We’re now in a reality where financial institutions have to be technology firms first, said Piyush Gupta, the CEO of Singapore’s DBS Bank.
In the modern world, both central and commercial banks will be in charge of facilitating the transition to the financial infrastructure of the future, which will be digitized and tokenized, Gupta said in a pre-recorded speech at CoinDesk's Consensus 2021 virtual conference.
The first result of that exploration became Project Ubin, a cross-border CBDC initiative by the Monetary Authority of Singapore, including commercial banks like Merrill Lynch, Credit Suisse and JPMorgan and started as early as 2016.
“We are now increasingly thinking of ourselves as a technology company offering financial services, rather than a traditional bank,” Gupta said. “The fact that we have twice as more engineers than bankers is perhaps a testimony to the shift in the nature of the company that we are.”
The power of tokenization
Out of all the emerging technologies DBS have been exploring over the past seven years, the most compelling one has been distributed ledger technology and especially tokenization. It’s a much broader conversation than just cryptocurrencies, Gupta said.
“Recently, the bulk of the hype has been around digital currencies, and while digital currencies are important, I think they don’t grasp the scale and size of the overall opportunity,” he said.
Gupta added that tokenization allows for efficiently fractionalizing ownership, providing real-time settlement and an opportunity to program the tokenized assets, adding various functionality and conditions of their use.
“This makes the idea of tokenization a lot more powerful that just the digitalization of money,” he said.
There are still challenges for tokenizing large swaths of property. These challenges are both legal and practical, like the lack of liquidity for asset-backed tokens, but “we’re already at the point when people understand the power of tokenization and how this can fundamentally transform the fabric of the financial system,” Gupta said.
In this transformation, both commercial and central banks should play a key role, Gupta said. “Central banks are not only thinking of central bank digital currencies but also facilitating this migration to the tokenization infrastructure in many other ways,” he said.
Projects under way
As for DBS’ own business, the company is actively expanding into the crypto universe: last year, it announced the launch of the DBS Digital Exchange, on which users can trade bitcoin, bitcoin cash, ether and XRP against four fiat currencies: the U.S. dollar, the Singapore dollar, the Hong Kong dollar and the Japanese yen.
The exchange will also become a tokenization platform for companies that want to do offerings similar to initial coin offerings and security token offerings, Gupta said. DBS, for one, is going to launch a "fixed income token" in the next several days, he added.
In April, DBS, JP Morgan and Temasek announced a blockchain-based settlement platform, named Partior. The aim of the project, Gupta said, is to “rethink the processes for cross-border transactions.” This also goes back to the idea of tokenization, which in this case is the tokenization of the money that banks hold.
The project will help to “create a network of players, each of which will seek to tokenize commercial banking money, so DBS will be tokenizing the Singapore dollar, JP Morgan will be tokenizing the U.S. dollar, and we are trying to bring in other partners that would be tokenizing other currencies, like euro, etc.,” Gupta said.
“We think that this platform could have one more important use case: we can send central bank digital currencies across countries and across central banks. We had conversations with this regard with a few central banks, and there have been some tests to see how this platform would work,” Gupta said.
And as recently as this past Friday, DBS also announced a new blockchain collaboration with the Singapore Exchange, Standard Chartered bank and Temasek Holdings tech firm to launch a blockchain-based marketplace for carbon emissions credits, named Climate Impact X (CIX).
The project will help make the carbon credits market more transparent and liquid, and ensure trust in the quality of the tokenized carbon credit with due verification processes, Gupta said. He is ambitious about this particular project and expects a lot of demand for it.
“We think that during the next decade, there will be an explosion on the global carbon market, it will grow ten times, get to be worth $50 billion-$100 billion,” Gupta said. Many companies have made commitments to cut their carbon footprint, and a marketplace for carbon credits would “create transparency and integrity in the asset class and create a degree of trust in the marketplace,” Gupta said.
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