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Casper Exec outlines future of asset tokenization across the industry

With blockchain technology and smart contracts, tokenization could revolutionize the way assets are issued, acquired, sold and tracked.

Date: 2024-03-29 Author: Łukasz Michałek
Casper Exec outlines future of asset tokenization across the industry

HSBC ‘s recent launch of retail gold tokens underscores the growing use of tokenization of financial assets, a practice that is moving from early adoption to widespread use.

However, challenges remain in ensuring standardization and broader integration.

Asset tokenization uses blockchain technology to represent ownership of real-world assets (real estate, artwork, shares, etc.) in the form of tradable digital tokens. These tokens act as digital certificates of ownership, enabling fractional ownership. As a result, it broadens the investor base and increases trading activity, thus liquidating forgotten markets.

According to Ralf Kubli, a board member of the Casper Association, a critical limitation of many current tokenization platforms is their narrow scope.

He explained that tokenization platforms prioritize digitizing the underlying asset itself, neglecting to represent the associated liabilities and cash flows. As a result, an asset-backed token is created and linked to the blockchain, with a separate PDF document containing the terms and conditions.

Overcoming the transparency gap with smart financial contracts

However, the reliance on manual cash flows negates the very efficiency and automation that tokenization promises. This lack of transparency and verifiability of cash flows creates significant risk, reflecting the critical vulnerability exposed during the 2008 financial crisis.

“Current designs do not define the cash flows of the underlying financial instrument in a readable and machine-executable terms sheet,” – Kubli told Cryptonews on Thursday .

“If we don’t, we will continue to be exposed to the same risks that have plagued the financial industry for years.

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The role of smart contracts in tokenization

Kubli offers a clear solution: make sure all cash flows are algorithmically and deterministically defined within these assets.

This requires the development of “smart financial contracts.” These contracts would not only encode information about the tokenized asset, but also clearly define all payment obligations of the parties involved. In this way, they would comprehensively define both the asset and liability aspects of the financial instrument.

“Fortunately, we have such a standard. Established in the wake of the 2008 financial crisis, the Algorithmic Contract Types Unified Standards (ACTUS) research foundation was created to help clarify the cash flow patterns of hedged financial instruments,” he said.

“Now they have developed and implemented an open source standard that any company can use.”

According to Kubli’s recommendations, the adoption of standardized cash flow definitions for tokenized assets would provide financial institutions with real-time visibility into their holdings and liabilities. The increased clarity could significantly reduce the risk of a future crisis similar to what happened in 2008.

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Łukasz Michałek
Łukasz Michałek
Founder of the rapidly developing cryptocurrency channel "Biblia Kryptowalut" on YouTube. He also co-creates the Arena Trading group with Marek. Łukasz is fascinated and passionate about blockchain technology and cryptocurrencies, which constitute the central element of his activity in the cryptocurrency industry.
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