Analysts: Tokenization Will Solve Global Trade Finance Issues

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by Giorgi Kostiuk

2 years ago

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  1. Tokenization and the Trade Finance Gap
  2. Advantages of Tokenization
  3. Ongoing Efforts


    4. Analysts from major financial institutions believe that tokenization will significantly solve global trade finance issues. According to stakeholders from Standard Chartered and HSBC, tokenization will make financing options more accessible for interested organizations.

    Tokenization and the Trade Finance Gap

    Tokenization is the process of representing real-world assets (RWAs) or data on a blockchain. This process increases liquidity and improves accessibility. By converting assets into tokens on a blockchain, tokenization speeds up trade transactions and reduces transaction costs due to the absence of intermediaries. Steven Hu, Head of Digital Assets, Trade, and Working Capital at Standard Chartered, believes that blockchain technology will optimize financial services and make credit facilities more accessible.

    The trade finance gap refers to the difference between import and export demands and the corresponding approvals. According to the Asian Development Bank (ADB), this gap worsened by 29.4% in 2022, reaching $2.5 trillion from $1.7 trillion in 2020. Estimates predict this figure will rise to $36.2 trillion by 2030.

    Imagine a future where the trade finance element is structured within a digital token and can be freely traded in secondary markets. This will turn into a new potential business model based on fees.Steven Hu

    Advantages of Tokenization

    Advantages of tokenization include expanding a company’s target audience and making it easier to invest in unfamiliar markets. It also significantly reduces the transaction process, allowing companies to transfer securities and make instant payments via blockchain. Otherwise, this process could take several days. While Steven Hu highly praises the benefits of tokenization, he noted that a lack of expertise could delay its adoption.

    Ongoing Efforts

    While widespread adoption of tokenization may take time, efforts are already underway by various stakeholders. For example, in July, MakerDAO announced a tokenization competition for innovators looking to introduce related products. MakerDAO’s Spark Tokenization Grand Prize plans to include $1 billion worth of tokenized real-world assets (RWAs) into the decentralized finance (DeFi) ecosystem.

    The competition prioritizes proposals compatible with MakerDAO’s Spark ecosystem and focuses on those with high liquidity and competitive pricing potential. The jury panel includes renowned platforms such as Steakhouse Financial and Phoenix Labs, which will evaluate the submitted proposals. After selecting several finalists, MKR token holders will vote to determine the ultimate winner.

    Tokenization has the potential to narrow the global trade finance gap. HSBC and Standard Chartered officials state that this technology will optimize financial services and make credit facilities more accessible. However, the lack of expertise and the process of widespread adoption may take time. Meanwhile, organizations like MakerDAO are undertaking various initiatives to promote tokenization. These processes should be closely monitored, and developments should be followed carefully.

    Tokenization promises to bridge the gap in global trade finance by making financial services and credit facilities more accessible. However, its widespread adoption may require additional efforts and expertise.

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