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Creating A Tokenized World With Chainlink CCIP

In a recent episode of Global Custodian’s Smarter Securities podcast, host Jonathan Watkins talked with Swift’s Tokenized Assets Product Lead, Thomas Dugauquier, Euroclear’s Head of Digital Assets Competence Center, Stephanie Lheureux, and Chainlink co-founder Sergey Nazarov, to explore how blockchain interoperability standards could allow tokenized assets to transform global finance.

The trio reflected on Swift’s proof of concept demonstrating how Chainlink’s Cross-Chain Interoperability Protocol (CCIP) allows traditional financial institutions to transact with a wide range of private and public blockchains using their existing infrastructure. Euroclear, a major financial market infrastructure (FMI) custodying over €36 trillion of assets, was among a dozen global banks and FMIs that collaborated with Swift and Chainlink to illustrate how 11,000+ entities using Swift’s messaging standard could become blockchain-enabled via CCIP. 

By allowing digital assets to flow freely between private bank chains and public DeFi applications, CCIP empowers traditional financial institutions like Euroclear and ANZ to unlock exciting new use cases for tokenized real-world assets (RWAs). Because RWAs confer new opportunities such as fractionalization and programmability, the space is projected to reach $10 trillion by 2030

Dugauquier highlighted “a whole range” of native and non-native tokenized assets that can be created as well as transparently and programmatically managed onchain.

“You can define the life cycle of the asset and you can do that in a deterministic way, so it means that you know in advance exactly how the asset is going to behave and you know exactly how the events are going to take place,” he explained. “It will also bring one more benefit which is to suppress the counterparty risk because you can do atomic settlement of value.”

Lheureux emphasized the transformative concept of distributed ledger technology (DLT) functioning as a “golden source” of shared data. “That is what is going to remove some reconciliation needs which exist in the capital markets,” she explained.

In such a programmatic, deterministic environment, tokenized assets can circulate more easily.   

“I think that anything can be tokenized in different kinds of asset classes – those which don’t benefit from an existing infrastructure could really benefit from DLT and tokenization in the short term,” said Lheureux.

Nazarov views tokenization as “Securitization 2.0” for asset classes that have yet to be turned into financial products that are simple to acquire, manage, and transfer.

As the industry-standard decentralized computing platform which has securely enabled over $9.5 trillion in onchain transaction value, Chainlink provides essential services such as Price Feeds and Proof of Reserve, which dynamically updates tokenized assets to reflect changes in the status of an underlying asset. 

“That’s something that can get verified second-by-second versus once a year, which as we know from the auditing world, can often be prone to mistakes,” Nazarov said. 

He explained how the programmatic nature of tokenized assets allows certain financial products to automatically interact with each other according to predetermined conditions. 

“I think that programmatic property is what’s going to really change the way that the global financial world works, because now you can encode conditions into financial products and you will have all the data in order to have those conditions fulfilled,” he said.

The goal, in Nazarov’s view, is for Chainlink’s infrastructure to fully unlock liquidity silos and facilitate a global internet of contracts

“I’m hopeful that we can be a good partner to many folks to solve the technical issues around transaction privacy, around transaction throughput, around basic connectivity to all these various chains so the various users on those chains can use the assets that are created,” he said.

“And then the industry can be organized through the great work of Euroclear and Swift and other key parties to come to legal and transactional definitional standards that allow these transactions to happen at scale. And once you solve both of those problems, then I think you reach this great internet of contracts kind of world where everyone benefits.”

Listen to the full conversation on the Smarter Securities podcast.

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