Digital finance technologies hold a lot of transformative potential. Distributed ledger technology (DLT) – of which blockchain is the best known example – powers digital bond issuances that, in time, could lessen the need for intermediaries in the issuance process, thereby improving operational efficiency and potentially reducing costs. DLT also underlies tokenization of real world assets, which could increase accessibility of certain instruments.
However, to make these potential benefits a reality and gain wider adoption, in Moody’s view, DLT-based technologies and platforms will need to overcome several key hurdles, including a lack of interoperability and standardization among DLT systems, a lack of reliable digital cash options, regulatory uncertainty and technology risks.
This post is part of CoinDesk’s “Crypto 2024” predictions package.
In the last few months, an increasing number of institutions have begun to engage with permissionless blockchain via both pilot studies and real transactions. Many of these entities gravitate towards Ethereum, given its extensive ecosystem of applications and networks that have developed their own user base and product offering in the last few years. As an open-source public blockchain, Ethereum provides a blockchain base layer on top of which developers can build solutions for sharing data and value across other networks.
Ethereum’s flexible design and its multi-year plan for upgrades, including ones that will improve interoperability, have made it a popular platform for digital bond issuances. Large institutions such as the European Investment Bank have issued bonds on Ethereum, which was also the blockchain underlying a digital green bonds Moody’s rated in 2023, a €10 million senior unsecured digital green bond issued by Société Générale. Over time, in Moody’s view, public blockchain networks like Ethereum and traditional infrastructure will be more interlinked, which will enhance blockchains’ use cases, promoting industry growth.
Asset tokenization – converting an asset such as a fund, real estate or art into a digital token, making it storable and transferable using DLT – has been gaining ground in the past year. Total value of tokenized real world assets on public blockchains increased to $2 billion from $1 billion in…
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