Author: Nancy, BlockingNews
On June 12th, Bank of China’s wholly-owned investment bank BOC International (BOCI) announced a partnership with UBS to issue a total of 200 million yuan worth of digital structured notes, becoming the first Chinese financial institution to issue tokenized securities in Hong Kong.
As soon as the news came out, it immediately attracted attention and discussion from domestic and foreign media. It should be noted that in the past, institutions used consortium chains to tokenize securities, while BOC International’s issuance of tokenized securities on the public Ethereum chain can be said to have epoch-making significance. Therefore, while this heavyweight news was being shared, the entire network also began searching for the relevant contract addresses of BOC International, but to no avail. Market speculation is that the tokenized notes issued by BOC International are more likely to be based on a permissioned version of Ethereum.
According to UBS’s announcement, the RMB 200 million fully digitalized structured notes issued by BOC International for the first time were initiated by UBS and sold to its Asia-Pacific clients. Both parties made new attempts in terms of applicable laws and types of blockchains when issuing this blockchain digitalized notes.
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According to UBS’s announcement, this issuance is the first time in the Asia-Pacific region that a blockchain digitalization has been established in accordance with Hong Kong and Swiss laws, the first time to be carried out on the public Ethereum blockchain, and the first time to successfully introduce regulated securities into the public blockchain. Aurelian Troendle, Global Head of MTN Trading at UBS, said, “By using blockchain technology, high-frequency issuance activities can benefit greatly from significant efficiency gains, which will ultimately bring advantages to investors. UBS is pleased to partner with issuers such as BOC International to expand our tokenization capabilities and our client services.” UBS also said it will continue to expand its tokenization services through UBS Tokenize, covering structured products, fixed income, and repo financing.
According to UBS, if it is indeed issued on Ethereum, this transaction of up to RMB 200 million in tokenized notes can be verified on the chain. As we all know, every transaction on Ethereum can view the sender and recipient addresses, transaction time, transaction amount, and information on the involved smart contract. So why can’t any related addresses be found for this transaction, and why hasn’t the official chosen to directly publish the relevant transaction hash to prove its authenticity to the outside world?
Independent researcher Jason tweeted that the “main Ethereum blockchain” mentioned in the UBS article is actually not the Ethereum mainnet, but a centralized consortium chain deployed with Ethereum’s open source code. Although public chains and consortium chains have different permission systems, Ethereum is an open-source platform that allows for the creation of private permissioned versions.
UBS has made several attempts to tokenize assets on permissioned blockchains, such as in May 2021 when the UBS Group launched a pilot program to tokenize physical assets for more than 100 institutional clients. In December 2022, UBS successfully issued $50 million in blockchain digital fixed-rate notes on behalf of high-net-worth individuals and family offices in the Asia-Pacific region. The notes were established under UK and Swiss law and were digitized on a permissioned blockchain.
Traditional financial institutions have also experimented with similar approaches in the past. For example, in November 2022, Onyx, JPMorgan’s blockchain company, used DeFi on the public Polygon chain to complete its first cross-border transaction, supported by Aave and DEX Uniswap. However, the real-world use case experiment for this first institutional-grade DeFi protocol was actually the team’s deployment of a revised version of Aave Arc on the Polygon network, a permissioned version of the DeFi lending protocol that complies with anti-money laundering regulations and allows banks to set their own trading parameters.
Although more and more traditional financial institutions are exploring real-world asset (RWA) use cases, these platforms usually choose permissioned blockchains to expand their business. For example, in February of this year, the Hong Kong government announced that it would use Goldman Sachs’ tokenization platform GS DAP to issue HKD 800 million of green government bonds in digital form on a private blockchain network. In March of this year, BlackRock announced that it would continue to explore the digital asset ecosystem, including permissioned blockchains and the tokenization of stocks and bonds. In the first quarter of 2023, the European Investment Bank (EIB), in partnership with BNP Paribas, HSBC, and RBC Capital Markets, issued digital bonds denominated in pounds on a private blockchain.
Given the uncontrollable risks of policy compliance, regulation, and transaction efficiency, traditional institutions may still have a long way to go in deploying business on public chains. Whether CMB International and UBS have played a “word game” or not may only be convincing with the disclosure of relevant transaction hashes.
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