Originally published on: December 12, 2024
In a recent development, the European Central Bank (ECB) tested digital bond issuance with multiple bond issuers and central banks. Surprisingly, the issuers noted an increase in issuance costs when employing blockchain systems for bond issuance.
According to Marat Faritov, Moody’s Ratings’ vice president of digital assets, the spike in costs was attributed to additional legal fees, the absence of onchain settlement mechanisms, and the involvement of intermediaries looking to bridge the gap between conventional finance and onchain networks.
Faritov suggested that streamlining the process of tokenized bond issuance by minimizing the number of involved parties and utilizing onchain settlement processes could significantly reduce the costs associated with issuing tokenized bonds.
This notion is supported by recent developments in Hong Kong’s financial landscape. The Hong Kong Monetary Authority (HKMA) has announced plans to subsidize tokenized bond issuance to encourage companies to transition to digital bonds.
Although cost savings are yet to be realized, the market for tokenized government securities is expanding rapidly. BlackRock’s USD Institutional Digital Liquidity Fund (BUIDL) currently boasts a market capitalization of approximately $561 million. Furthermore, tokenized US Treasurys are anticipated to exceed $3 billion in assets under management by 2024.
Real-world asset tokenization is projected to become a $30 trillion industry by 2030, encompassing government securities, stablecoins, and tokenized physical assets. Jesse Knutson, head of operations at Bitfinex Securities, predicts that this trend will be spearheaded by agile institutions, eventually attracting larger institutional players.
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