The Hong Kong Monetary Authority (HKMA) released a report on Aug. 25 detailing the findings of its Project Evergreen study, which analyzed the market impact of bond tokenization.
In a 24-page overview, the Hong Kong regulator laid out use cases, benefits and any challenges faced during the study. The concluding sentiment was that tokenization provides improvement for the bond market.
Eddie Yue, the chief executive of the HKMA, said the study highlighted the potential of deploying distributed ledger technology (DLT) to real capital market transactions with the current legal framework existing in Hong Kong.
“It also showed the potential in DLT to enhance efficiency, liquidity and transparency in bond markets.”
Some of the primary efficiencies of bond tokenization revealed through the study were the ability to go paperless and eliminate the need for a physical global certificate (saving both hours and errors), the ability to interact between various parties on a common DLT platform and enhanced transparency through real-time data synchronization.
Additionally, it allows for atomic delivery-versus-payment settlements for bond transfers and encourages end-to-end DLT adoption.
Yue also pointed out the shortcomings of the experiment, saying that the tokenization of bonds is still in its “infancy.” He said prior to mass adoption, many challenges would have to be overcome.
“As more financial institutions come up with their own tokenization solutions,” he said, “it will be crucial to consider how different solutions can connect and interact with each other as well as conventional systems to avoid fragmentation.”
“Existing legal and regulatory regimes may also need to be fine-tuned to keep up with — and facilitate — technology adoption.”
The report comes as Hong Kong has been gradually shifting toward positioning itself as a hub for crypto and decentralized finance activity. Hundreds of firms have reportedly been lining up for a Hong Kong crypto license.
On July 27, Hong Kong announced it was collaborating with Saudi Arabia on tokens and payments.