Institutional RWA Tokenization Needs Permissioned Cash Coins

Stablecoins are the killer use cases for the crypto space, with a market cap exceeding $160 billion according to DefiLlama. Research firm Sacra predicts that stablecoins may overtake payment giant Visa in total payment volume this quarter. However, financial institutions have been hesitant to embrace stablecoins due to regulatory concerns and the inherent volatility of the broader cryptocurrency market.

The skepticism surrounding stablecoins is not without basis. As highlighted in our 2022 newsletter, “Stablecoins Were Not Made to Go to the Moon,” the collapse of TerraUSD (UST) exposed significant vulnerabilities in certain stablecoin models. This incident underscored the need for stablecoins to be backed by credible and regulated entities.

Regulators worldwide are enhancing regulations for payment tokens, making licensed institutions like banks the most suitable cash coins issuers. Additionally, stringent controls are required to enforce KYC and AML rules. These controls will be needed during the full-lifecycle of the token and not only when they are minted and redeemed like current stablecoins. For instance, the recently introduced Lummis-Gillibrand Payment Stablecoin Act in the US, AML legislation in Europe, and Hong Kong’s HKMA public consultation paper on regulating stablecoins all emphasize the necessity of conducting KYC and AML for stablecoin holders.

The future of stablecoins is likely to become permissioned, at least for regulated institutions. We expect more commercial banks to issue bank-grade digital payment coins by leveraging permissioned tokens to bring controls and restrictions that enforce compliance. As wallets don’t enable the proper identification of a user, banks will need advanced token smart contracts to enforce their duties, wherever the tokens are.

The open-source ERC-3643 permissioned token standard offers a common compliance framework suitable for both permissioned stablecoins and tokenized securities. By issuing cash and securities with the same compliance framework, we ensure both compliance and interoperability, eliminating silos.

Tokeny is at the forefront of this transformation, empowering commercial banks to issue and manage payment coins while upgrading operating systems for asset managers, investment banks, fund servicers, and distributors to bring securities seamlessly on-chain.

Step by step, we are solving the biggest issues in the institutional RWA tokenization industry: bringing cash and securities on the same ledger. This eliminates the lengthy payment process and data reconciliation using fiat rails, laying the foundation for delivering the true value of blockchain. Not only does this facilitate atomic settlement, but it also opens the door to new services like peer-to-peer secondary trading, collateralized lending, automated corporate actions, and more.

Contact us when your organization is ready to upgrade on-chain and stay ahead of your competitors.

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