Interest in digital assets is rising rapidly as use cases emerge showing how the technology can transform business practices - cutting transaction times, improving productivity, and lowering risk and cost.
At ANZ, we’re working with clients at different stages of their digital asset journey – some already well progressed, while others are still asking questions about how it works and why they need it. The good news is there’s no wrong place to be on the path – and there’s still time to take advantage of the first-mover bonus in the space.
World Economic Forum and Boston Consulting Group analysis suggests the tokenisation of global illiquid assets will be a $US16 trillion opportunity by 2030. That’s about 10 per cent of total global gross domestic product – which means it’s inevitably heading for your sector, whatever that may be.
Let’s not mince words here: this is transformative technology. While all new tech comes with risk, there’s also a risk industry leaders repeat the mistake others made during the earlier years of internet - and be left behind.
ANZ is working with the customers who are on the leading edge in this space – including, critically, around central-bank digital currencies - with tremendous ideas around engaging with tokenised assets and how the tech will improve their business models. But equally, we want to help all our customers understand what these protocol shifts will mean - now and in the future.
{video}
Outpaced
Retail adoption of digital assets on public networks has in many ways outpaced the growth of the early web. Total capitalisation in the digital assets market is currently close to $US1.3 trillion, with $US7.4 trillion settled in calendar 2022 alone. Moreover, the developer ecosystem continues to grow steadily, with more than 23,000 monthly active developers – up almost 300 per cent since 2018.
At ANZ, it’s clear to us the tech surrounding digital assets has reached the level of maturity required for institutional usage. The broad infrastructure is already being used for securities settlement, supply-chain management, and bond issuance.
It’s worth noting central banks, policymakers and regulators are paying attention to this shift. More than 90 per cent of central banks are looking into digital currencies, and governments are already starting to regulate digital assets more broadly. This regulatory clarity is likely to be the catalyst for greater adoption.
It’s here where collaboration and partnerships will be critical. ANZ is a founding member of the Digital Finance Co-operative Research Centre (DFCRC) in Australia, a group that brings together regulators, the private sector and academia.
The bank is currently supporting the DFCRC and the Reserve Bank of Australia with their CBDC pilot project, and has been selected to test several payments and asset-tokenisation use cases.
Opportunities
ANZ believes decentralised networks are an emerging form of financial-market infrastructure, which deploy tokens as a new form factor for transacting value. The opportunities for businesses will come in sectors where ownership and credentials are important, and where digital assets can be created natively and placed on blockchains.
For businesses, the benefits are numerous. Across ‘traditional’ markets, the asset component of the transaction clears on a separate infrastructure from the payment. Multiple intermediaries facilitate this process, interacting with central clearing houses, commonly resulting in high costs, settlement delays, and operational and counterparty risk.
In this new market infrastructure, transaction costs fall with the involvement of fewer intermediaries. Settlement times are faster – instantaneous in many cases – thanks to the involvement of smart contracts. Risk is reduced due to instantaneous and secure matching of transactions.
The customer experience is improved significantly, with assets exchange and payments executed all on the same infrastructure (‘on-chain’, as they say). And it all happens on resilient and secure networks.
This is true for a number of emerging and traditional assets, including debt, equities, real estate and commodities, which can also be established as digital tokens.
Frontier
Indeed, the tokenisation of real-world assets is the next frontier of this new market infrastructure. The scope is broad with application across multiple classes and business processes.
ANZ is already actively exploring the tokenisation of real-world assets with a focus on underserved markets. Most notably, we see the tech as a key enabler in our support for the net-zero transition plans of our customers.
Today the carbon credits area is poorly served by financial-market infrastructure. It’s effectively an over-the-counter market between brokers, reminiscent of the pre-internet era.
At ANZ, we think there’s an opportunity there – not just for helping customers transition to a sustainable future, but for ANZ to go into a greenfield area of asset classes where there isn’t a large incumbent. This will help us utilise the most contemporary form of technology, serving both our customers and the wider market, to deliver asset exchange and settlement on a very modern architecture.
We’re excited by this work and can see our customers are excited – work that has led to a number of firsts in the Australian economy, including the first stablecoin and first tokenised asset issued by a bank on a public permissionless, among others. We’ll be sharing more information on our accomplishments - and our plans for the future - at a public showcase later in May.
At ANZ, we hope our experience in this space gives us a point of engagement with our customers. We can talk knowledgeably about how we believe digital assets will reform the business processes and operating models now in the future. We’re excited by the opportunity this technology brings.
Nigel Dobson is Banking Services Portfolio Lead at ANZ
