Proponents of blockchain's underlying technological power are determined to dispel its cryptocurrency-centric ties.
The main reason for this is that digital assets find historical opportunity areas within the traditional financial sectors that they were originally designed to replace.
After all, what utility can this technology's innovative ability to store and move tokenized value within a digitally native environment offer as global commerce channels increasingly move online? It's worth considering.
One particular use case, the use of blockchain-based tokenization in trade finance and infrastructure investment, has attracted the attention of the World Bank.
The group said in its report that using blockchain to modernize trade finance will “improve efficiency through automation and disintermediation, transparency, and increased liquidity and tradability of illiquid assets.” It is pointed out that there is an advantage of “improvement”.
Particularly for infrastructure projects in countries where processes can suffer from multiple single points of failure, a World Bank report suggests that using blockchain-based financing can, among other things, improve contractual and financial standardization. It states that it can eliminate data asymmetry between parties and improve finances. Engineering, risk allocation and mitigation.
Of course, as the World Bank points out, the lack of regulation covering tokenized financial and investment products is the main barrier to using blockchain tools to support financing. It is one of the
Still, the lack of readily available financing and working capital solutions is a problem for organizations around the world who are seeking and ready for solutions.
Determining whether implementing blockchain-specific distributed ledger technology (DLT) as a replacement or addition to traditional financial and payment methods provides sufficient benefits to justify the use of this technology. depends on individual companies, companies, and financial networks.
That decision must be made across the risk-adjusted trust spectrum of the use case.
read more: Tokenization must prove useful to scale
Use blockchain capabilities strategically
New (February 28) PYMNTS Intelligence finds that users of working capital outperform companies that did not use it, both strategically and tactically. The study found that foreign companies have strategic deficiencies.
And that could be an opportunity for tokenization. One recent example of how DLT can add an additional dimension to the funding environment is when Taurus, a Swiss cryptocurrency custodian backed by Deutsche Bank, began a partnership with lending platform Taylor. Tyler offers loans ranging from $109,000 to $1.6 million to German “Mittelstand” sectors (companies with fewer than 500 employees and sales of less than 50 million euros).
As part of these joint efforts, and due to the growing appeal of tokenized debt, Taylor's Credit Portfolio token is now permitted for secondary market trading on the Torus TDX market.
Separately, earlier this month (February 14), Citigroup partnered with Wellington Management and WisdomTree to explore private market tokenization. A smart contract was used to encode and embed the underlying fund distribution rules into the tokens transferred to the virtual WisdomTree client. This highlighted how smart contracts can enhance automation and create an enhanced compliance and control environment for issuers, distributors, and investors.
In September, Citi Treasury and Trade Solutions announced a digital asset solution designed to enhance cash management and trade finance capabilities. The solution uses blockchain and smart contracts to provide “always-on” programmable financial services to institutional customers.
“The true intrinsic value of blockchain, such as transaction programmability, transaction immutability, delivery and payment, and the ability to make always-on type payments, remains to be discovered,” said Mastercard Chief Digital Officer. Joan Lambert told PYMNTS. In July.
And, as Pat Thelen, Ripple's vice president of global account management, told PYMNTS on October 6, “Innovation is relentless. And innovation and competition find ways to apply technology that already exists. Yes, the technology is ready. Commercial banks, central banks and institutional investors are working together.”
read more: The future of cryptocurrencies remains uncertain, but financial blockchain technology rises
Bringing transparency and efficiency to traditional processes
The story of blockchain, again, is not new. And limited real-world utility is emerging, at least for now.
However, there are several ways in which blockchain could revolutionize cross-border trade and project finance, many of which are due to existing inefficiencies across traditional processes.
For example, ownership of most personal assets today is typically tracked in spreadsheets or centralized databases. For things like trade finance documents where there are many counterparties, the parties themselves are usually responsible for providing the documentation regarding the terms of the contract. Validating, consolidating, and modifying these documents as necessary is often manual and both costly and time-consuming.
In contrast, blockchain enables the use of smart contracts, which are self-executing contracts with terms and conditions written directly into the code. This allows you to automate many aspects of trade finance, such as payment settlement, reducing the need for intermediaries and minimizing the risk of fraud. Blockchain also digitizes documents such as invoices, bills of lading, and letters of credit and stores them securely on a distributed ledger. This reduces the potential for errors, delays, and fraud associated with paper-based documents.
Traditional international transactions in real estate are difficult and expensive, as revealed in the study “Corporate Shifts in Payment Practices: Deep Insights into the Real Estate Industry,” a PYMNTS Intelligence study in collaboration with The Clearing House. additional documentation may be required. . However, cryptocurrencies allow transactions to be carried out quickly and efficiently, regardless of the location of the parties involved. This simplifies the process for foreign investors.
Still, the bottleneck for scalable adoption of tokenized digital assets remains whether tokenized asset use cases can perform better than options that already exist today, and whether that performance is entirely new. , unproven infrastructure.
