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France’s CBDC Projects to Manage DeFi Liquidity, Settle Tokenized Assets

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On Tuesday September 27, Villeroy de Galhau, the Governor at the Banque de France, the Central Bank of France, announced two new projects that aim to achieve the benefits of Central Bank Digital Currencies (CBDCs) used at a wholesale level by banks and financial markets.

The governor made the announcement during his speech at the bank’s digital currency conference on Tuesday. The Head of Central Bank said the first project will look at improving CBDCs’ liquidity management in decentralized finance (DeFi), such as via automated market makers. As a liquidity creator, the CBDC will play a role similar to that of investment banks to sustain trading in particular securities.

On the other hand, the second project will focus on issuing and distributing tokenized bonds on a blockchain. This will build on previous findings about CBDCs being used to settle Web3 securities, such as the French Central Bank’s Project Jura.

In his speech, the governor stated that: “A wholesale CBDC could significantly contribute to improving cross-border and cross-currency payments.” But then he acknowledged that: “CBDCs at the wholesale level attract less attention than their headline-grabbing retail equivalent.”

The governor pledged to add more details about the new projects in the coming weeks. A point to remember is that France’s wholesale CBDC is currently in the second stage of the experimentation programme, which will see four to five new projects introduced.

Intensifying CBDC Efforts

In July this year, France’s Central Bank began the second phase of experimentation with its wholesale CBDC, designed to streamline domestic and cross-border transactions between commercial banks.

France’s Central Bank wants to bring CBDC as a settlement asset as early as 2023. The bank is working to get closer to a viable prototype, testing it in practice with more private financial institutions and foreign central banks in the second half of 2022 and 2023.

Banque de France, which started experiments on a wholesale CBDC in March 2020, completed its first stage of experimentation in December 2021. During the experimentation period, the bank had been exploring the use of the CBDC for the exchange of money between financial institutions.

Besides the wholesale CBDC, the Banque de France is also exploring a retail CBDC as part of the European Central Bank’s broader work on the potential development of a digital euro.

Central banks across the globe are exploring the development of digital currencies not only to address the decline in the use of cash but also to tackle the rising interest in private cryptocurrencies among users.

Central banks are increasingly exploring wholesale CBDCs that are built on blockchain technology and promise to help speed up interbank settlements.

Nigeria Plans to Regulate Digital Asset Platforms

Nigeria, one of the most curious nations about cryptocurrencies, is preparing new industry regulations for digital asset platforms. The Nigerian Securities and Exchange Commission (SEC) is considering new regulations that would allow licensed digital exchanges to list tokens backed by certain assets, according to a report by Bloomberg.

Abdulkadir Abbas, the head of securities and investment at the Nigerian SEC, noted that the authority plans to only authorize listings of tokens based on assets such as equity, debt, or property. Cryptocurrencies like Bitcoin and Ether will not be among those assets. The aim is to register fintech firms as digital sub-brokers, crowdfunding intermediaries, fund managers, and tokenized coins issuers. However, the SEC will not register crypto exchanges until the central bank provides clear regulations for the crypto market.

License applicants would undergo a year of “regulatory incubation,” during which the SEC would study their operations and render their services in the country, according to Abbas. He added that by the 10th month, the SEC should be able to make a determination whether to register the firm, extend the incubation period, or even ask the firm to stop operation.

The Central Bank of Nigeria had banned local banks from providing services to cryptocurrency-related platforms in early 2021. On the ban, the regulator cited high risks associated with trading cryptocurrencies such as Bitcoin. The central bank also promised to impose strict penalties for any lender or financial institution failing to comply with the directive.

Despite the ban, Nigeria has emerged as one of the most active countries in terms of adoption and curiosity about Bitcoin and other cryptocurrencies. Nigeria ranks second by search interest for the keyword “Bitcoin,” behind El Salvador, which adopted Bitcoin as legal tender in 2021, according to data from Google Trends. Other jurisdictions in the top-five crypto-curious countries list include Slovenia, Netherlands, and Switzerland.

Nigeria was also among the top 20 countries in terms of crypto adoption in 2022, according to Chainalysis’ crypto adoption index.

While prohibiting cryptocurrencies, the Central Bank of Nigeria has been actively promoting its central bank digital currency known as the eNaira. The eNaira reportedly saw increased adoption due to national fiat reserves facing severe shortages.

In conclusion, Nigeria is taking steps to regulate digital asset platforms, with the SEC considering allowing licensed digital exchanges to list tokens backed by certain assets. The country aims to register fintech firms as digital sub-brokers, crowdfunding intermediaries, fund managers, and tokenized coins issuers. However, the SEC will not register crypto exchanges until the central bank provides clear regulations for the crypto market. Despite the ban on cryptocurrencies, Nigeria has emerged as one of the most active countries in terms of adoption and curiosity about Bitcoin and other cryptocurrencies.

BlackRock Launches Pioneering Tokenized Asset Fund in Partnership with Securitize

BlackRock, the world’s largest asset manager, has filed a Form D for its inaugural tokenized asset fund, named the BlackRock USD Institutional Digital Liquidity Fund. As of 2023, this innovative fund represents a landmark development in the financial sector’s embrace of blockchain technology and tokenization.

The fund, which necessitates a substantial minimum investment of $100,000, is aimed squarely at institutional investors seeking exposure to digital assets through a regulated and familiar framework. By engaging with Securitize, a leading U.S.-based digital assets securities firm, BlackRock has signaled its confidence in the potential of tokenized securities to revolutionize investment strategies.

Tokenization refers to the process of issuing a blockchain token that digitally represents a real tradable asset. In the case of BlackRock’s new fund, the assets under management are transformed into digital tokens, providing investors with a more seamless and efficient way to invest and trade in the fund’s shares.

The Form D filing reveals that sales commissions total $525,000, a figure that underscores the active interest and investments already flowing into the fund. Additionally, the filing indicates that the size of the fund is “indefinite,” suggesting that BlackRock is positioning itself to accommodate a potentially significant influx of capital as interest in digital assets continues to grow.

BlackRock’s move is indicative of the wider financial industry’s trend towards the tokenization of assets, where securities are increasingly being issued on blockchain platforms to take advantage of the technology’s benefits, including transparency, security, and speed of transactions.

This initiative is not only a testament to BlackRock’s innovative approach but also a reflection of the growing demand from institutional investors for digital asset products. By leveraging the blockchain, BlackRock stands to offer enhanced liquidity, real-time settlement, and potentially lower transaction costs, presenting a compelling value proposition for investors looking to diversify their portfolios.

The launch of BlackRock’s tokenized asset fund also raises questions about the regulatory landscape for such offerings. While blockchain and tokenization present new opportunities, they also come with regulatory considerations that asset managers like BlackRock must navigate. The involvement of Securitize, a firm that specializes in the compliant issuance and trading of digital securities, is key to ensuring that the fund operates within the bounds set by regulatory bodies.

In conclusion, BlackRock’s foray into tokenized asset funds with the BlackRock USD Institutional Digital Liquidity Fund represents a significant milestone in the integration of traditional finance with digital assets. As regulatory frameworks continue to evolve and adapt to these new technologies, the potential for tokenized funds to reshape the investment landscape is considerable. With a combination of BlackRock’s industry-leading position and Securitize’s digital asset expertise, this fund is poised to be a bellwether in the intersection of finance and blockchain technology.