Author: Analyst Cristiano Ventricelli, Assistant Vice President of DeFi and Digital Assets at Moody's Investors Service, CoinDesk; Compiler: Songxue, Golden Finance
Digital financial technology has huge potential for change. Distributed ledger technology (DLT), of which blockchain is the most well-known example, drives digital bond issuance, which over time may reduce the need for intermediaries in the issuance process, thereby improving operational efficiency and potentially reducing costs . DLT is also the basis for the tokenization of real assets, which may increase the accessibility of certain tools.
However, according to Moody’s, to realize these potential benefits and gain wider adoption,distributed ledger technology (DLT)-based technologies and platforms need to overcome a number of key barriers, including Lack of interoperability and standardization between DLT systems, lack of reliable digital currency options, regulatory uncertainty, and technical risks.
Over the past few months, an increasing number of institutions have begun interacting with permissionless blockchains through pilot studies and real transactions. Many of these institutions tend to choose Ethereum because it has a large application ecosystem and network that has developed its own user base and products over the past few years. As an open source public blockchain, Ethereum provides a blockchain base layer on which developers can build solutions to share data and value between other networks.
Ethereum is a popular platform for digital bond issuance due to its flexible design and its multi-year upgrade plan, which includes upgrades to improve interoperability. Large institutions like the European Investment Bank have issued bonds on Ethereum, and Ethereum is also the underlying blockchain for a digital green bond rated by Moody’s in 2023, a deal issued by Societe Generale EUR 10 million senior unsecured digital green bond. Over time, in Moody's view, public blockchain networks like Ethereum and traditional infrastructure will become more interconnected, which will enhance blockchain use cases and drive industry growth.
In the past year, asset tokenization—converting assets such as funds, real estate, or art into digital tokens that can be stored and transferred via distributed ledgers (DLT)— —Some progress has been made. The total value of physical assets tokenized on public blockchains has increased from $1 billion to $2 billion in the past 12 months, with Ethereum currently hosting the vast majority of this. One factor slowing tokenization adoption is the lack of reliable forms of digital cash, which leads market participants to settle transactions off-chain or use stablecoins.
A stablecoin is a cryptocurrency whose price is pegged to a reference asset, such as a fiat currency. It is a form of digital cash, but under conditions of market stress, stablecoins are not always is able to maintain its anchor. However,two other forms of digital cash that could address the current vulnerabilities of stablecoins are tokenized bank deposits and central bank digital currencies (CBDCs). In Moody's view, the development of tokenized bank deposits and CBDCs will continue to progress in 2024, although the extent to which they will interact with public blockchains remains unclear.
According to Moody’s, legal clarity is also likely to increase in 2024, as regulators make progress in developing frameworks to support new digital assets and services. Although the pace of development is not the same in different regions. Regions such as the European Union, Singapore and the United Arab Emirates may attract new investors due to new customer and investor protection measures and new licensing regimes for digital assets. At the same time, the United States will likely continue to use regulatory enforcement actions to establish legal precedents in digital asset markets, as establishing a digital asset framework in the United States remains a more distant goal.
Edmund
JinseFinance