“Disruptive” revolutions are about to come, and the traditional way of operating in the financial markets will be rewritten. With blockchain, digital assets, and cryptocurrencies entering the mainstream market and being widely adopted, the speed of currency circulation may significantly accelerate. Despite some scandals in the industry, the concept of cryptocurrencies itself has attracted widespread attention, and large commercial entities in various industries and regions are taking measures to plan, experiment, pilot, or adopt cryptocurrencies, stablecoins, and tokenized assets. Cryptographic assets are programmable and have the potential to replace some services currently provided by intermediaries such as banks, securities exchanges, or brokers. Blockchain or distributed ledgers can transparently create, store, and transfer digital assets in a decentralized peer-to-peer network in real-time, immutable transactions. Lara Abrash, head of Deloitte’s US practice, said, “The scale of industry exploration currently underway indicates that the adoption of cryptocurrencies will be more widespread and has the potential to disrupt existing economic frameworks. To move forward responsibly, we must prudently establish clear governance models to maintain transparency, fairness, and accountability.” Many countries are developing regulatory frameworks to allow the use of digital assets in their financial systems. This can enable financial institutions, businesses, non-profit entities, governments, and consumers to engage in a wide range of transactions – from cross-border accounting and complex supply chains to payroll, benefits management, digital rights to intellectual property, tax, and investment accounts, and all other transactions. Consumers can already choose to use stablecoins for various retail purchases without the need for traditional bank accounts, credit cards, or cash; however, these options are often complex and costly. In some countries where people may have more mobile phones than bank accounts, a digitized currency system may provide more equitable access for global populations as costs and convenience improve. Tim Davis, global and US leader of risk and financial advisory for blockchain and digital assets at Deloitte & Touche LLP, said, “The acceptance of tangible and intangible asset tokenization is increasing, which could change the way global entities, governments, and consumers engage in common transactions.” The evolving environment – business adoption, regulation, and tokenization, or the process of representing assets in digital form – provides a backdrop for how currency and payment systems are expanding to a critical mass, indicating that companies may need to start considering how to plan and embark on their own digital asset journey. Davis noted that more and more pillars of the modern global economy are planning or beginning to consider the potential impact and opportunities of cryptocurrencies and digital assets. This includes mainstream banks and banking networks, credit card networks, and technology providers experimenting or operating blockchain network nodes or developing plans. Deloitte Tax LLP partner and global and US tax blockchain and digital assets leader Rob Massey said that PayPal, with access to 428 million active accounts, including 35 million merchant accounts, represents a significant step in transforming the way value is exchanged on its platform by adopting cryptocurrencies. PayPal account holders can purchase, hold, and sell some common cryptocurrencies on their platform. Account holders can also cash them out to pay for purchases and transfer cryptocurrencies between eligible PayPal and Venmo accounts, as well as other wallets and exchanges. Massey said, “PayPal’s adoption of cryptocurrencies provides a key element – access to adoption.” Another example is JPMorgan, which has developed and deployed methods on blockchain to represent traditional assets for frictionless settlement. Some of the products launched to date include the JPM Coin System (a blockchain-based ledger and payment system) and Onyx Digital Assets (a multi-asset tokenization platform) that allow financial institutions, asset managers, and fintech companies to record and represent financial assets as programmable tokens on the blockchain. Recently, JPMorgan and Apollo Global Management published a report describing their vision for tokenized portfolio management – large-scale personalized investment portfolios that simplify traditional and alternative investment order execution and settlement processes. The system will be supported by blockchain, smart contracts, and asset tokenization. Goldman Sachs has also entered the digital asset field, conducting cryptocurrency trading and launching its digital asset platform. Goldman Sachs, along with S&P Global, Moody’s, Broadbridge, and Kaje, among others, have joined Canton – a privacy-focused open blockchain network that uses smart contract technology to provide connections between entities. The permissioned blockchain aims to provide interoperability and control to support synchronized financial markets, enabling secure, controlled data and value exchange. Wendy Henry, global head of blockchain and digital assets at Deloitte Consulting LLP, said, “The rapid development of blockchain technology to manage a large number of global transactions with necessary transparency and privacy levels is becoming increasingly feasible.” “The ability for businesses, especially financial institutions, to build applications on public networks and establish tokenized assets is a significant advancement in the development of cryptocurrencies and digital assets. Although financial institutions have not yet widely utilized this capability, it can be expanded for broader adoption.” Additionally, with the rapid development of generative artificial intelligence capabilities, AI platforms can act as agents for conducting financial transactions on behalf of humans. Davis said, “Digital assets are well-suited for AI platforms because funds can be directly transferred, controlled, and programmed, enhancing fund use means new risks and rewards, and the rapid development of AI may help accelerate the adoption of digital assets.” Furthermore, platforms like Bitwave are emerging to bridge the gap between blockchain-based technology and traditional finance. Bitwave is a digital asset ledger that can be input into common enterprise resource planning systems to enable programmable funds, including payments to suppliers, customers, and employees. The platform supports accounting, auditing, and reporting of data captured in distributed ledgers – functions critical for expanding adoption. Another significant evolutionary step is layering networks on existing networks to aggregate transactions in ways that can increase traffic and processing speeds. Just as high-rise buildings can increase real estate capacity in dense areas, second-layer distributed ledgers can benefit from the security of the first-layer network they reside on while significantly reducing transaction costs and increasing processing speeds. For example, Optimism’s OP Mainnet is an open-source extension of Ethereum designed to extend the Ethereum ecosystem. “As major platforms continue to roll out applications, consumer and business acceptance of cryptocurrencies and digital assets is rapidly increasing,” Davis said. “These are important indicators that global currency and payment systems are about to be further disrupted.” Global regulation is evolving. Wendy Henry, global head of blockchain and digital assets at Deloitte Consulting LLP, said, “The rapid development of blockchain technology to manage a large number of global transactions with necessary transparency and privacy levels is becoming increasingly feasible.” “The ability for businesses, especially financial institutions, to build applications on public networks and establish tokenized assets is a significant advancement in the development of cryptocurrencies and digital assets. Although financial institutions have not yet widely utilized this capability, it can be expanded for broader adoption.” Additionally, with the rapid development of generative artificial intelligence capabilities, AI platforms can act as agents for conducting financial transactions on behalf of humans. Davis said, “Digital assets are well-suited for AI platforms because funds can be directly transferred, controlled, and programmed, enhancing fund use means new risks and rewards, and the rapid development of AI may help accelerate the adoption of digital assets.” Furthermore, platforms like Bitwave are emerging to bridge the gap between blockchain-based technology and traditional finance. Bitwave is a digital asset ledger that can be input into common enterprise resource planning systems to enable programmable funds, including payments to suppliers, customers, and employees. The platform supports accounting, auditing, and reporting of data captured in distributed ledgers – functions critical for expanding adoption. Another significant evolutionary step is layering networks on existing networks to aggregate transactions in ways that can increase traffic and processing speeds. Just as high-rise buildings can increase real estate capacity in dense areas, second-layer distributed ledgers can benefit from the security of the first-layer network they reside on while significantly reducing transaction costs and increasing processing speeds. For example, Optimism’s OP Mainnet is an open-source extension of Ethereum designed to extend the Ethereum ecosystem. “As major platforms continue to roll out applications, consumer and business acceptance of cryptocurrencies and digital assets is rapidly increasing,” Davis said. “These are important indicators that global currency and payment systems are about to be further disrupted.” Global regulation is evolving. Wendy Henry, global head of blockchain and digital assets at Deloitte Consulting LLP, said, “The rapid development of blockchain technology to manage a large number of global transactions with necessary transparency and privacy levels is becoming increasingly feasible.” “The ability for businesses, especially financial institutions, to build applications on public networks and establish tokenized assets is a significant advancement in the development of cryptocurrencies and digital assets. Although financial institutions have not yet widely utilized this capability, it can be expanded for broader adoption.” Additionally, with the rapid development of generative artificial intelligence capabilities, AI platforms can act as agents for conducting financial transactions on behalf of humans. Davis said, “Digital assets are well-suited for AI platforms because funds can be directly transferred, controlled, and programmed, enhancing fund use means new risks and rewards, and the rapid development of AI may help accelerate the adoption of digital assets.” Furthermore, platforms like Bitwave are emerging to bridge the gap between blockchain-based technology and traditional finance. Bitwave is a digital asset ledger that can be input into common enterprise resource planning systems to enable programmable funds, including payments to suppliers, customers, and employees. The platform supports accounting, auditing, and reporting of data captured in distributed ledgers – functions critical for expanding adoption. Another significant evolutionary step is layering networks on existing networks to aggregate transactions in ways that can increase traffic and processing speeds. Just as high-rise buildings can increase real estate capacity in dense areas, second-layer distributed ledgers can benefit from the security of the first-layer network they reside on while significantly reducing transaction costs and increasing processing speeds. For example, Optimism’s OP Mainnet is an open-source extension of Ethereum designed to extend the Ethereum ecosystem. “As major platforms continue to roll out applications, consumer and business acceptance of cryptocurrencies and digital assets is rapidly increasing,” Davis said. “These are important indicators that global currency and payment systems are about to be further disrupted.” Global regulation is evolving.Brian Hansen, the head of digital assets at Deloitte, stated that many jurisdictions worldwide are forming regulatory frameworks for digital assets. The Financial Stability Board of the G20 and the International Monetary Fund have provided comprehensive guidance on how authorities should address the macroeconomic and financial stability risks posed by cryptocurrency activities and markets. The European Union passed the Crypto-Assets Market Regulation Act in June 2023 to regulate unregulated crypto assets within existing financial services legislation. The Securities and Futures Commission of Hong Kong issued regulations on tokenized assets, stablecoins, and crypto trading.
Approximately 130 jurisdictions globally are launching, piloting, developing, or researching central bank digital currencies (CBDCs), although US regulators are still in the early stages of conceptualizing a US CBDC. California also passed two bills to establish a virtual currency licensing regime and regulate digital financial asset transactions.
At the federal level in the United States, the regulatory tone is different as the risks and volatility of cryptocurrencies have led the government to increase scrutiny across multiple fronts. The Financial Stability Oversight Council released a report, finding that the connections between digital assets and traditional finance could pose systemic financial risks and urging federal agencies to continue enforcing existing rules and regulations. The Securities and Exchange Commission (SEC) approved several physically-backed Bitcoin ETFs for listing on US markets, a significant development that paves the way for Bitcoin investments in traditional brokerage accounts.
From a reporting perspective, the Financial Accounting Standards Board has developed guidelines for companies on how to account for cryptocurrencies and other digital assets under GAAP. The Internal Revenue Service (IRS) has also issued guidance on digital assets, treating them as federal tax properties. Meanwhile, banking regulators are urging financial institutions to enhance risk prevention awareness.
Tokenization is taking shape
Davis mentioned that with advancing technology adoption and regulation, the global financial ecosystem is gradually moving closer to a tokenized economy, where assets are presented in digital form on the blockchain, and value exchange is decentralized.
Non-fungible tokens (NFTs) have attracted attention in specific fields such as sports and art, but blockchain technology and the evolving regulatory environment can support the tokenization of a wider range of tangible and intangible assets when risks are understood. These assets could include securities, loans, public and private funds, hedge funds and money markets, private equity, environmental credits, real estate, commodities, ownership, voting rights, and content licenses. Valuable items can be converted using code sets and proofs and traded on the blockchain to significantly improve efficiency and transparency.
“Tokenization offers many potential benefits that are becoming increasingly attractive,” Massey said. “Consider the typical costs and frictions associated with transactions (such as commercial loans) and how tokenization and value management via distributed ledgers can enhance this process.” Using smart contracts and other automated tools, tokens can be encoded for almost instant execution, clearing, and settlement. This process can be faster, cheaper, providing 24/7 access and enhanced transparency.
Digital assets and tokenization can help companies better manage trapped cash on their balance sheets.
Massey said, “It can enable them to explore new ways to facilitate cross-border payments, repatriate cash, and improve working capital management. It can significantly improve wage processes, provide a way to compensate employees on a continuous or periodic basis, such as paying gig workers per task or per day. Tokenization can simplify many traditional banking processes by reducing settlement time and costs.”
Henry noted that eventually, tokenization could give rise to a programmable currency system where value is embedded in smart contracts, and terms and conditions are encoded. She said, “Even without third-party intermediary transactions, companies can significantly improve cost, efficiency, and transparency, which could greatly change how they handle their accounting and financial functions.”
For example, consider the frictions often encountered in cross-border payments, which require layers of processes, regulatory reviews, and costs. With tokenization and programmable currency, transactions can be executed instantly anytime, anywhere. They can be automated based on certain trigger events and have built-in transparency and control. Funds do not have to be tangled in payment channels but can be deployed according to working capital strategies and used when needed.
Taking action
Abrash said, “While uncertainty remains for regulators on how decentralized financial systems will evolve, many organizations see the potential benefits of this system, prompting more and more organizations to launch or consider launching their digital asset strategies. Companies can consider various approaches to plan and embark on their digital asset journey.”
Build cross-functional teams. Assemble a team from across the enterprise (finance, treasury, accounting, technology, legal, risk, tax, compliance, operations, supply chain, human resources, and marketing) to explore what is happening in the crypto and digital asset space and consider opportunities and risks.
Understand blockchain and Web3. Understand how enterprises can benefit from a transformed data sharing and verification method that provides transparent, immutable transaction records without the need for intermediaries. Consider possible use cases where accountability and auditability are important, and data needs to remain distant from each other in a multi-party open and transparent manner.
Consider potential uses of cryptocurrencies. Although the cryptocurrency market is highly volatile and has experienced significant failures repeatedly, as people become more familiar with cryptocurrencies and more self-regulated and rigorous, the cryptocurrency market is gradually maturing. After significant efforts, analysis, planning, and execution in risk and opportunities, rules and regulations, and processes and controls, companies can consider opportunities to invest, purchase, sell, hold, and receive or make payments using cryptocurrencies.
Massey stated, “With the development of the cryptocurrency and digital asset space, barriers to entry and scaling are gradually disappearing. The global economy is moving towards broad adoption of these new business practices.” When cryptocurrencies and digital assets become more accessible and tradable than fiat currencies and traditional processes, the market may see a wave of adoption, changing the way value exchange is done.
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Source Link:
https://deloitte.wsj.com/riskandcompliance/decentralized-finance-may-transform…
Disclaimer: All Bitpush articles represent the author’s views and do not constitute investment advice.
Original Article Link:
https://www.bitpush.news/articles/6876225
