The inevitable future of the global financial system is tokenization | Opinion

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This text discusses the development of WAX.io, a blockchain platform specifically designed for gaming and NFTs, founded by William Quigley in 2017 during the digital asset bull market. The text also touches upon the transition to digital currencies, the regulatory frameworks being put in place, and the latest developments in US digital asset regulation.

As panelists at the Eurasia Blockchain Summit, Tim Bailey from Red Date Technology, William Quigley, a cryptocurrency and blockchain investor and co-founder of Wax and Tether, and I, Selva Ozelli, were privileged to participate in a stimulating discussion on “The Future of Tokenization.”

As a researcher studying the development of digital currencies and payments systems, I’ve come across Tim Bailey’s insights that Red Date Technology is playing a significant role in building the foundational infrastructure for central bank digital currencies (CBDCs) and digital payments on a global scale. The exploration of CBDCs has gained momentum with 134 countries and currency unions, accounting for approximately 98% of the world’s total Gross Domestic Product (GDP), considering this innovation. Among these, three nations—the Bahamas, Jamaica, and Nigeria—have already launched their respective CBDCs, marking a significant milestone in the tokenization process of the global financial and banking systems.

The inevitable future of the global financial system is tokenization | Opinion

Red Date Technology serves as the mastermind behind the development of diverse products such as a blockchain service network (BSN) and a universal digital payments system (UDPN). The BSN is a globally interconnected network, while the UDPN supports regulated digital currencies, stablecoins, and central bank digital currencies (CBDCs), all of which are subject to government oversight. At the panel discussion, Tim Bailey shared this insight.

The Universal Digital Payments Network (UDPN) has introduced a comprehensive test platform called the UDPN All-in-One Digital Currency Sandbox. This innovative solution enables central and commercial banks to experiment with various regulated digital currencies in a genuine setting. By utilizing this sandbox, financial institutions can ready themselves for the emerging digital financial landscape and create groundbreaking new services inspired by UDPN’s collaborations with more than 25 international commercial banks, central banks, and tech companies over the past year. I was thrilled to participate in the ‘Future of Tokenization’ discussion with William Quigley and Selva Ozelli during today’s Eurasian Blockchain Conference in Cappadocia, Turkey. Many thanks to Cenk, Nurdem, and their team for hosting us at this excellent event.

As a crypto investor, I’m excited about UPDN’s role in driving innovation within the global financial system. They are collaborating with esteemed organizations like the IMF, World Bank, Swiss National Bank, MAS Project Guardian, BIS Project Agorá, IIF, and the Basel Committee. Together, they are exploring how tokenization can revolutionize wholesale cross-border payments. I believe that by working closely with these institutions and private sector partners such as HSBC, Standard Chartered, and Deutsche Bank, UPDN is paving the way for next-generation digital currency and asset technologies that will significantly enhance the global economy.

In 2014, William Quigley recognized the groundbreaking capability of tokenization after founding Tether, the world’s first and most traded stablecoin. Tokenization enables digital representation of assets and their rights through blockchain-based tokens. Quigley envisioned that this innovation would not only revolutionize digital asset trading including NFTs but also traditional assets like stocks, bonds, and more. As a pioneer in disrupting the financial industry with digital adaptations of conventional currencies, Quigley co-founded Tether, which operates on multiple blockchains.

William foresaw the significant value and possibilities of NFTs in the global tokenization movement, enabling the release of value and the creation of new markets. Guided by this perspective, he established WAX.io in 2017 – a time when digital asset prices skyrocketed from $1,000 to $20,000 for Bitcoin within a year. Similar to numerous projects during that period, Wax.io was initially constructed on the Ethereum blockchain. However, Ethereum’s excessive gas fees, sluggishness, energy inefficiency, and inability to manage high transaction volumes prompted William to create the sustainable WAX blockchain and wallet tailored for the requirements of blockchain gamers and NFT collectors. According to William, and as Tim Bailey agreed, most future growth in the NFT market is predicted to come from utility NFTs, collectible NFTs, and web 3 gaming NFTs. William further mentioned:

As a forward-thinking analyst, I firmly believe that the global financial landscape will undergo a significant shift within the coming decade and a half. Digital currencies are poised to replace traditional paper money in our daily transactions.

As an analyst, I concur with Tim and William’s perspective that tokenization will shape the future of global financial markets. This transformation is promising as international regulators have been working together to establish a consistent legal framework for digital assets. Specifically, they are focusing on areas such as taxation, anti-money laundering regulations, and banking laws to ensure uniformity across jurisdictions.

In August 2022, the Organisation for Economic Co-operation and Development (OECD) endorsed the Crypto-Asset Reporting Framework (CARF). This framework facilitates the uniform reporting of tax details on crypto asset transactions using the Common Reporting Standard (CRS), aiming to automate information exchange. Currently, 48 countries have committed to adopting CARF.

In 2019, the Financial Action Task Force (FAFT) established guidelines for preventing money laundering and terrorist financing in relation to virtual assets and their service providers (VASPs). According to a report by Chainalysis, 58 jurisdictions that responded to FAFT’s surveys indicated these measures are in place.

  • All jurisdictions (100%)  have either conducted or are in the process of conducting a risk assessment covering virtual assets and VASPs transactions;
  • Five jurisdictions (9%)  have or are in the process of explicitly banning virtual assets and VASP transactions (China, Egypt, Saudi Arabia and in progress: Seychelles, Indonesia); 
  • Ten jurisdictions (17%) have not yet established a regulatory framework to require VASPs to register or license and apply AML/CFT measures (Vietnam, New Zealand; in progress: Türkiye, Argentina, Colombia; alongside the five above jurisdictions which have or are in the process of explicitly prohibiting virtual assets and VASP transactions). 

As a financial analyst, I would rephrase that statement as follows: The Basel Committee, which sets international banking regulations, has announced a delay in the enforcement of its Basel rules regarding digital assets until January 2026.

The latest on US digital asset regulation

In the United States, the collapse of FTX marked a significant financial scandal and turning point. The repercussions were far-reaching, causing a downturn in the digital asset market, a 2023 crypto banking crisis resulting in five US bank failures, regulatory action, and additional bankruptcies. Consequently, there has been heightened attention and demands for regulation of the digital asset sector, overseen by various US agencies such as the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), Financial Crimes Enforcement Network (FinCEN), Office of Foreign Assets Control (OFAC), and Internal Revenue Service (IRS).

As a crypto investor, I’m excited about the recent push in the digital asset industry for the Financial Innovation and Technology (FIT) for the 21st Century Act (HR 4763). This legislation aims to create a clear regulatory framework for digital assets in the US. I strongly urge House leaders to support this bill, which is scheduled for a floor vote during the last week of May by the US House of Representatives. By doing so, we can ensure that innovation in this space continues while protecting investors and maintaining market integrity.

The legislative proposal advances the idea of assigning digital asset supervision responsibilities to both the SEC and the CFTC. Additionally, it contains regulations for stablecoins and affords safeguards for informants.

(2) The proposed bill, HR 1122, aims to prevent the Federal Reserve from releasing a digital currency directly to the public. This legislation is referred to as an anti-central bank digital currency bill (anti-CBDC bill).

As a crypto investor, I’ve noticed that the Internal Revenue Service (IRS) has released a draft of the new Form 1099-DA. This form is specifically designed for digital asset brokers to report my transactions to the tax authority starting next year. Digital asset brokers encompass a wide range of entities, including centralized and decentralized exchanges, wallet providers that facilitate trades and transfers, and even Bitcoin Automated Teller Machines (ATMs).

The information contained in the draft Form 1099-DA pertains to the acquisition date, cost basis, transaction date and time, sales proceeds, and gross proceeds of digital asset transactions. Essentially, this data required for reporting digital asset transactions on draft Form 1099-DA is akin to the information reported for transactions involving stocks, commodities, regulated futures contracts, foreign currency contracts, forward contracts, debt instruments, options, securities futures contracts, and other similar assets as stated in Form 1099-B. It’s important to mention that gains from digital asset collectible NFTs are subjected to a tax rate of 28%, which is higher than the current capital gains rates.

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2024-06-01 14:20