The inevitable future of the global financial system is tokenization

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Panelists Tim BaileyVice President of Global Business and Operations, Red Date Technology, William Quigleycryptocurrency and blockchain investor and co-founder of Wax and Tether, and I, Selva Ozellihad the honor of being invited to join the Eurasia Blockchain Summit with our roundtable on “the future of tokenization”.

Tim Bailey noted that while tokenization is still in its early stages, Red Date Technology is one of the co-architects of a new global digital infrastructure for digital payments and central bank digital currencies (CBDC). So far, 134 countries and monetary unions, representing 98% of global GDP, are exploring a CBDC that will symbolize the global financial and banking systems. Three countries have fully launched a CBDC: the Bahamas, Jamaica and Nigeria.

Central Bank Digital Currency Tracker | Source: Atlantic Council

Red Date Technology is the technical architect of various products, including a Blockchain-Based Services Network (BSN) and a Universal Digital Payments Network (UDPN), which is a global messaging network supporting digital currency systems government regulated involving regulated digital currencies, stablecoins. , and CBDCs. Tim Bailey said during the panel:

“Universal digital payments network (UDPN) has successfully launched an all-in-one digital currency sandbox that allows central and commercial banks to test and create innovative use cases with all forms of regulated digital currencies in a real-world environment. The UDPN all-in-one digital currency sandbox will help prepare financial institutions for the new digital financial world and create innovative new services based on insights from the UDPN team’s work over the past year with more than 25 global commercial banks, central banks and technology companies. I had the pleasure of participating in the “The Future of Tokenization” panel today with William Quigley and Selva Ozelli at the Eurasian Blockchain Conference in Cappadocia, Turkey. Thanks to Cenk, Nurdem and his team for welcoming us to this great event.

The UPDN team contributes to the overall effort deployed by various organizations, including the International Monetary FundTHE world BankCentral Bank of Switzerland, Monetary Authority of Singapore Project Guardianthe Bank for International Settlements Agora Project with a consortium of central banks and the Institute of International Finance (IIF) which guest the private financial sector to join its exploration of how tokenization can make wholesale cross-border payments work better, and the Basel Committee, the global standard-setter for banking regulation. The company works with public sector players as well as private financial sector partners such as HSBC, Standard Chartered and Deutsche Bank to test new forms of digital currency and digital asset technologies that will ultimately benefit the Mondial economy.

William Quigley explained that he realized the revolutionary potential of tokenization in 2014 when he co-founded the world’s first and most traded stablecoin Tether. Because tokenization specifically allows assets and their rights to be digitally represented using tokens on blockchains. He predicted that this could transform not only the trading of digital assets, including NFTs, but also any asset that can be represented digitally, such as stocks, bonds and other assets. A disruptor of the conventional financial system and a pioneer in the digital use of traditional currencies, he co-founded Tether tokens which are based on several blockchains.

William also predicted the immense utility and potential of NFTs in the global tokenization trend to unlock value and create new markets. With this vision, he built WAX.io in 2017—during a bull market in digital assets when the price of BTC increased from $1,000 to $20,000 at the end of the year. Like many projects in 2017, he initially built Wax.io on the Ethereum blockchain; However, the platform’s exorbitant gas fees, slowness, energy inefficiency, and inability to handle large transaction volume led it to develop the sustainable Wax blockchain and wallet specifically to meet gamers’ demands for blockchain and NFT collectors. William expects this, and Tim Bailey said he agrees that most of the growth in the NFT market in the future will be in utility NFTs, collectible NFTs, and web 3 game NFTs. Guillaume added:

“I think within 10 to 15 years the world will transition to using digital currencies and paper currencies will be a thing of the past.”

I agree with Tim and William that tokenization of the global financial system is the direction in which global financial markets are heading. What gives hope in this process is that global regulators collaborate in designing the legal framework for digital assets in the areas of taxation, money laundering and banking laws so that similar laws apply in all jurisdictions.

The Organization for Economic Co-operation and Development approved the Crypto-Asset Reporting Framework (CARF) in August 2022. This framework provides for the standardized reporting of tax information on crypto-asset transactions via CRS, with a view to automatic exchange of this information. So far, 48 countries have committed to implementing CARF.

The Financial Action Task Force (FATF) issued Money Laundering Standards on Virtual Assets and Virtual Asset Service Providers (VASP) in 2019. Chainalysis reported that self-reported FAFT surveys by 58 jurisdictions show:

• All jurisdictions (100%) have conducted or are conducting a risk assessment covering virtual assets and VASP transactions;
• Five jurisdictions (9%) have banned or are in the process of explicitly banning virtual assets and VASP transactions (China, Egypt, Saudi Arabia and in progress: Seychelles, Indonesia);
• Ten jurisdictions (17%) have not yet established a regulatory framework requiring VASPs to register or obtain a license and apply AML/CFT measures (Vietnam, New Zealand; in progress: Turkey, Argentina, Colombia; alongside the five jurisdictions above that have or are in the process of explicitly banning virtual assets and VASP transactions).

The Basel Committee, the global standard-setter for banking regulation, has pushed push back the implementation of the Basel rules on digital assets by one year, to January 2026.

In the United States, the bankruptcy of FTX was one of the largest financial frauds and a watershed moment, the repercussions of which included a collapse of the digital asset market, a crypto-banking crisis in 2023 with 5 bank failures regulatory backlash, and much more. bankruptcies. These adverse developments in the United States have triggered increased scrutiny and widespread calls for regulation of the digital assets industry, which is regulated by the United States Securities and Exchange Commission, the Commodity Futures Trading Commission, the Financial Crimes Enforcement Network and the Office of Foreign Assets Control. and the Internal Revenue Service (IRS).

Therefore, the digital asset industry is encouraging House leaders will support the Financial Innovation and Technology (FIT) for the 21st Century Act (HR 4763) to establish a U.S. regulatory regime for digital assets, which is expected to be voted on during of the last week of May by the United States House of Representatives. representatives.

(1) The bill suggests dividing digital asset oversight duties between the SEC and the CFTC. The bill also includes provisions for stablecoin regulation and whistleblower protection;

(2) The bill contains an anti-central bank digital currency bill (anti-CBDC bill) (HR 1122), which seeks to prohibit the Federal Reserve from issuing digital currency to consumers.

Additionally, the IRS recently released draft Form 1099-DA which will be used by digital asset brokers – which would include centralized exchanges, decentralized exchanges, wallet providers enabling trades and transfers, as well as Bitcoin ATMs – to report digital asset transactions annually next.

The data in the draft Form 1099-DA includes the date of acquisition of the digital assets, the cost basis of the said instruments, the date and time of the transaction in question, the proceeds of the sale, as well as the gross proceeds of all digital asset transactions. Essentially, the data for reporting digital asset transactions on proposed Form 1099-DA is similar to the data currently reported on Form 1099-B on proceeds from brokerage and barter transactions for stocks, commodities , regulated futures, foreign exchange contracts, forward contracts, debt instruments, options, securities futures, etc. It should be noted that earnings from digital asset collectible NFTs are taxed at a rate of 28%, which is higher than current capital gains rates.

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