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Request a demoInstitutional Adoption of Blockchain and Tokenization: Shaping the Future of Finance
29 Nov 2024
Major financial institutions are rapidly adopting blockchain and tokenization to reshape the financial landscape. From asset management and securities tokenization to custody services and payment innovations, these efforts highlight blockchain’s increasing role in enhancing efficiency, transparency, and accessibility in global finance. This report explores notable examples from leaders like BlackRock, Visa, Stripe, and PayPal, showcasing their contributions to this transformative shift.
Institutions’ Initiatives
Tokenized Funds
In March 2024, BlackRock launched its first tokenized fund, the BlackRock USD Institutional Digital Liquidity Fund (BUIDL), built on the Ethereum blockchain. Fully invested in bank deposit, U.S. Treasury bills, and repurchase agreements, BUIDL enables investors to earn yields while holding the token on-chain. As of November 2024, BUIDL’s market value reached approximately $530 million, according to rwa.xyz.
BlackRock’s move reflects rising demand for innovative financial products that align with institutional and retail investors’ interest in blockchain technology. Launching BUIDL cements BlackRock’s role as a leader in blockchain-based investment solutions, strengthening its reputation as an innovator in the space.
Similarly, Franklin Templeton introduced the Franklin OnChain U.S. Government Money Fund (FOBXX), the first mutual fund leveraging blockchain for transaction processing and share ownership recording. Running on the Stellar blockchain, this initiative underscores the potential for blockchain in modernizing traditional financial instruments.
Tokenized Private Credit
Private credit, traditionally illiquid and confined to institutional markets, is undergoing transformation through tokenization. Platforms like Maple Finance and Goldfinch enable fractional ownership and 24/7 trading while leveraging blockchain to automate loan terms and improve transparency. Major players such as JPMorgan and Deutsche Bank are exploring tokenized credit for cross-border lending and corporate loans, signaling growing adoption.
However, challenges remain. Technical vulnerabilities, such as smart contract bugs, pose operational risks. Regulatory uncertainty and inconsistent global standards further complicate adoption. Addressing these risks is critical to unlocking the full potential of tokenized private credit.
Tokenized Platforms
Visa, the world’s leading digital payments company, introduced the Visa Tokenized Asset Platform (VTAP), a B2B solution for issuing and managing fiat-backed tokens on blockchain networks. BBVA, one of Spain’s largest multinational banks, plans to pilot tokenized assets on VTAP by 2025, bridging traditional fiat currencies and blockchain ecosystems.
Payment Innovations
Stripe has embraced blockchain technology through its acquisition of Bridge. This move allows Stripe to optimize cross-border payments using stablecoins, reducing costs and improving transaction speeds. PayPal, another leader in digital payments, launched its own stablecoin, PayPal USD (PYUSD), enabling users to manage cryptocurrencies and facilitating seamless blockchain-based transactions.
Cross-Chain Interoperability
SWIFT, in collaboration with Chainlink and over a dozen financial institutions, is testing blockchain interoperability for tokenized asset transfers. These experiments demonstrate how SWIFT’s infrastructure can support seamless tokenized value transfers across multiple public and private blockchains, highlighting a trend of traditional institutions leveraging blockchain to enhance efficiency and reduce costs.
MAS's Initiatives
The Monetary Authority of Singapore (MAS) is driving innovation in blockchain and cryptocurrency through initiatives like Project Guardian, exploring asset tokenization and decentralized finance (DeFi), and Project Orchid, focusing on retail CBDCs and programmable payments. Project Ubin advances cross-border payment systems, while Project Mandala enhances policy compliance in international transactions. These initiatives showcase MAS’s leadership in blockchain adoption and financial innovation.
Conclusion
The traditional financial industry is integrating blockchain and tokenization to drive innovation, improve efficiency, and expand investment opportunities. As Goldman Sachs’ global head of digital assets, Mathew McDermott, aptly stated, “It’s in the best interest of the market to have something that is industry-owned.” These developments signal a robust future where blockchain becomes an integral part of global finance.
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