Much of the media’s focus on digital assets is on cryptocurrencies, which have been characterised by intense volatility and crypto exchanges closing and investors losing their funds. But the potential of digital assets goes beyond cryptocurrencies, which is just one aspect of this new asset class.
A good place to start is by defining what a digital asset is and the following was extracted from a speech by Ravi Menon, Managing Director of the Monetary Authority of Singapore on Monday. Menon made the opening remarks at a Green Shoots seminar where I was part of a panel discussion alongside industry experts to discuss advancing Singapore’s digital asset development.
Defining a digital asset
According to the MAS, a digital asset is anything of value whose ownership is represented in a digital or computerised form. It is created through the process of tokenisation, which involves using a software programme to convert ownership rights over an asset into a digital token. Anything that has value, from financial assets like cash and bonds to intangible items like carbon credits, can become a digital asset when tokenised.
The MAS sees strong potential in a digital asset ecosystem that combines tokenisation and distributed ledgers. In the speech, Menon singled out Contour as a “promising use case of digital assets in financial services” that will contribute to Singapore’s vibrant digital asset ecosystem.
Contour is built on R3’s Corda blockchain, which is a distributed ledger technology (DLT). In light of the recent news of closures in the fintech trade finance industry, many have raised questions about the viability of DLT as a choice of technology. But failures so far have not been because of technology, but because of the product/market fit.
“Contour’s use of Corda’s DLT is an elaborate and exquisite way of managing databases, especially in this day and age where data privacy and residency is of utmost importance to our customers.” – Wegner
In my panel, I highlighted the example of Amazon and its technology. The e-commerce giant built a network by selling physical books as there was not a market for eBooks at the time. But that changed with the shift to digital and then they had the ability to leverage the extensive network to sell the new products into.
Contour has taken the same tact of solving an old problem using new technology. Our first use case was to build a digital network around a crucial process in trade finance – the Letter of Credit (LC). This is a largely manual process that has been around since the 1900s! What Contour has done is take the same workflow and digitise it, which has made the process 90 percent more efficient by connecting the four or five players in the transaction.
“Facilitating more efficient trade finance transactions is one goal, but we are also making it efficient for smaller players.” – Wegner
Contour’s use of Corda’s DLT is an elaborate and exquisite way of managing databases, especially in this day and age where data privacy and residency is of utmost importance to our customers. There are financial institutions and corporate customers who want data to sit in their own countries, without a central database. Contour’s network allows that optionality because we understand that’s what’s required by banks and regulators.
Alex Svanevik, CEO of blockchain analytics platform, Nansen, who was on my panel shared a similar sentiment about the benefits of blockchains, albeit on the public side.
“Blockchains are quite unique, especially public blockchains as they have much more transparency than the current financial infrastructure. The transparency of blockchain allows you to dig into it and understand what happened days or weeks after it happened.”
Tokenising digital trade assets
Contour’s digital LC is an example of tokenisation and as a leading fintech player, we are leveraging that technology. But we understand that from a bank and financial institution’s perspective, this is new territory. As a result, we speak of digitising the trade finance journey by using smart contracts in our permissioned ledger to create digital trade assets.
The question that we’re getting asked now is whether there is a future where these assets can be exchanged and distributed in our ecosystem. Contour is a growing trade finance network, consisting of 18 of the world’s leading trade banks with a footprint in over 50 countries and counting. And the answer, is yes.
In April, Contour detailed our next phase where we see the potential of tokenisation to make global trade more efficient. We are reimagining a future where this is possible through our Future of Finance lab. The future is also one which we can take to the next level should our bank partners see demand, and this could be atomic DVP (Delivery against Payment), which is a means of transferring value in a simultaneous transaction using smart contracts.
Contour is excited about being part of an ecosystem with a regulator that is at the forefront of developments to grow the city-state into an innovative hub for digital assets. Facilitating more efficient trade finance transactions is one goal, but we are also making it efficient for smaller players, like local banks and small-and-medium sized enterprises, to join a network that is unlocking economic value for the entire ecosystem and addressing the trade finance gap as well.