Jason Dehni (CEO and co-founder) of Credbull discussed in an exclusive interview for crypto.news how RWA tokenization has the potential to change finance.
The tokenization of assets in the real world has grown to be a popular trend. hottest trends In 2024. The promise of democratizing traditional finance is also included.
Encouragement to move toward a more inclusive financial The technology aims to break down the barriers between countries and open the market up to the border population. traditionally limited Investment in U.S. Treasury securities, art, and real estate.
The new assets will be able to move onto Blockchain platforms as they become available. promise Real-time, more affordable transactions, without traditional intermediaries. A market that is more efficient, with lower transaction costs and better pricing discovery.
The total amount of assets that will be locked up in real-world asset protocol by April 2024 is close to $8 billion.
The increased liquidity and larger investor base can also lead to a variety of difficulties, such as regulatory compliance. Tokenized asset markets are projected to grow by a factor of ten. reach There is an urgent need to build a strong infrastructure that can support this growing sector.
Dehni believes that RWA tokenization is a force for transformation, and advocates robust regulatory frameworks in order to maximize its potential. financial landscape.
You expect new economic models with the rising popularity of asset tokenization.
Tokenizing asset introduces new economic model that changes traditional pricing and behavior. It increases accessibility, transparency and liquidity but also complicates the market and questions efficient market hypotheses (EMH). New models are needed. financial models.
Tokenized assets allow for 24/7 trading globally, price discovery in real-time and less market closing impact. The blockchain transparency reduces information asymmetry because all participants can access the exact same ownership and transaction data.
How would token economy alter fundamentals of asset pricing, market behavior and the efficiency hypothesis in context with deviations to the efficient market hypotheses?
The market liquidity is improved by the easy trading of fractional shares, and algorithmic trading. Diversified investor participation increases market depth and stabilizes prices while reducing volatility.
Due to the innovations, EMH could become obsolete or limited. Tokenized assets are easily accessible to retail investors who may be prone to herd behaviour or excessive confidence, leading to price anomalies. Online communities and social media can have a significant impact on token prices. This is what drives sentiment driven market movement. Due to trading activity and speculation, tokenized markets may experience increased volatility. This could lead to flash crashes on less liquid markets. Some tokens have a value that goes beyond the traditional price, and incorporates utility in specific networks. This is a deviation from EMH.
Consider the effects of tokenizing real assets on central bank policy, particularly in relation to monetary supply or inflation. Tokenized assets could challenge traditional central bank tools.
CBDCs are expected to grow rapidly as asset tokenization becomes more widespread. CBDCs have many advantages, but their rapid and poor implementation can lead to negative unintended effects, particularly for monetary policies. The issue of a CBDC at a large scale does not alter monetary policies or their operations, but it can have measurable effects on money velocity, bank deposit disintermediation, bank reserve volatility, currency substitute, capital flows, and other factors. CBDCs spreading too fast can have a significant impact on monetary policy by disintermediating the bank deposits.
The countries most vulnerable are those that have a small banking system dominated by retail, low levels of digital payments, and weak macroeconomics. Commercial bank reserve reductions can increase inflation, money market interest rates and destabilize economies. financial Reserve forecasting is complicated for OMOs. Disintermediation could force the central bank to provide longer-term, targeted lending. This would undermine their position as lender of last resort.
By democratizing asset investment, tokenization may disrupt existing economic balances. What is the challenge?
Asset tokenization has the potential to significantly change global economic dynamics. It could reduce economic disparities, lower investment barriers and enable fractional ownership of previously unaccessible assets. This would be beneficial for those living in developing nations. It could also lead to new opportunities. financial Products and services that enhance financial inclusion. This is our mission at Credbull – democratizing access to private credit, a high-performing asset class that’s traditionally reserved for institutional and high-net-worth individuals.
What are the risks of making tokenized assets widely accessible?
All assets shouldn’t be tokenized, and all tokenized assets don’t need to be accessible. Tokenized assets require substantial investor education. Fast access may lead to speculative booms and affect investors who are less educated.
Without adequate regulation, market manipulation can occur by tech-savvy and resourceful individuals. The tokenization process is meant to improve liquidity. However, it may lead to inconsistent liquidity between asset classes. The valuation of tokenized assets can be tricky, and has the potential to lead to misinformation.
What will this mean to global regulatory and Compliance Landscapes?
Global investment and issuance are complicated by the different laws and regulations of each country. These vary in terms of anti-money laundering and knowing your customer (KYC). For widespread adoption, seamless interoperability among token platforms as well as efficient transaction processing by blockchain networks is crucial. A decentralized model is one that should be further explored. Instead of tokenizing the asset, which can often keep the underlying asset centralized, it is important to place the management of that asset on-chain, and provide full transparency in its management. This will generate confidence and reduce overall risk for the retail market.
Consider the integration of tokenized asset into mainstream financial services financial What are the legal and economic implications of integrating mutual funds, ETFs or other products?
Integration of tokenized assets in mainstream financial Legal and regulatory hurdles are part of the process. The traditional products such as mutual funds and exchange traded funds (ETFs) require asset custodians to safeguard assets, requiring a legal framework. Insurance for digital assets can be difficult due to current gaps. In addition, it is essential to have mechanisms in place that protect investors against volatility and fraud.
Could you please discuss the creation of legal structures specific to tokenization? What are the potential challenges of these legal structures in maintaining compliance with regulatory requirements and encouraging innovation?
Regulators and industry stakeholders must maintain a constant dialogue with each other to better understand their concerns and needs, leading them to develop more effective regulation. In order to encourage startups, it is important to create ecosystems. financial Tokenization is a collaborative effort between institutions, regulators, other stakeholders, and others. Risk-based regulation aligns scrutiny with the risks associated with tokenized assets. The regulatory sandbox allows innovators the opportunity to test their new products in an environment that is controlled, while still allowing them to receive temporary regulatory relief.
How would you balance the need for innovation with regulatory strategy? financial security?
Layered regulatory approaches, including universally basic requirements for compliance and stringent rules for activities with higher risks, can promote innovation while maintaining supervision. Regulations need to be adapted according to the scale and complexity of tokenized markets. Smaller projects should have lighter regulations, and larger and complex projects require more stringent oversight. By educating investors on the potential risks and rewards of tokenized assets, we can reduce market disruptions and ensure that they make informed investment decisions.
The global nature of Blockchain has implications in cross-jurisdictional conflicts. Specifically, asset custody and transactions enforceability.
Blockchain and tokenization are global technologies, which can present challenges for cross-jurisdictional conflicts of law, asset custody and the enforceability of transactions. This requires international collaboration, harmonized legislation, and innovative solutions. The regulations of different countries can cause conflicts in the trade of assets across borders. In some countries, an asset that is classified as a security may not be the same classification in other countries. This can complicate compliance and increase costs. Determining applicable laws and jurisdictions in the blockchain decentralized world is difficult, particularly for disputes or enforcement across borders. The requirements for custody vary from jurisdiction to jurisdiction. This makes compliance difficult.
What would be your advice to global guardians on how they should address this challenge?
Global custodians require solutions that are compliant with diverse legal standards, including those for auditing mechanisms and reporting transparency. Legal definitions and standardization are needed to ensure that ownership rights of tokenized assets can be recognised across all jurisdictions. Internationally, the legal process for transferring assets must be standardized and clear. Smart contracts are subject to different laws in every country. Smart contracts are also enforced differently around the world, which complicates international transactions.
It is necessary to establish dispute resolution mechanisms, which may involve decentralized arbitrage or legal processes. Complexity is involved in ensuring that token transactions across borders comply with AML/KYC rules and tax systems. Harmonizing international laws and regulation, facilitated through FATF or IOSCO, can help countries mitigate legal conflict. This process can be aided by model laws and agreements on mutual recognition. This can be helped by developing interoperable Blockchain platforms, and automating compliance with regulatory technology.
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Source: crypto.news