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The Swiss Bankers Association (SBA) is proposing the use of tokenization of deposits since the Swiss economy now places a high priority on digitalization. According to a whitepaper report by the Association, Deposit Tokens (DT) are a type of stablecoin that can boost efficiency, lower risks, and open up completely new economic sectors.
The proposal has three main goals: preserving the Swiss franc’s (CHF) role as a reserve currency, safeguarding the CHF as a medium of exchange, and preserving Switzerland’s position as a world innovator.
Markedly, the paper highlighted 3 variants of DT with different economic, legal, and technical features. The first one listed is the “Standardized Token” which can be issued by commercial banks and backed by a secure and highly liquid reserve.
The second DT listed is the “Joint Token”, issued by a special-purpose vehicle made up of participating banks with required licenses. Lastly, the “Colored Token” is issued by commercial banks to any standard deemed fit.
Remarkably, the Swiss government has generally favorable views on digital assets and acknowledges the potential benefits for the financial system. In 2021, the government approved its first crypto funding which resulted in massive momentum of crypto adoption in the country.
The Concept Behind Deposit Tokenization
While the use of DT has become a standard feature in many Decentralized Finance (DeFi) protocols, the idea is still relatively new. According to a report by Washington Post, DT originated from Project Guardian, an initiative launched by the Monetary Authority of Singapore last year.
Deposit tokens are created by the DeFi protocol and are typically pegged to the value of the deposited asset. They make it simpler for users to trade, lend, and borrow their assets.
In traditional finance, when users deposit money into a bank account or invest in a fund, they receive a paper or digital receipt that represents their stake in the asset. Similarly, in DeFi, when they deposit an asset such as cryptocurrency, they receive a digital token that represents their share in the pool.
Essentially, the idea behind token deposits is to make the DeFi ecosystem more approachable and effective by giving users more freedom and liquidity when interacting with these protocols.
The post SBA Proposes Using Tokenization to Settle Digital Transactions appeared first on Latest News and Insights on Blockchain, Cryptocurrency, and Investing.
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