Singapore MAS tokenization standards require revision to realize innovation potential
The Monetary Authority of Singapore (MAS) Project Guardian has been making Waves in recent months for its progressive approach to digital assets.
For example, MAS recently launched the world’s first live buyback using a digitally native bond on a public blockchain. These and numerous other innovations mark a significant milestone in the company’s latest approach to digital assets.
However, although Ralf Kubli, board member of the Casper Association, the organization responsible for overseeing the Casper Network, is optimistic about the developments of MAS, he underlines that this innovation is not without its challenges.
Kubli believes that a critical but often overlooked aspect of the tokenization process is the issue of standardization.
In an interview with CryptoSlateHe explained that current practices in asset tokenization focus primarily on digitizing the asset itself, but neglect to include the relevant liabilities and cash flows in this digital transformation. This results in the creation of asset-backed tokens that are added to blockchains, often accompanied by a simple PDF outlining the terms and conditions.
Kubli believes that while this approach is seemingly effective, it still requires manual intervention for cash flow calculations and can potentially lead to errors and inconsistencies. He points out that this lack of transparency and verifiability in cash flows is very similar to the problems that precipitated the 2008 banking crisis. Moreover, Kubli argues that the key to preventing a similar economic disaster is to ensure that cash flows are digitized, tokenized in a machine-executable format, and most importantly, standardized.
In an upcoming interview, Ralf Kubli dives deeper into these challenges and explores potential paths to a safer and more efficient future in asset tokenization.
You highlighted that the lack of standardization in asset tokenization applications is a major problem. Can you detail the risks and challenges this poses, particularly in the context of the Monetary Authority of Singapore’s latest initiative?
The recent announcement of the Project Guardian initiative by the Monetary Authority of Singapore is a major step towards demonstrating the benefits that tokenization can deliver. However, these tokenized assets still do not benefit from any standards that would make them both secure and interoperable across the entire financial ecosystem. Current projects do not define payment obligations; This means that the cash flows of the financial instrument are in a machine-readable and machine-executable protocol. Failure to do so means we still have the same risks that have plagued the financial sector for years.
As for the challenges, it may take some time to get everyone to adopt the same standards, but if projects like MAS’s really want to make progress, they need to do it.
You mentioned that tokenization platforms often overlook liabilities and cash flows. How critical is it to include these elements in the tokenization process and what would be the ideal approach to achieve this?
Currently, most tokenized assets do not include algorithmic disclosures of their liabilities or cash flows. They simply tokenize a PDF version of a contract; This means that people still have to read, interpret and process them manually and find the relevant documents detailing the financial contract. This completely undermines the purpose of tokenization and does not move the financial industry forward in any meaningful way.
Applying cash flow logic to smart contracts representing these assets transforms them into “Smart Financial Contracts” that can now be machine read, executed and audited. With these, we can truly take advantage of the benefits brought by tokenization, which allows for much faster, more efficient and more transparent financing.
Ultimately, the inclusion of cash flows and payment obligations in Smart Financial Contracts solves the reconciliation problem both within and between financial firms while allowing for systemic risk management.
You suggested that a lack of cash flow transparency could be dangerous, drawing parallels with the 2008 banking crisis. How can blockchain and tokenization technologies be leveraged to prevent such economic risks in the future?
By automating finance through tokenization, each company’s balance sheet can be fully audited in near real-time. Because the financial assets on the balance sheets of these companies are forward-looking, static and dynamic, the question “what if?” Simulations can be performed at any time.
Firms will be able to see exactly where they stand in terms of liquidity and can easily model how they would perform under any conceivable economic condition. This will effectively reduce the risk of volatility and contagion that we have seen recently, as well as the events that led to the 2008 crisis.
An algorithmic and standardized understanding of the current status of each financial contract on any firm’s balance sheet will also reduce the regulatory burden and enable effective and progressive regulation and systemic risk analyzes across many firms.
Do you see the Monetary Authority of Singapore’s move as a step towards addressing these tokenization challenges globally, or is it more of a localized effort? How can other regulators learn from this?
Many of MAS’s initiatives are being developed in collaboration with various regulators; Therefore, what is happening in large international financial companies in Singapore is global in nature.
What do you think the future holds for the regulation of tokenized assets? How important is international cooperation in standardizing these practices?
Tokenized financial assets will revolutionize the way financial systems work. You can think of it as renewing the plumbing of capital markets. Tokenization is already occurring on a large scale with cash and cash equivalents (deposit tokens, money market funds, treasury bills, etc.). Many major players are investing heavily in fund tokenization (such as Fidelity, Franklin Templeton, and KKR).
For debt, structured instruments and derivatives, algorithmic definitions of the underlying financial instrument’s cash flows are a prerequisite for the successful adoption of infrastructure for tokenized financial assets.
A bond or mortgage remains a bond or mortgage when it is tokenized. Regulators should therefore be happy to have DLT-enabled financial infrastructure where it is much easier to keep track of which party has which liability.
Without Cash Flows inside tokens representing debt, structured instruments or derivatives, these tokens will remain dumb and will not provide the necessary efficiency in price discovery and post-trade automation.
What are some potential solutions or innovations that you foresee that could solve the problem of standardization in asset tokenization?
A comprehensive set of open banking standards that algorithmically define how financial contracts interact. Combining tokenization with clearly defined standards can bring a new level of efficiency, transparency and legitimacy to finance and businesses. Fortunately, standards already exist that can address these concerns, particularly those outlined by the Foundation for Research into Universal Standards for Algorithmic Contract Types (ACTUS). The implementation of a structure like this is what tokenization needs to come to if it truly wants to be adopted.
Do you believe the issues you describe with tokenization are specific to stablecoins or are indicative of a broader trend in the financial system?
The truth is that using stablecoins for payments brings little innovation to the financial sector. Since finance is the exchange of cash over time and payments are the exchange of cash today, innovations in payment channels have been confused with innovations in finance.
DeFi currently consists primarily of overcollateralized loans, which will maintain it as a niche form of finance because very small amounts of overcollateralized loans exist in the real world. The reason DeFi loans are so heavily collateralized is that DeFi cannot calculate a loan’s cash flows or liabilities without human intervention.
As I said, to innovate and attract institutions, liabilities and cash flows need to be tokenized, machine-executable, and perhaps most importantly, standardized. With solid financial logic supporting the blockchain-based tokenization we see today, DeFi can move beyond its niche status into the revolutionary technology it aims to become.
What advice would you give to innovators and regulators in the blockchain space to effectively address these challenges?
For innovators, don’t just create another payment channel; this just creates another channel that must be independently audited. Instead, take advantage of smart financial contracts that can be audited through automation. This is true innovation.
As for regulators, understand that adopting tokenization that follows agreed-upon standards will actually make your job much easier. All of these instruments and rails will be transparent and enforced by law. This means it won’t even be possible for companies to do things like overvalue positions and carry liabilities, and somehow if they do it will be completely visible.
Finally, what is your vision for the future of blockchain and tokenization in creating a more efficient, transparent and stable financial ecosystem?
For the first time in the 60 years since computers began being used in banks, we are able to address and solve the fundamental problems plaguing banking and financial systems. With the implementation of open source, algorithmic financial contracts, the financial world of tomorrow will operate much more efficiently and balance sheets can be reconciled in minutes or hours, with reduced or eliminated cases of fraud.
Done right, Blockchain can truly deliver the reliability needed to improve firm-wide risk management and re-enable systemic risk management. I think this is happening; It will take a little more time to get everyone on board.
Contact Ralf Kubli
#Singapore #MAS #tokenization #standards #require #revision #realize #innovation #potential
The Monetary Authority of Singapore (MAS) Project Guardian has been making Waves in recent months for its progressive approach to digital assets.
For example, MAS recently launched the world’s first live buyback using a digitally native bond on a public blockchain. These and numerous other innovations mark a significant milestone in the company’s latest approach to digital assets.
However, although Ralf Kubli, board member of the Casper Association, the organization responsible for overseeing the Casper Network, is optimistic about the developments of MAS, he underlines that this innovation is not without its challenges.
Kubli believes that a critical but often overlooked aspect of the tokenization process is the issue of standardization.
In an interview with CryptoSlateHe explained that current practices in asset tokenization focus primarily on digitizing the asset itself, but neglect to include the relevant liabilities and cash flows in this digital transformation. This results in the creation of asset-backed tokens that are added to blockchains, often accompanied by a simple PDF outlining the terms and conditions.
Kubli believes that while this approach is seemingly effective, it still requires manual intervention for cash flow calculations and can potentially lead to errors and inconsistencies. He points out that this lack of transparency and verifiability in cash flows is very similar to the problems that precipitated the 2008 banking crisis. Moreover, Kubli argues that the key to preventing a similar economic disaster is to ensure that cash flows are digitized, tokenized in a machine-executable format, and most importantly, standardized.
In an upcoming interview, Ralf Kubli dives deeper into these challenges and explores potential paths to a safer and more efficient future in asset tokenization.
You highlighted that the lack of standardization in asset tokenization applications is a major problem. Can you detail the risks and challenges this poses, particularly in the context of the Monetary Authority of Singapore’s latest initiative?
The recent announcement of the Project Guardian initiative by the Monetary Authority of Singapore is a major step towards demonstrating the benefits that tokenization can deliver. However, these tokenized assets still do not benefit from any standards that would make them both secure and interoperable across the entire financial ecosystem. Current projects do not define payment obligations; This means that the cash flows of the financial instrument are in a machine-readable and machine-executable protocol. Failure to do so means we still have the same risks that have plagued the financial sector for years.
As for the challenges, it may take some time to get everyone to adopt the same standards, but if projects like MAS’s really want to make progress, they need to do it.
You mentioned that tokenization platforms often overlook liabilities and cash flows. How critical is it to include these elements in the tokenization process and what would be the ideal approach to achieve this?
Currently, most tokenized assets do not include algorithmic disclosures of their liabilities or cash flows. They simply tokenize a PDF version of a contract; This means that people still have to read, interpret and process them manually and find the relevant documents detailing the financial contract. This completely undermines the purpose of tokenization and does not move the financial industry forward in any meaningful way.
Applying cash flow logic to smart contracts representing these assets transforms them into “Smart Financial Contracts” that can now be machine read, executed and audited. With these, we can truly take advantage of the benefits brought by tokenization, which allows for much faster, more efficient and more transparent financing.
Ultimately, the inclusion of cash flows and payment obligations in Smart Financial Contracts solves the reconciliation problem both within and between financial firms while allowing for systemic risk management.
You suggested that a lack of cash flow transparency could be dangerous, drawing parallels with the 2008 banking crisis. How can blockchain and tokenization technologies be leveraged to prevent such economic risks in the future?
By automating finance through tokenization, each company’s balance sheet can be fully audited in near real-time. Because the financial assets on the balance sheets of these companies are forward-looking, static and dynamic, the question “what if?” Simulations can be performed at any time.
Firms will be able to see exactly where they stand in terms of liquidity and can easily model how they would perform under any conceivable economic condition. This will effectively reduce the risk of volatility and contagion that we have seen recently, as well as the events that led to the 2008 crisis.
An algorithmic and standardized understanding of the current status of each financial contract on any firm’s balance sheet will also reduce the regulatory burden and enable effective and progressive regulation and systemic risk analyzes across many firms.
Do you see the Monetary Authority of Singapore’s move as a step towards addressing these tokenization challenges globally, or is it more of a localized effort? How can other regulators learn from this?
Many of MAS’s initiatives are being developed in collaboration with various regulators; Therefore, what is happening in large international financial companies in Singapore is global in nature.
What do you think the future holds for the regulation of tokenized assets? How important is international cooperation in standardizing these practices?
Tokenized financial assets will revolutionize the way financial systems work. You can think of it as renewing the plumbing of capital markets. Tokenization is already occurring on a large scale with cash and cash equivalents (deposit tokens, money market funds, treasury bills, etc.). Many major players are investing heavily in fund tokenization (such as Fidelity, Franklin Templeton, and KKR).
For debt, structured instruments and derivatives, algorithmic definitions of the underlying financial instrument’s cash flows are a prerequisite for the successful adoption of infrastructure for tokenized financial assets.
A bond or mortgage remains a bond or mortgage when it is tokenized. Regulators should therefore be happy to have DLT-enabled financial infrastructure where it is much easier to keep track of which party has which liability.
Without Cash Flows inside tokens representing debt, structured instruments or derivatives, these tokens will remain dumb and will not provide the necessary efficiency in price discovery and post-trade automation.
What are some potential solutions or innovations that you foresee that could solve the problem of standardization in asset tokenization?
A comprehensive set of open banking standards that algorithmically define how financial contracts interact. Combining tokenization with clearly defined standards can bring a new level of efficiency, transparency and legitimacy to finance and businesses. Fortunately, standards already exist that can address these concerns, particularly those outlined by the Foundation for Research into Universal Standards for Algorithmic Contract Types (ACTUS). The implementation of a structure like this is what tokenization needs to come to if it truly wants to be adopted.
Do you believe the issues you describe with tokenization are specific to stablecoins or are indicative of a broader trend in the financial system?
The truth is that using stablecoins for payments brings little innovation to the financial sector. Since finance is the exchange of cash over time and payments are the exchange of cash today, innovations in payment channels have been confused with innovations in finance.
DeFi currently consists primarily of overcollateralized loans, which will maintain it as a niche form of finance because very small amounts of overcollateralized loans exist in the real world. The reason DeFi loans are so heavily collateralized is that DeFi cannot calculate a loan’s cash flows or liabilities without human intervention.
As I said, to innovate and attract institutions, liabilities and cash flows need to be tokenized, machine-executable, and perhaps most importantly, standardized. With solid financial logic supporting the blockchain-based tokenization we see today, DeFi can move beyond its niche status into the revolutionary technology it aims to become.
What advice would you give to innovators and regulators in the blockchain space to effectively address these challenges?
For innovators, don’t just create another payment channel; this just creates another channel that must be independently audited. Instead, take advantage of smart financial contracts that can be audited through automation. This is true innovation.
As for regulators, understand that adopting tokenization that follows agreed-upon standards will actually make your job much easier. All of these instruments and rails will be transparent and enforced by law. This means it won’t even be possible for companies to do things like overvalue positions and carry liabilities, and somehow if they do it will be completely visible.
Finally, what is your vision for the future of blockchain and tokenization in creating a more efficient, transparent and stable financial ecosystem?
For the first time in the 60 years since computers began being used in banks, we are able to address and solve the fundamental problems plaguing banking and financial systems. With the implementation of open source, algorithmic financial contracts, the financial world of tomorrow will operate much more efficiently and balance sheets can be reconciled in minutes or hours, with reduced or eliminated cases of fraud.
Done right, Blockchain can truly deliver the reliability needed to improve firm-wide risk management and re-enable systemic risk management. I think this is happening; It will take a little more time to get everyone on board.
Contact Ralf Kubli
#Singapore #MAS #tokenization #standards #require #revision #realize #innovation #potential
