The inevitable future of the global financial system is tokenization

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Panelists Tim BaileyVice President of Global Business & Operations, Red Date Technology, William Quigleya cryptocurrency and blockchain investor and co-founder of Wax and Tether, and I, SelvaOzelliwe were honored to be invited to be part of the Eurasia Blockchain Summit with our roundtable on the “Future of Tokenization”.

Tim Bailey indicated that although tokenization is still in its early stages, Red Date Technology is one of the co-architects of a new global digital infrastructure for digital payments and central bank digital currencies (CBDC). So far, 134 countries and currency unions are, representing 98% of global GDP exploring a CBDC that will tokenize global financial and banking systems. Three countries have fully launched a CBDC: Bahamas, Jamaica and Nigeria.

Central Bank Digital Currency Tracker | Source: Atlantic Council

Red Date Technology is the technical architect of various products, including a blockchain-based service network (BSN) and a universal digital payments network (UDPN), which is a global messaging network that supports digital currency systems regulated by government involving regulated digital currencies, stablecoins and CBDCs. Tim Bailey told the panel:

“Universal Digital Payments Network (UDPN) has successfully launched an all-in-one digital currency sandbox that enables central and commercial banks to test and create innovative use cases with all forms of regulated digital currencies in a real-world environment. UDPN’s all-in-one Digital Currency Sandbox will help prepare financial institutions for the new digital financial world and create innovative new services based on insights from the UDPN team’s work over the past year with more than 25 global commercial banks, power plants and technology companies. I enjoyed taking part in the “Future of Tokenization” panel today with William Quigley and Selva Ozelli at the Eurasian Blockchain Conference in Cappadocia, Turkey. Thanks to Cenk, Nurdem and his team for hosting us at this great event”.

The UPDN team contributes to the global effort made by various organizations, including International Monetary FundTHE World BankSwiss Central Bank, Monetary Authority of Singapore Guardian Projectthe Bank for International Settlements Agora Project with a consortium of central banks and the Institute of International Finance (IIF) which guest the private financial sector to join its exploration of how tokenization can improve the functioning of wholesale cross-border payments, and the Basel Committee, the global reference body for banking regulation. The company works with public sector players and private financial sector partners such as HSBC, Standard Chartered and Deutsche Bank to test new forms of digital currency and digital asset technologies that will ultimately benefit the global economy.

William Quigley explained that he realized the revolutionary potential of tokenization in 2014, when he co-founded the world’s first and most traded stablecoin, Tether. Because tokenization specifically allows assets and their rights to be digitally represented using tokens on blockchain. He predicted that this could transform not only the trading of digital assets, including NFTs, but also any asset that could be represented digitally, such as stocks, bonds and other assets. A disruptor of the conventional financial system and a pioneer in the digital use of traditional currencies, he co-founded Tether tokens built on multiple blockchains.

William also predicted the immense utility and potential of NFTs in the global tokenization trend in unlocking value and creating new markets. With this vision, he created WAX.io in 2017—during a digital asset bull market when the price of BTC rose from $1,000 to $20,000 by the end of the year. Like many projects throughout 2017, it initially built Wax.io on the Ethereum blockchain; However, the platform’s exorbitant gas fees, slowness, energy inefficiency, and inability to handle a high volume of transactions led it to develop the sustainable blockchain and Wax wallet specifically to handle the demands of blockchain players and NFT collectors. William expects, and Tim Bailey said he agrees, that most of the growth in the NFT market will be in utility NFTs, collectible NFTs, and Web 3 gaming NFTs in the future. William added:

“I think within the next 10 to 15 years the world will transition to using digital currencies and paper currencies will be a thing of the past.”

I agree with Tim and William that tokenization of the global financial system is the direction global financial markets are going. What is hopeful about this process is that global regulators have collaborated in designing the legal framework of digital assets in the areas of tax, anti-money laundering and banking laws so that similar laws apply in all jurisdictions.

The Organization for Economic Co-operation and Development approved the Crypto-Asset Reporting Framework (CARF) in August 2022. This framework provides for the standardized reporting of tax information on crypto-asset transactions via CRS, with the aim of automatically exchanging such information. So far, 48 countries have committed to implementing CARF.

The Financial Action Task Force (FAFT) released anti-money laundering standards on virtual assets and virtual asset service providers (VASPs) in 2019. Chain analysis reported that self-reported FAFT surveys of 58 jurisdictions show:

• All jurisdictions (100%) have conducted or are in the process of conducting a risk assessment regarding virtual asset and VASP transactions;
• Five jurisdictions (9%) have or are in the process of explicitly banning virtual assets and VASP transactions (China, Egypt, Saudi Arabia and pending: Seychelles, Indonesia);
• Ten jurisdictions (17%) have not yet established a regulatory framework to require VASPs to register or license and apply AML/CFT measures (Vietnam, New Zealand; ongoing: Türkiye, Argentina, Colombia; together with the five jurisdictions above who have or are in the process of explicitly banning virtual assets and VASP transactions).

This was done by the Basel Committee, the global reference body for banking regulation pushed support the implementation of the Basel rules for digital assets for one year, until January 2026.

In the US, the FTX failure was one of the largest financial frauds and a watershed moment, whose ripple effects included a collapse of the digital asset market, a cryptocurrency banking crisis in 2023 with the failure of 5 US banks, regulatory reactions and further failures. These unfavorable developments in the United States have triggered increasing scrutiny and widespread calls for regulation of the digital asset industry, which is regulated by the United States Securities and Exchange Commission, the Commodity Futures Trading Commission, the Financial Crimes Enforcement Network, the Office of Foreign Assets Control and the Internal Revenue Service (IRS).

Therefore, the digital asset industry is encouraging House leaders will support the Financial Innovation and Technology (FIT) for 21st Century Act legislation (H.R. 4763) to establish a U.S. regulatory regime for digital assets, which is scheduled for a floor vote during the final week of May by the United States House of Representatives. representatives.

(1) The bill suggests dividing digital asset oversight duties between the SEC and the CFTC. The bill also includes provisions for stablecoin regulation and whistleblower protection;

(2) The banknote contains an anti-central bank digital currency banknote (anti-CBDC bill) (HR 1122), which seeks to prohibit the Federal Reserve from issuing digital currency to consumers.

Additionally, the IRS recently issued the draft Form 1099-DA which will be used by digital asset brokers, which would include centralized exchanges, decentralized exchanges, wallet providers that enable trader execution and transfers, as well as Bitcoin ATMs, to report digital asset transactions next year.

The draft Form 1099-DA data includes the date of acquisition of the digital assets, the cost basis of those assets, the date and time of the transaction in question, the proceeds of the sales, as well as the gross proceeds of all transactions of digital assets. In essence, the data for reporting digital asset transactions on the draft Form 1099-DA is similar to the data currently reported on Form 1099-B on proceeds from broker exchange and barter transactions for stocks, commodities, regulated futures contracts, foreign currency contracts, forward contracts, debt instruments, options, security futures contracts, etc. It should be noted that earnings from digital asset collectible NFTs are taxed at a rate of 28%, which is higher than current capital gains rates.

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