An article from Northern Trust exec: Crypto rule changes may ease tokenization. Biden-era anti-crypto regulations didn’t just affect volatile digital assets. They also affected firms offering traditional assets, like bonds, on the blockchain. Recent regulatory shifts around cryptocurrency could unlock innovation and growth for tokenized traditional assets, too, Northern Trust’s head of digital assets for North America said. Andy Czupek, the Northern Trust executive, stated that the regulations weren’t just making it a challenge to work in the innovation space for crypto, but for all traditional digital assets as well. To a client, a tokenized bond is the same as a traditional bond, with the same value and stability by a slightly different name. The difference is in its infrastructure: Built on the blockchain, tokenized assets can provide benefits for banks and financial institutions. With tokenization, settlement and reconciliation are ‘more efficient and faster and transparent, with data available directly to clients,’ Czupek said. The fact that you can have more of a real-time pace to it and more of a transparent data capability allows for not only that speed and transparency, but also the elimination of certain mediating parties that cause more friction and more cost to be borne by the client. Northern Trust launched its digital asset platform, now called Matrix Zenith, in 2017. It started as a blockchain administration system for the private equity market, developed with IBM. It’s since expanded to include other solutions, including one addressing digital carbon credits. BNP Paribas found that, compared to a traditional two- to three-business days settlement cycle, tokenized bonds can settle in minutes, and potentially even seconds, from buying to ownership. The shift to tokenization ‘is not too dissimilar from 30 years ago, when we were transitioning equities and derivatives from pit trading and floor trading to electronic trading systems,’ he said. The shift to tokenization ‘is not too dissimilar from 30 years ago, when we were transitioning equities and derivatives from pit trading and floor trading to electronic trading systems,’ he said. There’s a regulatory benefit to financial transactions on the blockchain network, Czupek said, because it would allow regulators to participate in audits, transactional reviews or any kind of regulatory oversight in a more immediate fashion. AI could increase efficiency by analyzing large datasets to streamline decision-making processes in tokenized markets, according to blockchain firm Hedera. AI may also bring additional levels of security to tokenization due to its ability to detect and root out fraudulent behavior, according to financial crime prevention firm DataVisor. Czupek said he expects the regulatory environment around tokenized assets to continue to evolve. Servicing clients with the nascent technology at Chicago-based Northern Trust for the past seven years 'has been very much trying to make sure we meet the demand of the clients, especially as they come up and not after,' he said.

Northern Trust exec: Crypto rule changes may ease tokenization

Northern Trust's head of digital assets for North America, Andy Czupek, discusses how recent regulatory shifts around cryptocurrency could unlock innovation and growth for tokenized traditional assets, such as bonds, by improving efficiency and transparency in settlement and reconciliation processes.