The financial system has recently been impacted by disruptive technologies such as artificial intelligence, big data, machine learning and blockchain.
It is precisely this latest distributed ledger technology that has made it possible over the last decade the creation of tokens that can be traded or transferred globally and quickly 24 hours a day, 7 days a week (24×7) to and from anywhere on the planet.
Larry Fink, chairman and CEO of BlackRock, one of the world’s largest asset management firms, said in January 2024 that the next innovation we will see will be the tokenization of financial assets.
In a broader sense, the BIS (Bank for International Settlements) published in April this year a document entitled “Finternet: the financial system for the future” signed by the president of the institution, Agustin Carstens. In this document, the BIS envisions a new financial system based on multiple interconnected platforms, supported by “tokenized” architectures with unified and interoperable records.
Over the past few years several authors have written about the process of tokenization of the economyand among other books we can mention: “Tokenomics” (S. Au, T. Power), “Token Economy” (S. Voshmgir), or “Crypto Economy” (A.W. Wang)
Tokens in the Crypto ecosystem
The creation of tokens has enabled the emergence of a new financial segment parallel to the traditional one called decentralized finance (DeFi), based on Blockchain technology.
He DeFi system, based on the various crypto assets developed, seeks to create in a decentralized way the same financial products and services currently provided by the conventional financial system..
To get an idea of magnitude, a generally accepted way of measuring The size of this segment is calculated by calculating the value of total assets (TVL – Total value locked) that are deposited as collateral in the different DeFi platforms, amount which currently exceeds 90 billion US dollars.
After the advent of bitcoin in 2008, a second crypto phase began in 2015 with the creation of the Ethereum Blockchain network that allows the development of “smart contracts”small programs that are registered and executed on the network, commonly called “programmable money.”
These contracts have enabled the creation of a huge number of digital financial products based on tokens, including:
- stablecoins (Stablecoins) whose market value currently exceeds $170 billion.,
- Non-fungible tokens (NFT) linked, for example, to digital art, or to the entertainment industry,
- “real world” assets (RWA) which include physical and tangible assets such as real estate, productive projects, works of art, raw materials or financial assets,
- Initial cryptocurrency offerings (ICO) tools both as an investment and as a source of financing, similar to public offerings of negotiable securities (IPOs)
- the new governance platforms, the DAODecentralized Autonomous Organizations.
Like any new system, the DeFi universe faces numerous challenges. The weaknesses it presents in terms of scalability, security and privacy are being addressed with new technological innovations, among which the so-called ZKP stands out. – zero-knowledge proofs.
The ZKP It is a technology based on cryptography that allows the veracity of a piece of information to be verified without having to reveal the information itself..
But data privacy is not the most interesting use that is foreseen for ZKPs in the crypto world. Since Blockchain is a “chain” of transactions, where some are linked to others by means of cryptographic keys, ZKP proofs can be generated to verify large quantities of transactions in batches and thus increase the efficiency of the network, without giving up security. The ethereum network hopes to reach the goal of being able to verify 100,000 transactions per second with the implementation of ZKP. Furthermore, this technology would allow easily and safely, Validate cross-chain transactions (between different Blockchains)which would enhance the interaction between the different networks linked to the tokenization processes.
Conceptually the DeFi world is characterized by using highly automated financial networks which, unlike centralized platforms, They have no single point of failure, they do not rely on a single source of information, and they are not governed by any central authority. that may alter or censor the financial services they provide.
This last feature makes the The decentralized architecture of the DeFi universe is a source of concern for regulators, as its very design prevents defining clear lines of responsibility and accountability. when public policy objectives such as the protection of retail savers or the integrity of financial systems are at stake.
CBDCs
In response to the growth and adoption of private cryptocurrencies globally, and driven by these technological transformations, Monetary authorities in various countries began to develop the so-called CBDCs (Central Bank Digital Currencies)for its acronym in English).
While a small number of countries have already launched their CBDC, such as the Central Bank of the Bahamas with its “Sand Dollar”, other central banks are in the pilot phase, such as China with its “e-Yuan”“A survey by the BIS found that 93% of central banks said they were considering getting involved in some form of CBDC, and of this universe, 18% said they were considering launching a public digital currency for retail investors in the near term.
Europe has joined this trend. Eurodigital is in the preparation phase, aiming for a launch in October 2025.
All these digital developments, both public (CBDC) and private (DeFi), are influenced by constant technological advances that present both opportunities and risks.
For example, a concrete technological threat to the token economy is the advent of the so-called ““quantum supremacy”. Some complex algorithms that will use the exponential computing power of quantum processors (especially Shor’s algorithm) are likely to They will be able, in the near future, to “break” current cryptographic systems and therefore put practically the entire tokenized economy in check.
For this reason, plans are already being drawn up, both at public and private levels, for the migration of cryptographic systems from central banks, financial institutions and even Blockchains, in order to implement post-quantum encryption algorithms.
The DREX, a possible synthesis between the two worlds
The growth of innovation evidenced in the private world by DeFi as well as the response of the public universe with CBDCs could find a synthesis in the public digital currency Drex that the Central Bank of Brazil (BCB) began to develop a couple of years ago with active participation of the private sector.
The Drex is part of a broader BCB agenda, which aims to foster competition and inclusion in the financial system through innovation. In practice, the Drex Platform is an ecosystem based on a permissioned Blockchain (private Blockchain). where regulated financial intermediaries will be able to convert demand deposits and electronic money into Drex so that their clients have access to various smart financial services.
The specific use cases of Drex, agreed with the private sector, They include the development of delivery-versus-payment (DvP) operations, for example, to carry out real estate transactions or the purchase of registrable assets, and other operations such as tax payments, the purchase of public securities and other assets, with the real possibility of incorporating the innovative universe of decentralized finance (DeFi) in the future.
From a technological point of view, to develop the Drex, the Central Bank of Brazil leaned in favor of the Hyperledger Besu Blockchain. This blockchain is widely interoperable with the DeFi ecosystem, especially with the Ethereum Blockchain. which is where most of today’s digital financial products are developed.
While Drex is the most advanced initiative globally to make unified and interoperable ledgers a reality, other initiatives are being developed under the BIS umbrella, such as the “Agora Project” which brings together seven central banks: the Bank of France (representing the Eurosystem), the Bank of Japan, the Bank of Korea, the Bank of Mexico, the Swiss National Bank, the Bank of England and the Federal Reserve Bank of New York, with the aim of making tokenization improve the functioning of the international monetary system.
Conclusions
The advent of new disruptive technologies is changing the face of the global financial system on a daily basis.
Blockchain technology has popularized the use of tokens, opening the possibility that practically any good, asset or right can be digitized and negotiated 24×7 to and from any place on the planet.
The tokenization process is unstoppable and implies a radical change in the functioning of the financial system as we know it.
The case of Brazilian Drex is an excellent example to observe where the public and private sectors interact virtuously, promoting innovation and financial inclusion within a framework of consumer protection.
Carlos Weitz – Former President of CNV and Professor of Fintech, Bigtechs, Cryptoassets and Digital Currencies. University of Buenos Aires.
Daniel Díaz – Professor of Information Technology. Rosario National University.
Source: Ambito
I am a 24-year-old writer and journalist who has been working in the news industry for the past two years. I write primarily about market news, so if you’re looking for insights into what’s going on in the stock market or economic indicators, you’ve come to the right place. I also dabble in writing articles on lifestyle trends and pop culture news.
