- Binance co-founder Changpeng Zhao is reportedly engaged in a dialogue with a dozen nations over the application of blockchain in tokenizing their assets.
- The discussion centers on the applicability of the concept of tokenization in public finance, and infrastructure.
- Tokenization could play a part in overcoming problems in regard to liquidity, fractional ownership in respect to governmental funding structures.
The co-founder of the cryptocurrency exchange platform Binance, namely Changpeng Zhao, made the announcement at the meeting of the World Economic Forum (WEF) that took place in Davos, Switzerland, and the announcement was that talks concerning tokenization have taken place with “probably a dozen” countries. Tokenization essentially means the process of converting objects in the physical world into tokens using the blockchain system.
Speaking during a panel session at the WEF annual meeting in Switzerland, he highlighted the possibility of changing public finance through tokenization, mainly focusing on those governments that are seeking alternative ways to raise funds or increase their exposure in global capital markets.
According to him, without disclosing the identities of those governments, they are in discussion and seeking possibilities to explore existing blockchain systems that can facilitate their asset and asset class tokenization portfolios.
The technique of tokenization, representing fractional ownership and the digitalization of physical or monetary assets, has become the subject of debate as regulators explore its infrastructure’s place within the new world of finance. Tokenization of assets like government bonds, commodity reserves, or infrastructure assets has the potential to bring more assets to the markets and improve traceability through immutable ledgers.
Public Finance and Blockchain Convergence
Some of the ongoing and highlighted discussions, as per Zhao, with regard to blockchain technology bear relevance to the technology’s ability to support the formation and development of its real-world assets, also called token markets, as piloted in the realms of real estate and corporate debt assets. At a sovereign level, a government may look to leverage blockchain technology to diversify its options, reducing friction with traditional options.
For example, Pakistan recently entered into a Memorandum of Understanding with cryptocurrency exchange platform Binance to explore possibilities around the tokenization of up to $2 billion worth of government assets, including sovereign bonds and commodity reserves, as part of a broader digital finance revamp to boost liquidity and transparency. This represents an emerging trend wherein state actors are showing greater interest in integrating blockchain technologies within their finance agendas.
However, it must also be noted that although tokenization does have a promising potential from the government’s or regulatory authority’s perspective, there exist areas such as legal systems, investor protections, and the adherence to already-existing ranges of financial regulations, for which details or standards for the operation of sovereign assets’ tokenization have to be drawn up, as these areas have been at a nascent stage.
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