It’s all about tokenization
“We think the key technological revolution in money and wealth is something called ‘tokenization’.
― Beyond Money, Innovation White Paper, UBS group
Tokenization has the potential to unlock tremendous value for the global economy. From increased operational efficiency to access to previously illiquid markets, enterprises are vying to leverage this technology. Indeed, some analysts have coined the emerging macro movement as the ‘Tokenization of Everything’ wherein every asset with inherent value will eventually be represented by a cryptographic token on a blockchain.
The value of tokenization is now well understood by incumbent market players. However, in order to accelerate adoption, as Deloitte pointed out in its recent report 5 Blockchain Trends for 2020, it is critical that tokenization is governed in the open with clear standards.
This pressing need was addressed with the formal announcement of the InterWork Alliance (IWA), a platform-neutral, non-profit organization dedicated to creating the standards frameworks needed to increase innovation across token-enabled ecosystems.
The InterWork Alliance is managed by Ron Resnick, formerly Executive Director of the Enterprise Ethereum Alliance, and chaired by Marley Gray, Azure Blockchain Principal Architect at Microsoft. As part of the announcement, the Token Taxonomy Initiative, a previous initiative to develop token standards, was absorbed into the IWA.
Interoperability and technology neutrality are essential to the objectives of the IWA which also seeks to define common communication protocols in the same way that the Internet Society (ISOC) enabled the wide-spread adoption of the internet.
The five principal sponsors of IWA are Accenture, Digital Asset, Microsoft, Neo Global Development, and SIX Digital Exchange (SDX). Besides ourselves the remaining launch members include Amberdata, Calastone, Chainlink, DEKRA, DLA Piper, The Depository Trust & Clearing Corporation (DTCC), Envision Blockchain, HACERA, Hedera Hashgraph, IBM, ING, Nasdaq, R3, Tokensoft, UBS, and Web3 Labs.
Here is our take on what the makeup of the IWA may reveal about the future of tokenization.
DAML has the potential to become the standard language for modelling token transactions
DAML is an open-source smart contract language designed for multi-party distributed applications and transactions. Digital Asset, the creators of DAML, is backed by institutional money from a who’s who of financial institutions and, more recently, enterprise heavyweights including Samsung Ventures and Salesforce.
While the IWA is technology-neutral, DAML is a rational contender as the standard language to express multi-party token transactions because it is lightweight and interoperable with multiple platforms. DAML is central to the reimplementation of the Australian Stock Exchange’s decades-old clearing and settlement system, CHESS. However, it is rapidly gaining traction elsewhere now that it has been open sourced and is available on a wide range of underlying technology platforms rendering it platform-neutral.
The potential role of DAML as a reference implementation for the IWA InterWork Framework is one of the reasons we decided to join the IWA. As experts in automating the deployment and management of blockchain and smart contract infrastructure, particularly DAML, we are well positioned to support this.
Switzerland, UBS & SDX – a future hub for tokenized assets?
Switzerland and its banking sector are well positioned to take advantage of the emerging token economy. UBS appears bullish about the adoption of tokens; their UBS Group Innovation white paper argues that tokenization is the key technological evolution in the future of capital and wealth. They call out the ‘untold possibilities of liquidity’ that can be achieved through the expansion of fractionalized, previously illiquid assets and the reduction of friction in present manual investment processes.
UBS’ openness to digital assets is signaled by the fact that SEBA, the first bank focused on digital assets to achieve a banking license In Switzerland, was founded by ex UBS-bankers including Guido Buehler, formerly UBS Wealth Management’s Head of Asset Servicing. SEBA has been working with leading Swiss private banks, including Julius Baer to enable the emerging Swiss eco-system for trading tokenized assets.
Switzerland’s SIX Group, one of the IWA’s principal sponsors, launched its SIX Digital Exchange (SDX) focused on the interbank exchanging of tokenized assets in September 2019. SIX Group, as the owner of the Swiss Stock Exchange, has considerable leverage on the Swiss banking ecosystem and their vocal support for the exchanging tokenized assets is revealing of Switzerland’s comparative openness to this new industry.
Nasdaq is doubling down on tokenization
Even though they’ve moved on from their own Digital Asset Exchange experiment, Nasdaq remains bullish on tokenization. In April 2020 Nasdaq’s Head of Digital Assets, Johan Toll, called out the growing institutionalization of digital assets stating “we are past the proof-of concept stage … market participants feel comfortable with the technology behind digital assets, they’re confident it’s mature enough, and they’re preparing to be part of the transformation.”
Microsoft is positioning itself as a leader in managed token offerings
Microsoft was a key player in the development of the initial Token Taxonomy Initiative (TTI) which has been absorbed by the IWA. Continued sponsorship therefore remains strategic specifically as in November 2019 Microsoft released a preview version of its managed token issuance platform, Azure Blockchain Tokens, which was designed based on the principles of the TTI’s Token Taxonomy Framework – now recast as the IWA Token Taxonomy Framework.
NGD is focused on the tooling needed to make this real
Neo Global Development (NGD), is one of the leading sponsors of IWA. John deVadoss, Head of NGD Seattle and Director of Enterprise Adoption, is laser focused on the developer experience. John recently unveiled their Visual TokenDesigner toolset in a post published last month which highlights its close relationship to what is now the IWA Token Taxonomy Framework. Tools like this will play a key role lifting the work of the IWA off the page and making it real and the IWA in turn affords NGD the opportunity to build on its work with the Azure Blockchain team.
Towards the tokenization of everything
The IWA is on a mission to accelerate web-scale adoption of tokenized assets. The tokenization of everything has the potential to massively broaden and expand asset classes, generate greater market liquidity, and disrupt global economics creating new trading paradigms that factor in existential issues such as climate change.
Tokenization has an important role to play in the issuance of Environmental, Social & Governance (ESG) assets, for example, carbon credits, fract-free petroleum, and sustainably extracted natural gas. This will influence the shape of everything from commodities trading to reinsurance as well as our attitudes towards investment and risk management.
On the sell side, the advantages of tokenized assets are clear. On the buy side, however, there is the glaring problem of how the availability and efficiencies of this innovative new token-powered economy will interact with fiat currencies. All of which begs the question what role will Central Bank Digital Currencies (CBDCs) play in this brave new world?
Two sides of the same coin
Accenture has been heavily involved in a number of high profile public sector blockchain projects over the years. In January they announced the formation of the Digital Dollar Project, a partnership between Accenture and the Digital Dollar Foundation to advance the exploration of a United States CBDC. The Digital Dollar Foundation is led by Christopher Giancarlo, the former head of the Commodity Futures Trading Commission and David Treat, Senior Managing Director and Blockchain Lead at Accenture is one of his closest advisors.
Financial services are all set to embrace tokenization. It will lead to greater efficiency by digitising hitherto manual work processes, particularly in OTC bilateral transactions. It will lead to the availability of broader asset classes, lower the barriers to entry for certain investments and potentially generate new channels of capital flow to emerging markets. While financial services are typically slow to adopt non-revenue generating technologies, the combination of profitability and regulatory sympathies to tokenized assets will no doubt lead to accelerated adoption sooner rather than later.
In short we would argue that CBDCs are an equally important building block for a successful token-based economy. In other words the tokenization of everything is one side of the coin(!) with CBDCs on the other side.
About the author
Oliver Johnston-Watt is the Marketing Director at Blockchain Technology Partners (BTP), a leading enterprise blockchain company based in Edinburgh and New York. BTP is a founding member of the InterWork Alliance. BTP is also a member of the Global Business Blockchain Council as well as Hyperledger and the Cloud Native Computing Foundation. BTP specializes in the orchestration and management of blockchain and smart contract infrastructure and has a strategic partnership with Digital Asset, the creators of DAML, the open source smart contract language.
Oliver represents BTP on the Hyperledger Marketing Committee. He holds a Bachelor of Arts in History from the University of Oxford.