In many ways, it is no longer a question when blockchain technology will go to all financial services. It becomes a question of knowing when the regulations make up for its use.
But when, or even if, frameworks of cryptocurrency policies are taken to life, many observers of the traditional financial space ask: what happens then-and how are the resulting tax policies implemented in the active environments in mind and tokenized?
This main question of the implementation of policies in a tokenized financial framework is a recent collaboration between the Federal Reserve Bank of New York and Bis Innovation Hub, Project Pine, sought to answer, whose results were Released on Wednesday May 14. He has shown that central banks can effectively implement monetary policies using intelligent blockchain -based intelligent contracts in Tokenized asset environments. He was able to successfully automate traditional monetary policy tools, such as adjustment of interest rates and reserves management, in simulated scenarios.
After all, traditional monetary policy tools can find it difficult to operate effectively in token markets without adopting new technologies. To study this, Project Pine has built a prototype flexible toolbox for central banks using intelligent contracts, which are Blockchain -based IT programs that automatically execute financial transactions once the conditions are predefined.
The project explored the way in which monetary policy could be implemented by program in a system with money and token titles. He noted that by developing a prototype of a central bank toolbox with smart contracts and testing it, that it was possible.
“Project Pine is a first step to show that the implementation of monetary policy is possible in a tokenized world,” wrote the authors of the White Paper.
The conclusions are in a backdrop where the main traditional players have already announced the registration plans of the money market funds on blockchains, and the American Securities and Exchange (SEC) commission said on Monday, May 12 that it watched regulatory changes to accommodate current titles and other cryptographic assets.
Read also: What Treasury teams can learn to tokenization projects for central banks
Tokenized financial products and blockchain infrastructure
The traditional integration of token financial infrastructure could mark a deep change in the way the assets are negotiated, managed and regulated.
The tokenization transforms assets, in particular real estate, basic products, actions, obligations and even intellectual property in digital tokens based on blockchain. This can allow elements such as fractional property, as well as to allow greater liquidity, transparency and accessibility compared to traditional financial instruments.
The main ambition of the New York Fed with Project Pine was simple but critical: to demonstrate how central banks could use intelligent contracts practically and effectively to manage monetary policy in token financial infrastructure.
Tokenization effectively fills the traditional finance and cryptocurrency markets, which can create new hybrid opportunities. This convergence is already manifested in examples of the real world.
“Banks are in the state they are considering blockchains such as public infrastructure they need to count,” the co-founder and CEO of Chainalys, Jonathan Levin told Pymnts. “In 2014 … The cryptocurrency meant that blockchains who had native cryptocurrency tokens. Today, people put all types of financial instruments on blockchain. ”
No more recently than Wednesday, May 14, the investment company Vaneck announced the Vaneck Treasury Fund, Ltd. (Vbill), its first tokenized fund.
“By providing American treasury bills, we provide investors with a secure, transparent and liquid tool for cash management, more integrating digital assets into traditional financial markets,” said digital assets Vaneck, Kyle Dacruz, in the announcement.
Learn more: The institutional future of crypto could depend on the resolution of the risk puzzle
Design monetary policy tools for blockchain
The Project Pine prototype toolbox was designed with the comments of seven central banks advisers, including the Federal Reserve Board of Governors, the European Central Bank and the Bank of England. The resulting system, built on an authorized blockchain platform using hyperledger Besu and Ethereum compatible smart contracts, specifically sought to meet the unique operational needs of central banks.
The project prototypes the tools based on blockchain to pay interest on reservations, the execution of asset exchanges, the creation or absorption of reserves temporarily by guaranteed loans and the purchase or sale of assets. Each of these tools used ERC -20 tokens – largely accepted digital standards – to represent money and titles. This toolbox allows the central bank to quickly modify monetary policy conditions, such as interest rates or warranty requirements, directly through smart contracts.
The system visualization tools were able to allow the Central Bank advisers to clearly monitor and analyze interactions in market scenarios. For example, during a simulated market crisis, the toolbox has demonstrated rapid response capacities by automatically adjusting collateral haircuts, managing collateral substitutions and deploying new emergency facilities, all in real time.
However, although Project Pine has demonstrated the feasibility and advantages of the Central Bank intelligent contracts, it is still an early exploration. The authors of the document stressed that more research is necessary, in particular around multi-money tool boxes and interoperability between token and traditional financial systems.
