Institutional Investment in Digital Assets
With institutional investment in digital assets on the rise, thanks to companies like BlackRock filing spot Bitcoin exchange-traded fund applications and increased interest in blockchain technology, the future of investment products may lie in blockchain-based solutions. A recent example of this is the Tel Aviv Stock Exchange’s Project Eden, which issued a dummy digital governmental bond on a blockchain platform using a dedicated decentralized app.
The Problem with Current Tokenization Methods
Ralf Kubli, a board member of the Casper Association, believes that current tokenization methods simply digitize assets, not liabilities or cash flows. This means that tokenized assets still require human intervention, which can introduce errors and discrepancies. Kubli argues that similar lack of transparency was a major trigger of the 2008 banking crisis.
Smart Financial Contracts and Tokenization as a Service (TaaS)
To improve this situation, Kubli suggests creating smart financial contracts that clearly define obligations and combine them with blockchain technology. Together with the Casper Association and Algorithmic Contract Types Universal Standards (ACTUS) Research Foundation, they are building a Tokenization as a Service (TaaS) solution that can translate financial instrument data into standardized Smart Financial Contracts on the Casper blockchain. This open-source standard allows for faster trading, settlement, and automation of financial instruments.
Applications in Decentralized Finance (DeFi) and Traditional Finance (TradFi)
Smart financial contracts can be used in both Decentralized Finance (DeFi) and Traditional Finance (TradFi) environments. They can enable real financial instruments to operate in DeFi environments and can provide transparency in cash flow patterns. Kubli is currently in talks with five investment banks in Europe regarding the integration of this smart financial contract system and has had preliminary discussions with Citibank in the U.S.
Impact on Global Financial Markets
By ensuring transparency and clear understanding of cash flow obligations within tokens in a machine-readable and executable format, smart financial contracts could help avoid situations like the FTX collapse and the Terra/Luna incident. Kubli believes that this kind of solution is crucial for adoption and innovation in the global financial markets.
