Building the digital asset value chain: How to achieve scale

A recent surge in collaborations between policymakers and financial institutions is quickening the pace of development of the digital asset value chain, observed SBI Digital Asset Holdings (SBI DAH) CEO Fernando Luis Vázquez Cao.

Yet, the lack of regulatory alignment between governments remains an impediment to scaling up.

Established in 2018, Tokyo-headquartered SBI DAH is a new player backed by Japan’s financial conglomerate SBI Holdings, giving it institutional credibility.

Notably, it participated in the Monetary Authority of Singapore’s (MAS) Project Guardian, alongside DBS and JPMorgan in November 2022.

The first-ever industry pilot conducted foreign exchange and government bond transactions using liquidity pools of tokenised Singapore government securities bonds, Japanese government bonds, Japanese Yen and Singapore dollar.

In June 2023, SBI DAH renewed its involvement in Project Guardian, partnering with Swiss bank UBS and DBS to execute a pilot repurchasing agreement (repo) with natively issued digital bonds on a public blockchain.

BT in your inbox

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign Up

Sign Up

The two industry firsts have reinforced SBI DAH’s belief in building an end-to-end value chain, which it sees as crucial for the future of digital assets.

“They were very successful exercises but beyond bonds and repos, what about asset management, what about trade finance?” asked Vázquez Cao.

Challenges and opportunities

SBI DAH is building an ecosystem for issuance, custody, management and liquidity for digital assets – a journey that began with the creation of SBI Digital Markets in 2020. It launched digital asset exchange AsiaNext, a joint venture with Swiss market operator SIX, in 2021.

As it develops its digital asset value chain, SBI DAH will continue to participate in Project Guardian.

This is important because while the pilot projects established the viability of its tech and firmed up the risks playbook for the financial institutions, Vázquez Cao said cross-border regulatory alignment is still wanting.

“Even after the second year with the three countries, Switzerland, Japan and Singapore, we didn’t have the degree of regulatory alignment that was needed for us to move tokens across borders,” he said.

“That’s what I see as the biggest impediment now, for us to do this business at a scale beyond our home turf in Japan and Singapore,” he adds.

Despite the challenge, Vázquez Cao remains optimistic. He views public-private initiatives, such as Project Guardian and Project Agora, as validations of the potential of blockchain technology and tokenisation.

Project Agora is led by the Bank for International Settlements. It brings together central banks including the Bank of England, Bank of Japan and the Federal Reserve Bank of New York, with over 40 private financial firms, to explore how tokenisation can enhance wholesale cross-border payments.

SBI Shinsei Bank, a subsidiary of SBI DAH’s parent company SBI Holdings, is also participating in Project Agora.

These collaborations will, Vázquez Cao believes, contribute to the development of global regulatory frameworks.

He also sees ample opportunity in Singapore, especially in supporting financial institutions still relying on legacy systems.

“There are a lot of efficiencies to be gained by using digital assets and blockchain technology,” said Vázquez Cao, “but you need to extract the blockchain layer for those who are not ready to interact with this new world directly.”

This was produced in partnership with the Monetary Authority of Singapore and the Global Finance & Technology Network.

For more stories, go to https://bt.sg/sff2024