Tokenization update: Luxembourg, fractional bonds, new chains and more
- a review of the most interesting tokenization moves over the past month
“There is a theory which states that if ever anyone discovers exactly what the Universe is for and why it is here, it will instantly disappear and be replaced by something even more bizarre and inexplicable.
There is another theory which states that this has already happened.” – Douglas Adams ||
Hello everyone, and happy Friday! I hope you’re taking care of yourself – January so far has been kind of crazy, and it’s about to get even more so.
Below, I offer an update on what has been going on in tokenization over the past month – or rather, the four most impactful moves or announcements I’ve seen, in an attempt to separate signal from noise. This will be part of a regular weekly series in which I rotate between tokenization, stablecoins, CBDCs and regulation. It doesn’t take a lot of foresight to guess that things will be accelerating this year in all four areas.
(No audio today, sorry!)
IN THIS NEWSLETTER:
Luxembourg’s DLT bill
Fractional bonds for treasury management
A tokenization blockchain?
Progress on DLT Pilot Regime
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WHAT I’M WATCHING:
TOKENIZATION UPDATE:
This is part of a regular weekly series in which I summarize key moves in specific crypto-related areas, rotating between tokenization, stablecoins, CBDCs and regulation. My aim to help you separate the signal from the noise (of which there is an astonishing amount).
Let’s start with an overlooked bill that could influence a huge industry:
Luxembourg’s DLT bill
Last month, Luxembourg passed a law streamlining the issuance of and investment in tokenized assets. Known as Blockchain Law 4 (because it’s the government’s fourth blockchain-related bill), it changes the custody requirements, and broadens the range of tokenizable assets from unlisted bonds to include private equities.
Until now, tokenized bonds had to be held via a two-tier custody system involving a central account keeper, similar to a central securities depository (CSD), and a secondary account holder. Yes, each tokenized asset effectively has two custodians, which doesn’t sound particularly efficient, but it does echo the traditional system. Arguably, this gave regulators and investors time to get comfortable both with blockchain workings and the idea of a broader, more efficient market.
The new bill introduces the concept of a “control agent” as an alternative to the two-tier system – control agents reconcile the issuance and investment amounts, and record the chain of custody but don’t actually hold the tokens. This function can be executed by banks, investment firms and other settlement institutions, and in theory simplifies the middleman role while permitting institutional investors to self-custody.
The change is not about pushing tokenization on a thin market – it’s potentially much bigger than that.
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