Global rules needed to spur blockchain trading of assets

07.06.2024

The dream of trading stocks and bonds on blockchains at scale will remain out of reach unless a global standard for cross-border activity is established, enabling assets to move seamlessly across blockchains, according to a report published on Thursday.

Tokenised assets, which represent underlying assets, are exchanged on distributed ledger technology (DLT) that is also used for cryptocurrencies. Banks are hopeful that tokenised asset trading will gain traction as a method to make trading faster, cheaper, and more transparent.

However, the lack of cohesive global regulation is hindering the smooth movement of assets across different blockchains. Industry executives at an event in Amsterdam this week noted that progress on tokenising assets has been slow, with limited uptake so far.

Client and compliance requirements vary too widely across the globe for a single, fixed solution to meet everyone’s needs, said Georgios Vlachos, co-founder of blockchain interoperability firm Axelar, which co-authored the report.

“At the current state of things, different regulatory jurisdictions are progressing at different paces and have different focus areas,” Vlachos said.

The report on blockchain-based trading was produced by the Axelar Foundation and digital assets risk assessment firm Metrika, with input from Citi, Deutsche Bank, Mastercard, and Northern Trust.

Deutsche Bank emphasized the importance of industry-accepted approaches for risk assessments to facilitate adoption. However, “standards developed too prematurely can deprive the industry of better-developed solutions or become irrelevant,” noted Boon Hiong Chan, Deutsche Bank’s Asia Pacific head of Securities & Technology Advocacy.

Northern Trust projects that by 2030, the size of its digital assets market will grow to between 5% and 10% of the $13 trillion in assets it holds under custody.

Currently, about $85.12 billion worth of assets, including government securities, fiat-backed stablecoins, and commodities, are tokenised, according to data from 21.co’s dashboard on Dune Analytics.