally is done by an asset manager through a managed fund. This method allows for only sophisticated investors with a $100k-$500k minimum to invest.
As an example, tokenization can be used to raise funds to build infrastructure projects such as a bridge, a highway, solar power plant, telecommunication facilities, pipelines, railways or water infrastructure. The asset would be tokenized and then sold to investors anywhere in the world. Token holders can earn dividends either on revenue earnt or from carbon credits generated if the project is sustainable. Tokenization can also be applied to funds or carbon credits.
Zerocap will soon be able to fully integrate digital assets into the ASX’s DLT ecosystem. At the moment these only include bonds, equities, funds, carbon credits and several others based on the ethereum network.
“There are huge possibilities to offer tokenization of lots of non-traditional yet illiquid assets, other than prominent crypto assets like bitcoin, ethereum and others”, co-founder and CEO of Zerocap Ryan McCall said.
“Although the market capitalization of tokenized assets seems small compared to that of cryptocurrencies, the market is expected to surge above $24 trillion by 2027,” communications platform SWIFT said in a company announcement.
While Australia is making strides in the sector, other countries are also making good progress. In Switzerland, the SIX Digital Exchange launched the issuance of a digital bond as a security token, while on the Tokyo Stock Exchange operator JSX announced a new digital subsidiary and the US post-trade organization DTCC plans to launch Project Ion in 2022 to shorten settlement times.
The race to tokenize is on.
