A token-based operating model unifying traditional and token-based operations for security services

Abstract

Asset tokenisation is expected to have an impact on the financial services industry in the future. This paper examines the necessity for traditional custodians to enter tokenised markets to propose a future operating model for traditional custodians. We explore the advantages, such as leveraging regulatory expertise and existing customer bases and challenges, including the adoption of new technology stacks involved in such a model. Our proposed operating model utilises a blockchain infrastructure that relies on the use of tokens that spans both traditional and digital assets to create an automated platform. This platform can include the automation of credit risk and liquidity across multi-asset classes and multi-jurisdictional operations. Notably, our model introduces two types of tokens: value tokens (the fully digital or tokenised assets as well as tokenised money) and proxy tokens (among others, representing traditional assets). While value tokens carry value and represent tokenised assets, proxy tokens do not carry value. These proxy tokens are an internal representation of traditional assets that can facilitate managing the intra-day liquidity and extended credit lines offered to customers. Within our proposed operating model, all transaction instructions, whether in the traditional or tokenised realm, are streamlined through a unified ‘instruction worklist’. We conclude the paper with a proposed schematic architecture for the technical implementation of the operating model.