The Central Bank of Hong Kong recently launched a new initiative to support local banks in launching blockchain products, with tokenization being one of the key areas of focus.
Elsewhere, one of El Salvador’s leading financial services companies has launched a new platform to issue tokenized assets, as the Central American nation pushes its pro-digital assets agenda.
Hong Kong’s blockchain incubator
The Hong Kong Monetary Authority (HKMA) described the new incubator as a “new supervisory arrangement” that will enable local banks to “maximize the potential benefits of DLT adoption by effectively managing associated risks.”
Officially known as the Supervisory Incubator for Distributed Ledger Technology, it will mainly focus on the risks that arise as banks move from experimentation to the production of blockchain services. HKMA says tokenization will also be a core focus once the incubator begins.
The new incubator is the latest in a handful of initiatives from the HKMA focused on digital assets and blockchain. This includes the stablecoin sandbox that the central bank launched last March and which includes Standard Chartered (NASDAQ: SCBFF), metaverse company Animoca Brands and a subsidiary of Chinese e-commerce giant JD.com (NASDAQ: JD) to finish.
HKMA also launched a new sandbox last August to support the Project Ensemble tokenization initiative. It boasts heavyweights such as Microsoft (NASDAQ: MSFT), Standard Chartered and HSBC (NASDAQ: HSBC) as founding members.
The latest sandbox differs from previous initiatives as it focuses primarily on allowing banks to self-audit the adequacy of their blockchain risk management controls. They can choose to run live tests to test and refine specific aspects of these controls. HKMA’s dedicated team will also provide supervisory feedback as required.
“As the banking sector continues to evolve, it is essential that we provide a supportive environment in which innovation can thrive. The Supervisory Incubator for DLT is an important part of our strategy to promote the development of DLT-based banking solutions that are safe, efficient and beneficial to the industry and the broader community,” said Arthur Yuen, CEO of HKMA.
In addition to risk management, HKMA will use the new incubator to promote industry best practices and awareness through industry sharing sessions, supervisory guidance and research projects.
Ultimately, the incubator is aimed at furthering Hong Kong’s tokenization ambitions. The city-state has become a global leader in the sector, with local banks such as Standard Chartered and HSBC taking the lead. The latter in particular has been active; last October, it issued the first digitally native bond by a private Hong Kong entity worth HK$1 billion (US$130 million). Earlier this year, it anchored the city’s $750 million digital bond.
“Asset tokenization offers a game-changing opportunity to enable a more secure and transparent value exchange by enabling new forms of financial transactions,” said Carmen Chu, director of banking supervision at HKMA, as she discussed the new incubator.
“I hope that banks will actively tap into and use this new resource, regardless of what stage of the DLT adoption journey you are at. After all, as the saying goes, achieving big goals starts with small habits,” she added.
El Salvador is ramping up tokenization efforts
Elsewhere, a Salvadoran fintech is teaming up with a European tokenization company to boost the tokenization of assets in the Central American country.
Ditobanx, a fintech licensed to provide digital asset services in El Salvador, has announced its partnership with Tokeny, a Luxembourg-based on-chain financial solutions company focused on tokenization. The partnership aims to help El Salvador “build a standardized framework for tokenized regulated assets.”
Ditobanx will use Tokeny’s infrastructure to issue, manage and distribute tokenized assets in El Salvador. The digital bank expects to issue up to $300 million in tokenized assets this year. There are already 22 customers queuing for the service.
“Launching tokenized assets is a complex process, but it is essential for the future of our industry. We believe in making this journey easier for others by sharing what we’ve learned and providing access to proven solutions. Standardization is critical to creating a more connected, liquid and innovative market, and we are committed to making this vision a reality for El Salvador and beyond,” said Guillermo Contreras, CEO of Ditobanx.
In addition to offering its solutions, Ditobanx pledged to work with other Salvadoran companies to boost tokenization, offering its expertise and tools to facilitate the process. Working with Tokeny, the bank will push for a standardized approach that will eliminate silos and promote seamless interoperability.
While more famous for making BTC legal tender (the disastrous consequences of which have been temporarily masked by the token’s bull rally over the past year), El Salvador is moving beyond BTC to unlock value through tokenization. The country’s parliament passed the Digital Assets Law in early 2023, making it easier for companies to issue and manage tokens. The law grants generous tax breaks to digital asset companies, making it an attractive destination for token issuers.
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