Global financial messaging service Swift has outlined plans for exploration of the burgeoning tokenised asset market in the first quarter of 2022.
In pursuit of this objective, the company intends to conduct experiments in collaboration with Clearstream, Northern Trust, SETL and other firms, in order to investigate how interoperability between participants and systems during the transactional life cycle of tokenised assets can be enabled and improved.
The planned experiments will leverage established payments methods as well as central bank digital currencies (CBDCs), and will examine issuance, delivery versus payment (DVP), and redemption processes.
Swift’s long-term objective is to ‘connect all entities as efficiently as possible’ and allow its clients to provide better services to their respective end-users. However, the company asserts that it ‘not become a crypto-custodian nor perform direct settlement of tokesnised assets’, leaving this role to financial market infrastructures.
Thomas Zschach, Chief Innovation Officer at Swift, said: “As a neutral cooperative with a reach across 11,000 institutions in more than 200 countries, and oversight by central banks globally, Swift is uniquely placed to engage closely in the future of securities.
“We look forward to this set of new experiments and innovating collaboratively with market participants on the emerging trend of tokenised assets.”
Swift was motivated to draw up the blueprints after observing bank and securities firm responses to the emerging tokenised asset space, including the fractionalisation process whereby assets are broken into smaller value digital tokens.
The company also identified the ‘embracing’ of tokenisation by fiscal market infrastructures, which are supporting the full life cycle of digital securities, as well as the introduction of digital asset servicing capabilities such as private key safekeeping by financial institutions.
Citing some estimates which place the tokenised market at $24 trillion USD by 2027, Swint asserts that the digital products can be applied to stocks, bonds and liquid assets, increasing liquidity and enabling a wider consumer demographic to invest in assets that may have been unavailable to them previously.
The company predicts that over the next decade, tokensied and traditional assets will ‘likely co-exist, and this poses potential challenges’ – something which Swift believes it is ‘uniquely placed to help solve’.
One such challenge is inefficiencies, fragmentation and cross-industry rising costs and risks could emerge as a result of the variety of technologies, platforms and regulatory environments creating a ‘thicket of connections’ for the securities market.
“Our vision for instant and frictionless transactions not only applies to traditional securities instruments but also to new asset classes as well,” added Vikesh Patel, Head of Securities Strategy, SWIFT.
“The insights from this exercise with leading capital markets participants will help us define and prioritise the concrete steps required to enable seamless processes for tokenised assets.”
Swift’s recognition of the rapid rise of the tokensied asset market is not unwarranted, as it is accurate that many mainstream sectors are beginning to ‘embrace’ the space – something that has been particularly prominent in the sporting sector.
Platforms such as Socios.com and Sorare have been enjoying significant success via partnership with sports organisations, paricialry in the football scene through agreements with clubs such as Arsenal and Leeds United – two of the more recent adopters of the technology as a fan engagement tool – a trend which began to skyrocket after AC Milan entered the field towards the beginning of this year.
However, the sector has not been free of criticism, with some observers noting that tokenised assets often decline in value after significant sums of money are spent on them by consumers – BBC analysis estimated that over £262m ($350m) has so far been spent on such digital currencies.
A notable instance of this saw a digital token based on the hugely popular Korean television series Squid Game outed as an alleged scam last month. According to CoinMarketCap, the price of the token rose $0.012 to $6.27 by the end of its launch week, before significantly falling as further details over the coin came to light.
Meanwhile, aforementioned Arsenal recently faced criticism from the Advertising Standards Authority (ASA) after a promotion for Socios.com and fan tokens on the Premier League club’s website was deemed as ‘misleading’.
Commenting on SETL’s cooperation with Swift on exploration into the tokens, Anthony Culligan, the firm’s Chief Engineer, remarked: “We are very pleased to be contributing to this important initiative. We see significant innovation in securities tokenisation at the moment and these experiments have the potential to create broader accessibility and interoperability between the emerging networks.”