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SWIFT – Exploring Tokenized Assets

The Society for Worldwide Interbank Financial Telecommunication (SWIFT) will enter the digital asset market in Q1 of next year, conducting a trial to explore how it may play a role in the still nascent asset tokenization market.

SWIFT is a Belgian-based cooperative that serves as an intermediary and settlement executor of financial transactions between banks worldwide. Linking over 11000 institutions across 200 countries, SWIFT is uniquely positioned to explore the future of tokenized securities, according to Thomas Zschach, SWIFT’s Chief Innovation Officer.

Besides SWIFT, the other participants in the trial include established institutions such as Clearstream, Northern Trust and SETL – a Citi-backed enterprise blockchain firm.

While the asset tokenization market is still relatively small compared to the cryptocurrency market, SWIFT notes in a recent blog post that market capitalization of tokenized assets is growing rapidly and could reach $24 trillion by 2027.

In the context of crypto, tokenization refers to a process where some form of assets is converted into a token that can be moved, stored, or recorded on a blockchain. Among other things, tokenization allows for the fractional ownership of assets. Use cases include the tokenization of real estate, company shares or even pieces of art. By allowing fractional ownership, the barrier to investment is greatly reduced, and markets can be made more liquid. At DeFi Consulting Group, we identified the tokenization of assets to be a key area to watch in 2022. To find out more about key areas of growth in the crypto field, read our 2022 crypto trends blog post here.

As interest is increasing and the tokenization market is growing, SWIFT “is exploring how it can enable and improve interoperability between participants and systems during the transactional lifecycle of tokenised assets.”. The cooperative’s planned trial will “explore the issuance, delivery versus payment (DVP), and redemption processes, to support a frictionless and seamless tokenised asset market”. The experiments will make use of both central bank digital currencies (CBDCs), as well as established forms of payment, such as the USD, according to an announcement by SWIFT.

The Tokenization of assets is a key area to watch in the coming year and the series of experiments being launched by SWIFT is an important step in the market’s overall development.

At DeFi Consulting Group, we specialize in advising family offices and other financial institutions on navigating the Crypto and Decentralized Finance space. Reach out to our team for guidance on how to effectively approach this field.

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