Hong Kong launches blockchain incubator for banks

Getting your Trinity Audio player ready...

Hong Kong’s central bank recently launched a new initiative to support local banks as they launch blockchain products, with tokenization as one of the key focus areas.

Elsewhere, one of El Salvador’s leading financial service providers has launched a new platform to issue tokenized assets as the Central American nation pushes its pro-digital asset agenda.

Hong Kong’s blockchain incubator

The Hong Kong Monetary Authority (HKMA) described the new incubator as a “new supervisory arrangement” that will allow local banks to “maximize the potential benefits of DLT adoption by effectively managing the associated risks.”

Officially known as the Supervisory Incubator for Distributed Ledger Technology, it will mainly focus on the risks that arise as banks transition from experimentation to production of blockchain services. HKMA says tokenization will also be a core focus once the incubator begins.

The new incubator is the latest in a handful of initiatives by the HKMA targeting digital assets and blockchain. They include the stablecoin sandbox that the central bank launched last March, whose members include Standard Chartered (NASDAQ: SCBFF), metaverse firm Animoca Brands, and a subsidiary of Chinese e-commerce giant JD.com (NASDAQ: JD).

HKMA also launched another sandbox last August to support its Project Ensemble tokenization initiative. It boasts heavyweights such as Microsoft (NASDAQ: MSFT), Standard Chartered, and HSBC (NASDAQ: HSBC) as founding members.

The latest sandbox differs from previous initiatives as it mainly focuses on allowing banks to self-check the adequacy of their blockchain risk management controls. They can opt to conduct live trials to test and refine specific aspects of these controls. HKMA’s dedicated team will also offer supervisory feedback when needed.

“As the banking industry continues to evolve, it is essential that we provide a supportive environment for innovation to thrive. The Supervisory Incubator for DLT is a key component of our strategy to foster the development of DLT-based banking solutions that are safe, efficient, and beneficial to the industry and the wider community,” commented Arthur Yuen, the HKMA chief executive.

Beyond risk management, HKMA will use the new incubator to promote best practices and industry awareness through industry-sharing sessions, supervisory guidance, and research projects.

Ultimately, the incubator is geared toward advancing Hong Kong’s tokenization ambitions. The city-state has become a world leader in the sector, with local banks like Standard Chartered and HSBC taking the lead. The latter has been especially active; last October, it issued the first digitally native bond by a Hong Kong private entity worth HK$1 billion (US$130 million). Earlier in the year, it anchored the city’s $750 million digital bond.

“Asset tokenisation offers a game-changing opportunity to facilitate more secure and transparent value exchange by enabling new forms of financial transactions,” stated HKMA’s banking supervision director, Carmen Chu, while discussing the new incubator.

“I hope that banks will actively tap and make use of this new resource, regardless of which stage of the DLT adoption journey you are at. After all, as the saying goes, achieving big goals starts with small habits,” she added.

El Salvador steps up tokenization efforts

Elsewhere, a Salvadorian fintech has partnered with a European tokenization firm to push asset tokenization in the Central American nation.

Ditobanx, a fintech licensed to offer digital asset services in El Salvador, announced its partnership with Tokeny, a Luxembourg-based on-chain finance solutions firm focused on tokenization. The partnership aims to help El Salvador “build a standardized framework for tokenized regulated assets.”

Ditobanx will leverage Tokeny’s infrastructure to issue, manage, and distribute tokenized assets in El Salvador. The digital bank projects that it will issue up to $300 million in tokenized assets this year. It already has 22 clients lined up for the service.

“Launching tokenized assets is a complex process, but it is essential for the future of our industry. We believe in making this journey easier for others by sharing what we’ve learned and providing access to proven solutions. Standardization is critical for creating a more connected, liquid, and innovative market, and we are committed to making this vision a reality for El Salvador and beyond,” commented Guillermo Contreras, the Ditobanx CEO.

Beyond offering its solutions, Ditobanx pledged to work with other Salvadorian firms to spur tokenization, offering its expertise and tools to ease the process. Working with Tokeny, the bank will push for a standardized approach that will eliminate silos and promote seamless interoperability.

While it’s more renowned for making BTC legal tender (whose disastrous effects have been temporarily masked by the token’s bull rally in the past year), El Salvador is evolving beyond BTC to unlock value through tokenization. The country’s parliament passed the Digital Assets Law in early 2023, making it easier for companies to issue and manage tokens. The law grants generous tax breaks for digital asset firms, making it an attractive destination for token issuers.

Watch: Centi is bridging digital money and traditional banking