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Analysts from major financial institutions believe tokenization will significantly solve global trade finance issues. According to stakeholders from Standard Chartered and HSBC, tokenization will make financing options more accessible for interested organizations.
HSBC Global Trade Solutions Product Manager Bhriguraj Singh recently stated in an interview that tokenization would be directly beneficial for these companies and trade finance providers. According to Singh, tokenization will simplify financing and distribution in global trade processes, which could make banks and other companies more liquid.
“Tokenization will simplify financing and distribution in global trade processes, making banks and other companies more liquid.” – Bhriguraj Singh
Tokenization and Trade Finance Gap
Tokenization is the process of representing real-world assets (RWAs) or data on a blockchain. This process increases liquidity and improves accessibility. By converting assets into tokens on a blockchain, tokenization speeds up trade transactions and reduces transaction costs due to the absence of intermediaries. Steven Hu, Head of Digital Assets, Trade, and Working Capital at Standard Chartered, believes blockchain technology will optimize financial services and make credit facilities more accessible.
The trade finance gap refers to the difference between import and export demands and the corresponding approvals. According to the Asian Development Bank (ADB), this gap worsened by 29.4% in 2022, reaching $2.5 trillion from $1.7 trillion in 2020. Estimates predict this figure will rise to $36.2 trillion by 2030.
“Imagine a future where the trade finance element is structured within a digital token and can be freely traded in secondary markets. This will turn into a new potential business model based on fees.” – Steven Hu
Advantages of tokenization include expanding a company’s target audience and making it easier to invest in unfamiliar markets. Additionally, it significantly reduces the transaction process, allowing companies to transfer securities and make instant payments via blockchain. Otherwise, this process could take several days.
While Steven Hu praises the benefits of tokenization, he also noted that a lack of expertise could delay its adoption.
Ongoing Efforts
While widespread adoption of tokenization may take time, efforts are already underway by various stakeholders. For instance, in July, MakerDAO announced a tokenization competition for innovators looking to introduce related products. MakerDAO’s Spark Tokenization Grand Prize plans to include $1 billion worth of tokenized real-world assets (RWA) into the decentralized finance (DeFi) ecosystem. The competition prioritizes proposals aligned with MakerDAO’s Spark ecosystem and focuses on those with high liquidity and competitive pricing potential.
The judging panel includes renowned platforms such as Steakhouse Financial and Phoenix Labs, which will evaluate the submitted proposals. After selecting several finalists, MKR token holders will vote to determine the ultimate winner.
Tokenization has the potential to narrow the global trade finance gap. HSBC and Standard Chartered officials state that this technology will optimize financial services and make credit facilities more accessible. However, the lack of expertise and the process of widespread adoption may take time. Meanwhile, organizations like MakerDAO are undertaking various initiatives to promote tokenization. These processes should be closely monitored, and developments should be carefully followed.
