Gold, long considered a safe haven in times of economic instability, is preparing for a digital transformation. The World Gold Council (WGC), in collaboration with Digital Asset and other major industry players, has completed a pilot program that demonstrates the potential of tokenizing real-world assets (RWA) like gold, gilts and Eurobonds using blockchain technology. This initiative aims to improve liquidity, increase collateral mobility and streamline transaction efficiency, providing insight into how traditional assets can be digitized for future financial ecosystems.
The pilot program, facilitated by Digital Asset, included a wide range of participants such as investors, banks and custodians, as well as Euroclear, global law firm Clifford Chance and a central securities depository. This initiative highlights the growing interest in blockchain technology as a means of introducing tangible assets to a digital marketplace.
Tokenize Gold for Increased Liquidity and Efficiency
The program showed how tokenized assets could be used as collateral in real-time transactions. This was achieved through the Canton Network, described as the first public chain in the financial sector that supports on-chain privacy, control and interoperability. More than 500 transactions were completed during the trial, which took place in June and July, involving 27 market participants and 11 distributed applications, demonstrating the potential of tokenized RWAs to improve financial market operations.
Gold, often considered cumbersome in terms of storage and mobility, can benefit significantly from the digitalization process. According to the WGC, gold tokenization could solve the challenges of moving and storing the physical metal, allowing it to be seamlessly integrated into modern financial markets as a high-quality collateral asset. The ability to create a digital twin of physical gold, along with a record of its attributes, allows its use in financial transactions without the constraints of its physical form.
This development is particularly notable given the large market for gold and other high-quality liquid assets such as Sovereign Gilts and Eurobonds. The global daily gold trading volume averaged $162 million in 2023, and this figure is expected to remain stable in 2024. Similarly, the UK gilt market is valued at almost £2.4 trillion sterling, while the outstanding Eurobond issues amount to more than euros. 12.97 billion.
Blockchain as a tool for optimizing guarantees
Digital Asset, the lead technology provider behind the initiative, highlighted that tokenization could bring concrete benefits to collateral management. By leveraging blockchain technology, tokenized assets can be mobilized for intraday margin calls, reducing the time and friction associated with traditional settlement processes. The pilot also demonstrated that blockchain could serve as a legal ledger of these assets, providing greater transparency and control to secured parties in the event of default.
The ability to tokenize assets like gold not only optimizes liquidity, but also provides better legal security of ownership and faster collateralization. The Canton Network, with its ability to manage cross-application transactions, ensures that these assets can be transferred in real time, reducing operational hurdles typically encountered in traditional marketplaces.
Legal implications and future potential
The legal implications of the pilot project were also explored during the trial. Clifford Chance experts highlighted that tokenized assets, when properly structured, do not create a separate asset but function as an operational tool. This minimizes the impact on existing legal agreements and reduces the need for significant changes to product and platform documentation. This approach enables a smooth transition of tokenized assets into existing legal frameworks, making it easier for market participants to adopt blockchain solutions without significant regulatory changes.
In addition to the gold tokenization pilot, Digital Asset has been involved in other blockchain initiatives. In September, the company completed a pilot project with the Depository Trust & Clearing Corporation (DTCC), focused on the U.S. Treasury Guarantee (UST) network. This initiative aimed to improve the mobility, liquidity and efficiency of tokenized assets in collateral management.
The UST pilot, involving multiple investors, banks and custodians, demonstrated the feasibility of using tokenized assets to satisfy real-time margin calls, highlighting the potential of blockchain in complex financial transactions. This aligns with the overarching goal of these pilots, which is to demonstrate blockchain’s ability to manage the full lifecycle of financial transactions, from execution to default scenarios.
Blockchain: the future of tokenizing real-world assets
The success of the gold tokenization pilot suggests that blockchain technology is likely to play a crucial role in the future of financial markets. By creating digital twins of real-world assets, the technology provides a mechanism to improve market transparency, legal certainty and regulatory oversight.
As blockchain continues to evolve, tokenization is expected to become a go-to method for putting real-world assets on-chain, transforming the way they are used in financial markets. The pilot validated that tokenized assets can improve liquidity, streamline operations, and deliver significant real-world benefits, signaling a future where blockchain and traditional assets coexist seamlessly in the global financial system.
