During Australian Blockchain Week, I noticed there wasn’t as much cheerleading for crypto asset investments, as there often had been in earlier events. Instead, there was a keen and practical focus on how distributed ledger technology (DLT) can transform everyday financial services. 

This shift in tone reflects the reality that DLT can enable financial institutions to provide the safe, seamless financial services most consumers want as currency becomes digital. This technology can make payments safe, extend financial services to more people and reduce costs across loans, insurance and even advice. 

Even more, it has the potential to introduce innovative forms of finance based on new ways of approaching old problems – think blockchain-based payments and remittances services or trade finance workflows automated through atomic contracts. I think providers who can harness DLT in a regulated context will win big in the finance markets of the future. 

Many speakers identified tokenisation as a growing force that will support the next generation of financial services. As Sophie Gilder, Managing Director, Blockchain & Digital Assets at Commonwealth Bank put it, “The narrative is changing – blockchain is now seen as an efficiency and value driver. We’re not talking about the investment upside of digital assets, but rather that tokenisation of assets and smart processing can further banks’ core goals.” 

The US$14 trillion opportunity

The financial sector sees the potential. Northern Trust and HSBC forecast that some 5%-10% of all assets will be digital by 2030. Based on projections by PWC that global assets will increase in value to over US$145 trillion by 2025, that would be something in the range of US$7.25 trillion to US$14.5 trillion of digital assets. This is orders of magnitude bigger than today’s crypto market, which is worth about US$1.2 trillion.

But it’s not just securities, real estate and other assets that can be tokenised. The process of digitising money and payments is already underway, too. Privately-issued stablecoins have been blazing the trail – but CBDCs are not far behind.

“Crypto was always a speculative opportunity; stablecoins are different,” said Mastercard’s Aaron Boyd, Vice President, Payment Security & Risk, Cyber & Intelligence at Mastercard. “It’s less about investing – it’s about the ability to transact.” 

This is because most bank issued stablecoins are backed by traditional fiat currencies or the banks’ balance sheet. They are designed to maintain a stable value, as the name suggests, which can make them an effective enabler of transactions within the digital economy.  Time will tell whether non-banks can successfully compete.

“The digitisation and tokenisation of finance is about taking the decentralised building blocks and developing the efficiencies they promise,” said David Lavecky, CEO & Co-Founder of Canvas, also speaking at Australian Blockchain Week. “We are finding and providing the ways for things to work together – the onramps and offramps between fiat and crypto.” 

Stable genius

Stablecoins have had their problems – notably the collapse of the algorithmic TerraUSD coin. But when they are sound and well managed, they have the qualities that attract traditional financial services providers to DLT as they can combine efficiency and transparency with the stability and fungibility of traditional currencies. 

Small wonder the payments sector has been quick to catch on. “Once you use stablecoins you appreciate how powerful they are for moving money, especially cross-border,” said Michael Shaulov, CEO and Co-founder of Fireblocks. “It’s a powerful use case that also appeals to banks.” 

Stablecoins are money-like, but not currency in the traditional sense. That looks to be coming soon in the form of CBDCs, though. These are a digital version of fiat currency, backed by the faith and credit of a sovereign issuer. 

One hundred and thirty countries representing 98% of the global economy are exploring CBDCs, according to a study by the Atlantic Council, and 11 nations have already introduced them. Australia is no exception: earlier this year, the Reserve Bank launched 14 pilot projects for a digital Australian dollar, working with the financial industry and focusing on business use cases.

Dilip Rao, Program Director at the Australian CBDC Pilot Project, said, “Our model, created in conjunction with the central bank of Australia, will be a real claim on the central bank that can be redeemed for fiat. Making it legal tender means people will feel comfortable using it.” 

Essentially programmable currencies, CBDCs could facilitate more direct and efficient monetary policy implementation through real-time transaction monitoring and more effective adjustments to interest rates or liquidity.  

“CBDCs are a key driver to continuing improvements in digitalisation – which is why we are working with the RBA to explore an AusCBDC,” said Trevor Power, First Assistant Secretary of the Financial Systems Division – Commonwealth Treasury.

Opening up access

But perhaps one of the greatest impacts of digital money would be on financial inclusion. Where a large proportion of the population is unbanked but does have mobile phones, using stablecoins or – one day – CBDCs via a digital wallet can make a huge difference to people’s livelihoods and economic prospects.

“Twenty percent of the world is unbanked because banks can’t offer them services due to cost. Blockchain costs are a fraction – so this is an opportunity,” said Circle’s Director, Web3 & Gaming APAC Ben Morris. “And in countries experiencing inflation, stablecoins [linked to other currencies] let people preserve value during volatility in their own currencies.” 

The enthusiasm at Australian Blockchain Week about tokenisation and digital money is a strong sign that it will have a transformative role in the future of finance, with different forms like stablecoins and CBDCs hopefully running on interoperable DLT infrastructure. There’s some way to go still, but it’s clear that money’s digital revolution has already begun.