The Future of Blockchain-Based Trading
Overcoming Cross-Border Challenges
The dream of seamlessly trading stocks and bonds on blockchains at scale hinges on establishing a global standard for cross-border activities. According to a recent report released on Thursday, without such a standard, the potential for blockchain technology to revolutionize financial trading remains constrained.
Tokenized Assets: A New Frontier
Tokenized assets, which represent real-world assets on distributed ledger technology (DLT), promise to transform the trading landscape. These digital tokens are traded on the same technologies underpinning cryptocurrencies, offering a vision of faster, cheaper, and more transparent transactions. Banks and financial institutions are keen to see tokenized asset trading become mainstream, viewing it as a pathway to more efficient and streamlined operations.
Regulatory Hurdles and Fragmented Progress
Despite the potential, the report highlights significant obstacles. The absence of cohesive global regulation is a primary barrier preventing assets from moving smoothly across different blockchains. At an industry event in Amsterdam, executives expressed concerns that the pace of progress in tokenizing assets is slow, and adoption has been limited. Georgios Vlachos, co-founder of Axelar, a blockchain interoperability firm, noted the challenge: "Different regulatory jurisdictions are progressing at different paces and have different focus areas."
The Need for Unified Standards
The report, authored by the Axelar Foundation and Metrika, with contributions from financial giants such as Citi, Deutsche Bank, Mastercard, and Northern Trust, underscores the need for industry-accepted standards. Deutsche Bank emphasized the importance of having robust risk assessment frameworks to facilitate the adoption of blockchain trading. Boon Hiong Chan, Deutsche Bank’s Asia Pacific head of Securities & Technology Advocacy, cautioned against premature standardization, which could stifle innovation or result in irrelevant solutions.
Future Growth Projections
Northern Trust, which currently holds $13 trillion in assets under custody, forecasts that by 2030, digital assets could account for 5% to 10% of this total. This optimistic outlook is tempered by the current state of the market, where approximately $85.12 billion worth of assets—including government securities, fiat-backed stablecoins, and commodities—are tokenized, according to data from Dune Analytics.
Navigating the Path Forward
The path to large-scale adoption of blockchain-based trading is fraught with challenges but also filled with opportunities. Establishing a global standard for cross-border blockchain activity is crucial. This will not only facilitate smoother transactions across jurisdictions but also unlock the full potential of tokenized assets, driving innovation and efficiency in the financial sector.
As stakeholders across the globe work towards harmonizing regulations and developing interoperability solutions, the future of blockchain-based trading looks promising, albeit with a long road ahead.
