Canton Network can drive institutional interest in asset tokenization
Canton Network, “a network of networks”, aims to become the most suitable blockchain for financial institutions. Some of the network’s participants include SBI Digital Asset Holdings, Goldman Sachs, Microsoft, Deloitte, BNP Paribas, ASX and other key figures in the financial industry.
But why do such networks have an edge over publicly available decentralized networks? How are they better?
Limitations of Public Networks
Canton Network believes that the current smart contracts do not attract financial institutions for various reasons.
Indeed, in today’s markets, projects compete for resources. If a project requires more resources, this is often reflected in the network costs. Ethereum is a good example of this. When Yuga Labs launched the Otherside land NFTs, Ethereum gas costs increased by more than $100.
Another concern is that all data is shared publicly and available to everyone. Having publicly accessible confidential data is less desired by financial firms.
Canton Network overcomes these limitations by using the Dami modeling language. Dami provides privacy to any asset or piece of information (sub-transaction privacy). In other words, privacy is applied to a public chain (such as Zcash).
In addition, Canton uses horizontal scaling, which means there is no limit to the number of transactions per second (TPS). The testnet is expected to launch in July 2023.
Permission and Permissionless
Canton Network is a permissioned blockchain (also known as a private blockchain). While part of the network is decentralized, it is operated by private entities. While there are benefits to a permissive network, such as privacy, scalability, and customizability, there is less transparency.
Permissionless blockchains are quite popular for DeFi projects. However, the reason why Canton Network chose an approved chain seems to be because of US regulations. Matthew McDermott, the head of Digital Assets at Goldman Sachs, hinted that this could be the case at the Crypto Assets Conference, saying: “I will speak of a highly regulated US bank. We are not allowed to do anything on a public blockchain, be it without permission or otherwise.”
“The rationale is security and soundness. Most of the development that you’re sure to see from the US banks, JP Morgan, ourselves and many of the others will be on a private blockchain.”
Europe has the upper hand
Unlike Goldman Sachs, Taurus, a Swiss-based company that has piqued the interest of European companies, opted for Polygon’s public asset tokenization chain. Credit Suisse, Deutsche Bank and Pictet are just some of the investors in Taurus.
Currently, Taurus is targeting European and UAE based companies. To drive asset tokenization, the company will allow its clients to issue digital securities.
Enabling banks and brands to issue and hold tokenized assets using @0xpolygon@taurus_hqthe European leader in digital asset infrastructure, is now fully integrated and automated #onPolygon 😎
More: https://t.co/U2tT0azjkGpic.twitter.com/urFCzXN8eg
— Polygon (Labs) (@0xPolygonLabs) June 2, 2023
CMO and Head of Strategic Partnerships at Taurus said: “Building on Polygon, one of the leading blockchain ecosystems, is a natural step for Taurus. Our clients in banking, consumer goods and sports and entertainment can now benefit from low fees and faster transactions for every tokenization use case: equities, debt, structured products, funds, NFTs.”
Earlier this year, Siemens issued a bond loan of EUR 60 million to Polygon. Ramin Ghafari, Head of Financial Technologies at Siemens Treasury, confirmed that the company wants to be independent from individual banks. The issuance of digital bonds was made possible thanks to the German eWpG legislation.
Private or public chain
US regulations are subject to change. It is possible that the US will adopt German eWpG legislation in the very near future. While private chains have their advantages, public chains can prevail. One of the benefits of blockchain technology is transparency, which has been lacking in several industries.
Although providing a safe and transparent environment can be more attractive than private chains. BlackRock CEO Larry Fink said that, “The next generation for markets, then the next generation for securities, will be tokenization of securities.”
The future of tokenized assets is promising. According to a report released by BCG and ADDX, asset tokenization is expected to reach a $1.6 trillion market by 2030. At this rate, tokenized assets could account for 10% of global GDP.
Tokenizing assets also allows investors from around the world to access markets they were previously unable to access. Growth is expected to be in real estate, bonds and stocks, as well as patents.
Other chains will be explored
“The race to the blockchain mountain” is likely to intensify in 2023. Blockchain companies will compete to lead the herd in tokenizing securities.
While Polygon has sparked some institutional interest, companies will try to stand out from the crowd by choosing other public chains. For example, Tokeny partnered with Avalanche to tokenize assets through ERC3643. In addition, Token partnered with CoFund to tokenize real-world assets (RWA) in Bali.
And if I have to speculate, Arbitrum and Celo may be next in line to be adopted by tokenization platforms.
Canton Network, “a network of networks”, aims to become the most suitable blockchain for financial institutions. Some of the network’s participants include SBI Digital Asset Holdings, Goldman Sachs, Microsoft, Deloitte, BNP Paribas, ASX and other key figures in the financial industry.
But why do such networks have an edge over publicly available decentralized networks? How are they better?
Limitations of Public Networks
Canton Network believes that the current smart contracts do not attract financial institutions for various reasons.
Indeed, in today’s markets, projects compete for resources. If a project requires more resources, this is often reflected in the network costs. Ethereum is a good example of this. When Yuga Labs launched the Otherside land NFTs, Ethereum gas costs increased by more than $100.
Another concern is that all data is shared publicly and available to everyone. Having publicly accessible confidential data is less desired by financial firms.
Canton Network overcomes these limitations by using the Dami modeling language. Dami provides privacy to any asset or piece of information (sub-transaction privacy). In other words, privacy is applied to a public chain (such as Zcash).
In addition, Canton uses horizontal scaling, which means there is no limit to the number of transactions per second (TPS). The testnet is expected to launch in July 2023.
Permission and Permissionless
Canton Network is a permissioned blockchain (also known as a private blockchain). While part of the network is decentralized, it is operated by private entities. While there are benefits to a permissive network, such as privacy, scalability, and customizability, there is less transparency.
Permissionless blockchains are quite popular for DeFi projects. However, the reason why Canton Network chose an approved chain seems to be because of US regulations. Matthew McDermott, the head of Digital Assets at Goldman Sachs, hinted that this could be the case at the Crypto Assets Conference, saying: “I will speak of a highly regulated US bank. We are not allowed to do anything on a public blockchain, be it without permission or otherwise.”
“The rationale is security and soundness. Most of the development that you’re sure to see from the US banks, JP Morgan, ourselves and many of the others will be on a private blockchain.”
Europe has the upper hand
Unlike Goldman Sachs, Taurus, a Swiss-based company that has piqued the interest of European companies, opted for Polygon’s public asset tokenization chain. Credit Suisse, Deutsche Bank and Pictet are just some of the investors in Taurus.
Currently, Taurus is targeting European and UAE based companies. To drive asset tokenization, the company will allow its clients to issue digital securities.
Enabling banks and brands to issue and hold tokenized assets using @0xpolygon@taurus_hqthe European leader in digital asset infrastructure, is now fully integrated and automated #onPolygon 😎
More: https://t.co/U2tT0azjkGpic.twitter.com/urFCzXN8eg
— Polygon (Labs) (@0xPolygonLabs) June 2, 2023
CMO and Head of Strategic Partnerships at Taurus said: “Building on Polygon, one of the leading blockchain ecosystems, is a natural step for Taurus. Our clients in banking, consumer goods and sports and entertainment can now benefit from low fees and faster transactions for every tokenization use case: equities, debt, structured products, funds, NFTs.”
Earlier this year, Siemens issued a bond loan of EUR 60 million to Polygon. Ramin Ghafari, Head of Financial Technologies at Siemens Treasury, confirmed that the company wants to be independent from individual banks. The issuance of digital bonds was made possible thanks to the German eWpG legislation.
Private or public chain
US regulations are subject to change. It is possible that the US will adopt German eWpG legislation in the very near future. While private chains have their advantages, public chains can prevail. One of the benefits of blockchain technology is transparency, which has been lacking in several industries.
Although providing a safe and transparent environment can be more attractive than private chains. BlackRock CEO Larry Fink said that, “The next generation for markets, then the next generation for securities, will be tokenization of securities.”
The future of tokenized assets is promising. According to a report released by BCG and ADDX, asset tokenization is expected to reach a $1.6 trillion market by 2030. At this rate, tokenized assets could account for 10% of global GDP.
Tokenizing assets also allows investors from around the world to access markets they were previously unable to access. Growth is expected to be in real estate, bonds and stocks, as well as patents.
Other chains will be explored
“The race to the blockchain mountain” is likely to intensify in 2023. Blockchain companies will compete to lead the herd in tokenizing securities.
While Polygon has sparked some institutional interest, companies will try to stand out from the crowd by choosing other public chains. For example, Tokeny partnered with Avalanche to tokenize assets through ERC3643. In addition, Token partnered with CoFund to tokenize real-world assets (RWA) in Bali.
And, if I must speculate, Arbitrum and Celo may be next in line to be adopted by tokenization platforms.