Global Digital Finance (GDF), the global members association advocating and accelerating the adoption of best practices for digital assets, has released a compendium of insights from its members. Industry leaders, financial institutions, regulators and policymakers share their thoughts on the past year in the industry, and what to expect in 2024.
GDF’s fifth annual report, ‘Scaling for Success in 2023: RWA Tokenization Moves from POC to Production while Crypto Positions for Greater Adoption‘ reveals industry insights from GDF Advisory Council members including CCData, Chainalysis, Crypto.com, DLA Piper, Droit, R3, Standard Chartered and Tokeny.
Despite the significant challenges, 2023 defied expectations, evolving from a period of uncertainty to a soft landing, with the potential for falling interest rates in 2024, and a robust performance by the S&P, fuelled in part by the emergence of ChatGPT and bullish sentiment toward generative AI.
In the digital assets and tokenisation space, the industry also surprised observers by quietly forging a path to production, contrasting with high-profile court cases involving FTX and regulatory actions against Binance.
In the past year, CBDCs also became a crucial component in broader financial digitisation efforts. GDF explains that, now, the focus should be on improving the infrastructure and ecosystem surrounding CBDC issuance. However, challenges persist regarding incentivising consumer spending and the need for a better understanding of public perception – which are crucial when ensuring the feasibility and widespread adoption of CBDCs in 2024.
What has 2024 got in store for finance?
The shift towards re-centralisation and specialisation along the value chain is anticipated as the digital asset market matures. Regulated banks, custodians, and securities services firms are expected to dominate digital asset custody services, fostering mainstream adoption by prioritizing compliance, risk management, and governance processes.
The focus is on building a scalable, standardized, and interconnected infrastructure to enable seamless communication and data sharing across capital markets, unlocking the benefits of tokenization and facilitating institutional collaboration.
As the digital asset landscape matures, the spotlight shifts to the foundational role of custody services. Digital asset use cases, particularly those built around custody, emphasize the critical importance of compliant custody platforms integrated with advanced technologies, robust governance frameworks, and blockchain agnosticism.
Does the future lie in tokenisation?
Forecasts suggest that by 2030, up to 10 per cent of financial assets will be tokenised, leading banks and financial institutions to focus on building capabilities for issuing, transferring, and settling tokenised assets.
Antonio Alvarez, chief compliance officer at Crypto.com, explains: “While the benefits of tokenisation have been widely canvassed, the coverage on its drawbacks is marginal.
“The loss of a private key or the unregistered transfer of ownership of the private key by one of the owners will negatively impact the rest of the owners. Using the example above, let’s say Tom loses his private key – Peter, David and Aaron (the original co-owners) will be stuck with an asset without being able to exercise any of their legal rights over the luxury car as the consent of all parties would be essential to carry out any transactions via blockchain.”
GDF expects regulated custodians to play a central role, in ensuring asset segregation, bankruptcy remoteness, and investor protection.
Alvarez continued: “Transparency of asset movement on blockchain could be a boon, but it could also be a bane, specifically when it comes to the tracking of the physical asset. To track these assets, there would need to be a trusted third party to be part of the permissioned blockchain, such as a custodian, who keeps track of the movement of the tokenised physical assets for a fee.
“The role of such third-party custodians in the tokenisation of RWAs would become key to the ecosystem and licensing of these custodians by regulatory bodies would be paramount. Although the removal of middlemen is supposed to be one of the benefits of tokenising assets on blockchain, it would be arduous and risky to remove the participation of a licensed third-party custodian.”