2022 was a year of change and disruption in digital assets. Cryptocurrencies struggled, and the collapse of currency exchange FTX shook the industry. However, alongside this volatility, blockchain-powered financial transactions gained momentum. Innovative participants focused on tokenizing real-world assets and securities to deliver benefits like transaction efficiencies, increased transparency, broader access, and enhanced liquidity.
Our top 3 expectations in tokenization for 2023 (and also what’s needed for the widespread adoption of tokenized securities) include the following:
The Regulatory Framework Take Shape
We’ve been calling for this one for some time, as advocates for a regulated digital asset ecosystem that promotes market integrity, has strong guardrails, and offers customer protection. As one of the first SEC-registered alternative trading systems to offer trading in digital securities, the Oasis platform was built with compliance in mind, and is primed for increased regulation.
Such regulatory clarity is likely forthcoming in 2023, spurred by the FTX collapse, which had broad implications for protecting investors and institutions from fraud, reckless behavior, and undisclosed risk. The pressure from Congress (and market participants) on regulators to act is mounting. We hope and expect that regulatory agencies will utilize all the tools they have to evolve with the market, balancing prescription and direction with flexibility to evolve amidst changing technology. In our view, existing securities laws will largely be upheld and applied, putting firms that have the capabilities to work with securities at an advantage to those that don’t.
Large Institutions Buy-In
We have already seen an uptick in blockchain-powered transactions in Q4 2022, and we expect this institutional adoption to expand this year. In November, for example, Deutsche Bank became the first bank in Asia to conduct an intra-day repo transaction on JP Morgan’s blockchain network.[1]Also in November, UBS launched the world’s first digital bond issued by a banking institution globally to be listed, traded and settled on a regulated digital exchange.[2]The Swiss-Franc denominated offering highlighted how blockchain has the potential to make issuance “faster, more efficient, and simpler,” according to UBS. Most recently, in Europe, Goldman Sachs issued a $104m digital bond. The bond settled instantly on its tokenization platform, using CBDC tokens issued by Banque de France.[3]
These transactions and others occurring globally legitimize distributed ledger technology (DLT) by bringing to light new efficiencies such as faster settlement. There will likely be many more of these types of headlines in 2023, as well as new ones about wealth management firms tapping into tokenized securities to gain eligible investors access to historically rather inaccessible private investments.
M&A Activity Picks Up
With the collateral damage from not only the FTX collapse but the dislocation throughout the crypto markets, industry consolidation is likely to occur. Just last month, Goldman Sachs announced it would ramp up its crypto M&A activity, noting a need for more trustworthy, regulated crypto players, and with prices seeming more “sensible” to them following the FTX collapse.[4] We think that deal-making on the crypto side of the market will slowly happen, with many of those players under pressure and still sorting out exposure. On the blockchain solutions side of the business, where the underlying technology continues to perform, we expect more strategic acquisitions aimed at offering one-stop shops. Players will try to recreate the experience of a traditional bank, where a suite of solutions lives under one roof.
Tokenization of real-world assets and securities is a natural progression of the enterprise blockchain space and many who worked in traditional finance grasp this and have left wall street to build out the infrastructure. The challenge is that building out infrastructure can be capital intensive. So, savvy founders in the digital assets space will recognize that in order to succeed in the future you need to survive to the future – and locking arms with well capitalized partners who materially complement business capabilities may be one path to success. Lastly, more formalized infrastructure and regulations are prerequisites to increased M&A activity, as both provide the needed clarity to decide what deals make sense.
It is not lost on us that some of these trends we have been expecting for several years now! Adopting new technologies takes time. But with greater confidence than ever, we believe these positive trends will materialize meaningfully in 2023. We look forward to playing a leading role in creating market integrity and providing streamlined access to, and liquidity in, digital security offerings.
Pat LaVecchia, CEO Oasis Markets
Opinions expressed represent the views of the author as of the date of publication and not those of Oasis Pro Markets, LLC (“Oasis”) unless otherwise expressly noted. Oasis is a registered broker dealer and member of FINRA and SIPC. Nothing contained in this piece constitutes investment advice, a recommendation or an offer, or solicitation of an offer, to buy or sell any security or investment product, or legal/regulatory advice.
[1] “DBS completes first blockchain-based intraday repo in Asia settled on JP Morgan platform,” Global Custodian, November 2022
[2] “UBS AG launches digital bond settled on blockchain and traditional exchanges,” Cointelegraph, November 2022
[3] “Goldman Sachs unveils digital asset platform with EIB €100m blockchain bond,” Ledger Insights, November 2022
[4] “Goldman Sachs on hunt for bargain crypto firms after FTX fiasco,” Reuters, December 2022
