Time in the Market
               Not Timing the Market

SWIFT & CHAINLINK – TIME TO GET EDUCATED

Dear COO & CTO,

If you haven’t already, I encourage you to deliver a presentation on the Cross-Chain Interoperability Protocol (CCIP), focusing mainly on the interoperability between private and public blockchains. 

Blockchain Integration in Banking: Necessity and Challenges

As the COO, you should educate the rest of the C-Suite. This technological advancement promises to be a game-changer but also necessitates legal, compliance, and operational knowledge upgrades that each Group Head should be well-versed in.

As I have often emphasized, understanding the implications of blockchain technology isn’t solely the responsibility of the CTO. The COO, at the very least, must comprehend the full spectrum of changes coming to the industry they operate in. My background in Energy and Commodities shapes my perspective. 

Tokenization: A New Financial Paradigm

Here’s why this matters:

Tokenized assets are poised to become a significant new source of value in the financial sector. In light of this, SWIFT, Chainlink, and several of the world’s largest financial institutions have recently announced the results of a series of experiments. These experiments aim to enable secure interoperability between public and private blockchains.

So, why is SWIFT now taking this step forward? While this article focuses on SWIFT and CHAINLINK, more developments could be explored if everything unfolds as anticipated.

The Evolution of Financial Networks: From Internet to Blockchain

The tokenization of assets, or digital assets, is on the brink of becoming a mainstream phenomenon. Every prediction and assumption indicates a rapid ascent, positioning these assets as part of the trillions under management by traditional institutional clients, particularly in the commodities sector. Anyone not aligning with this perspective needs to look in the right direction. That’s the first point to understand.

Secondly, institutional investors and asset managers aiming to hold these digital assets will expect to do so globally. They will rely on their existing custody networks to manage these assets, much like they do with traditional assets today. These custodians must be able to connect to various chains and platforms securely, reliably, and at scale. Historically, SWIFT has played a pivotal role in facilitating this connectivity.

This underscores the critical importance of understanding the connectivity layer between banks, custodians, asset managers, and the CHAINLINK platform. By the conclusion of this article, if your CTO or COO needs to be better informed about this relationship, it’s crucial to bring them up to speed as soon as possible.

Adopting tokenized assets, encompassing everything from stablecoins to real-world tokenized assets and other varieties is poised for significant growth. This evolution means that banks will increasingly engage in transactions on blockchains, whether they are generating these assets or acquiring them from others. The necessity to operate on blockchains is becoming as crucial as the need to be present on the Internet years ago.

At the time, the Internet needed to be more widely utilized by banks. 

Then came the Internet era, and those banks that embraced it early on could transact with each other, grow, and achieve success. Conversely, the banks that needed to be faster to adapt or effectively integrate the Internet faced considerable consequences. The shift to a blockchain is of a similar magnitude. It’s not just about staying relevant; it’s about the core business of banks – managing and exchanging assets for their clients. These assets are now migrating to various blockchain platforms.

Therefore, banks need to connect to these different chains efficiently. Systems like SWIFT and the Cross-Chain Interoperability Protocol (CCIP) are essential for linking to the final stage of blockchain systems. Furthermore, the interoperability of different chains is paramount to enable the movement of assets across these platforms, thereby creating larger markets and opportunities.

For those unfamiliar with the distinction between public and private blockchains, it’s essential to understand why their integration is crucial for banks and the groundbreaking use cases this synergy could unlock for tokenization and interoperability.

Banks, as we know, are juggling a myriad of tasks, each with associated costs and implications for their profit margins. The ability to leverage existing technologies like SWIFT, in partnership with new players such as CHAINLINK, can demonstrate leadership in embracing this new era. Banks can integrate these innovations without requiring substantial new investments by utilizing their legacy systems. This approach offers a seamless way to connect using infrastructure they have already invested in, representing a significant advantage. It becomes a clear choice for them, especially when considering assets that are not currently available or are more attractive due to their potential for fractionalization and high client demand.

We are currently interested in unique assets such as carbon credits, which represent a new asset class. There’s also a growing trend in tokenizing and offering fractional shares in funds, along with real estate tokenization and fractional ownership. However, the scope of tokenization is likely to expand far beyond these areas. Corporations are increasingly interested in tokenizing as much as possible, including cash flows. This movement harks back to a period of intense securitization, which, while initially booming, eventually saw a decline. The current trend towards tokenization is an evolution of this concept, harnessing the potential of blockchain technology to offer more stability and innovation in asset management.

Securitization 2.0: The Rise of Tokenized Assets

What I envision for tokenization, especially regarding real-world asset tokens, is akin to a new era of securitization; let’s call it ‘Securitization 2.0.’ However, this version is executed correctly, thanks to blockchain technology’s reliable and transparent nature. The ability to transfer value efficiently using protocols like the Cross-Chain Interoperability Protocol (CCIP) will provide the necessary liquidity and market for these tokenized assets. We are on the cusp of entering a world where ‘tokenized’ will be a standard term for a more refined approach to securitization, poised for significant growth.

Strategic Decision-Making for Banks in the Blockchain Era

But what are the critical considerations for bank leaders and decision-makers as they embark on their journey into digital assets? And what role does interoperability play in their potential success? Here are some critical questions they should be pondering:

  • Do they want to avoid the blockchain and digital assets trend, which is now widely recognized as a misguided approach?
  • Are they aiming to provide custody for other people’s digital assets merely?
  • Do they intend to create their blockchain with a unique stablecoin?
  • Or do they aspire to establish a blockchain, launch a stablecoin, and generate many of their assets?

Most banks will ultimately gravitate towards the last option; I foresee a future with multiple blockchains – likely at least one per bank, possibly more. But this proliferation of chains will necessitate a robust interconnected network. If a bank’s chain isn’t connected to its counterparties’ chains, it risks becoming an isolated entity.

SWIFT and our collaborative work with banks and central securities depositories (CSDs) become pivotal to addressing this fundamental issue. We have demonstrated the feasibility of connecting public and private chains into a comprehensive network, an ‘Internet of Contracts’, via CCIP. This network ensures that once a bank has established its chain, created its stablecoin, and tokenized numerous real-world assets; it retains full access to counterparties and their respective chains for seamless transactions.

The Future of Finance: Interoperability and Connectivity

The evolution of blockchain technology in the commodities sector, where I have been closely involved as one of the founders of VAKT, has been remarkable. Yet, some still need help finding the shift toward on-chain finance. Reflecting on this journey, the initial perception of blockchain was dismissive, seen merely as a novelty without practical application. This skepticism led to the belief that a single, global chain would emerge, dominating the entire world’s network needs. Following this, there was a phase where the prevailing thought was to create a proprietary chain, expecting others to join it, disregarding the need for broader network integration.

We have now moved beyond these notions. The current understanding is that every entity will likely need its chain, akin to having a unique database or website. However, a crucial realization is emerging: even if an entity successfully operates its chain, creates a stablecoin, or develops high-quality assets, these endeavors will need more market traction with connectivity to other chains. Thus, interoperability has become critical for any bank’s success in leveraging blockchain technology.

This is where the Cross-Chain Interoperability Protocol (CCIP) gains significance. Its growing adoption underscores the need for a solution akin to the Transmission Control Protocol/Internet Protocol (TCP/IP) in the blockchain sphere. The aim is to unify various blockchain technologies into a singular, efficient ‘Internet of Contracts.’ This network would connect all public and private chains into a globalized, universal market. In this envisioned ecosystem, transactions would occur across many chains via CCIP, similar to how TCP/IP facilitates Internet communications. This model promises a future where blockchain technology enables seamless, global financial interactions.

SWIFT & CHAINLINK – GET EDUCATED

The rapid evolution of blockchain technology and the rise of tokenization are set to redefine the financial landscape, making interoperability an indispensable tool. As banks and financial institutions navigate this transition, embracing platforms like CCIP and fostering connections across multiple chains will be crucial for their success. This new era, akin to the Internet revolution, promises a more integrated, efficient, and transparent global financial system

Latest

YEAR 2050: – ‘PAPA, WHAT WAS MONEY LIKE BEFORE BLOCKCHAIN?’

In 2015, in a quaint yet well-known town (which...

MUSK’S VISION VS. MICROSOFT’S MISSION

The battle for AI supremacy is quietly taking place,...

CASINO EVERGRANDE ROYAL

Did anyone watch that new movie, Casino Evergrande Royal...

BORING BITCOIN GOES TO LUNCH

Fire up the jets and rev up the helicopters!...

Trading

spot_img

Don't miss

YEAR 2050: – ‘PAPA, WHAT WAS MONEY LIKE BEFORE BLOCKCHAIN?’

In 2015, in a quaint yet well-known town (which...

MUSK’S VISION VS. MICROSOFT’S MISSION

The battle for AI supremacy is quietly taking place,...

CASINO EVERGRANDE ROYAL

Did anyone watch that new movie, Casino Evergrande Royal...

BORING BITCOIN GOES TO LUNCH

Fire up the jets and rev up the helicopters!...

“I BELIEVE IN AMERICA ‘: ECHO IN TODAY’S DEBT CRISIS”

"I believe in America. America has made my fortune." These...
spot_imgspot_img

YEAR 2050: – ‘PAPA, WHAT WAS MONEY LIKE BEFORE BLOCKCHAIN?’

In 2015, in a quaint yet well-known town (which felt more like a village) in Switzerland, I began my tenure at a renowned commodity...

BORING BITCOIN GOES TO LUNCH

Fire up the jets and rev up the helicopters! Polish those golf clubs, don your finest suits, and make sure your laptops are charged....

GEN X’S ETF VS. GEN Z’S BITCOIN.

Grayscale, a leading crypto asset manager, is reportedly in discussions with prominent financial institutions, including JPMorgan and Goldman Sachs, to play pivotal roles in...