Digital Asset has completed another large pilot project demonstrating the tokenization power of its Canton Network. This time, it worked with clearing and settlement service Euroclear, the World Gold Council and global law firm Clifford Chance to tokenize gold and bonds — Eurobonds and gilts.
The project brought together 27 unnamed market participants, including 11 observers, on the Canton testnet, where they tokenized assets and used them as collateral in over 500 real-time atomic transactions divided into six categories.
Putting real-world assets to work
Research cited by Digital Asset shows there is a $230-trillion “universe of marketable securities,” but the global collateral market amounts to just $25.5 trillion. Eurobonds and gilts (the term used for bonds in the British Commonwealth) are popular and easily accessible and so a natural choice to use as collateral.
Gold, in contrast, is rarely used as collateral because of the challenges of moving and storing it. That is strong motivation for tokenization:
“The ability to mobilize and use these large pools of high quality assets more immediately and efficiently will unlock new revenue opportunities while reducing capital exposure and operating risk.”
In the project report, it is estimated that tokenization could save 35-65% across the settlement value chain. That includes $4.1 billion from settlement failures. In the project, simulated transaction flows ending in a prime broker default were carried out in a three-day period, representing a simplified workflow and considerable savings of time.
Source: Canton Network
The project used the legal concept of “digital twins” to great advantage:
“When we speak of a digital twin, at least in the context of Canton, we are really speaking about a different, better set of books and records. […] Existing agreements can still be used, perhaps simply with slight modification.”
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Digital Asset is into collateral
Digital Asset debuted the Canton Network, an interoperable blockchain network, in May 2023. Goldman Sachs, the Bank of New York and Cboe Global Markets are among the institutions that participated in a project in May.
In September, Digital Asset narrowed its focus and worked with DTCC on a pilot project using US Treasury bonds as collateral.
Schematized repo trade on the Canton Network. Source: Digital Asset
In the next step after the current pilot, Digital Asset will work with interested market participants to develop a production solution based on the same infrastructure.
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