Originally published on: December 12, 2024
In a recent update by the European Central Bank (ECB), digital bond issuance tests were conducted involving numerous bond issuers and central banks. Despite this, reports indicated that the use of blockchain systems led to increased issuance costs for the issuers involved.
Marat Faritov, the vice president of digital assets at Moody’s Ratings, shed light on this issue in an interview with Cointelegraph. Faritov pointed out that the rising costs were mainly a result of additional legal fees, the absence of onchain settlement mechanisms, and the presence of intermediaries seeking to bridge traditional financial practices with blockchain systems.
Faritov suggested that by “disintermediating” the process of issuing blockchain bonds through reducing the number of involved parties and utilizing solely onchain settlement mechanisms, the costs of issuing tokenized bonds could be significantly reduced.
Recent developments in Hong Kong’s financial sector further support Faritov’s assessment. The Hong Kong Monetary Authority (HKMA) announced its plan to subsidize tokenized bond issuance to encourage companies to digitize bonds.
Although cost savings remain an issue, the tokenized government securities market is on an upward trajectory. With impressive market capitalizations, such as BlackRock’s USD Institutional Digital Liquidity Fund (BUIDL) reaching around $561 million, the sector is growing steadily.
It is projected that tokenized US Treasurys will hit $3 billion in assets under management by the close of 2024, with most assets tied to US government debt funds. The market for tokenized government securities is expanding rapidly, showcasing significant potential.
Looking ahead, real-world asset tokenization, covering government securities, stablecoins, and other tangible assets, is predicted to become a $30 trillion sector by 2030. This growth will likely be driven by more agile institutions, paving the way for larger players to enter the market.
With the rise of tokenized bonds and the potential for cost reductions through disintermediation, the financial landscape is evolving rapidly. Stay tuned for more updates on this transformative trend and its impact on the future of finance.
