The tokenization of real-world assets offers “far-reaching” new features, according to Travis Hill, the vice chairman of the US Federal Deposit Insurance Corporation (FDIC).
In a new talk at the Mercatus Center, Hill says that tokenization of real-world assets offers programmability, the ability to record transfers of value that are automatically executed automatically when certain conditions are met.
Tokenization also enables the simultaneous exchange and settlement of payment and delivery, known as atomic settlement, and provides a shared, immutable ledger that provides a reliable audit trail, the FDIC vice chairman said.
“We are already seeing powerful examples of how tokenization is starting to deliver tangible benefits, such as the introduction of intraday repos and dramatic extensions of settlement times for multi-currency bond issuances. While existing use cases have focused on institutional customers, the benefits could expand to retail in the future; To give an example, programmability could simplify the home purchasing process by eliminating the need to put money in escrow before closing.”
However, Hill notes that programmability could make it easier for customers to withdraw money from banks after negative news, which could intensify bank runs.
He says his agency and other regulators must provide additional clarity to banks interested in the blockchain sector.
“I appreciate the need for regulators to be deliberate and cautious in approaching these issues. We need to do our homework and make sure we understand the implications of new technologies that could reshape banking. And I recognize the value of being cautious about the extent to which the FDIC-insured banking system engages in the crypto economy.
But there are significant downsides to the FDIC’s current approach, which has contributed to the general public perception that the FDIC is closed to business when institutions are interested in anything related to blockchain or distributed ledger technology. The confidential nature of the existing process means that there is little public information about what types of activities the FDIC might be open to.”
Hill believes regulators should look at tokenization and crypto in the real world differently.
“Agencies should distinguish between ‘crypto’ and banks’ use of blockchain and distributed ledger technologies. I don’t think banks interested in the latter, insofar as it simply represents a new way to capture ownership and transfer value, should have to go through the same gauntlet as banks interested in crypto.”
The vice chairman also argues that a poor regulatory approach will cede financial influence to non-US jurisdictions.
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