Yasuda on Tokenization

On December 13, 2024, Société Générale announced the successful completion of the first repo transaction (Sale and Repurchase Agreement) using digital securities on a public blockchain with the Banque de France. This groundbreaking transaction was executed through Société Générale’s subsidiary, SG-FORGE, and involved depositing bonds issued in 2020 on the public Ethereum blockchain as collateral with the Banque de France. In exchange, the central bank issued Central Bank Digital Currency (CBDC) on its DL3S blockchain.

This transaction marks a significant milestone in the integration of blockchain technology into traditional financial operations. It demonstrates the technical feasibility of conducting interbank refinancing operations directly on blockchain and illustrates the potential of CBDC to enhance the liquidity of digital financial securities. The successful execution of this repo transaction showcases Société Générale’s commitment to leveraging its financial expertise and SG-FORGE’s technological capabilities to contribute to the development of innovative financial markets. This pioneering move is part of the broader Eurosystem’s exploratory work on wholesale Central Bank Digital Currency and distributed ledger technology in financial markets.

On December 10, 2024, the European Supervisory Authorities (ESAs) published final guidelines to ensure consistent regulatory classification of cryptoassets under the Markets in Cryptoassets Regulation (MiCAR). These guidelines, developed in accordance with Article 97(1) of MiCAR, provide templates for explanations accompanying crypto-asset white papers and legal opinions on the qualification of asset-referenced tokens (ARTs). The ESAs have also introduced a standardized test in the form of a flowchart to promote a unified approach to crypto-asset classification across the European Union.

The guidelines aim to address challenges faced by competent authorities in reviewing crypto-asset classifications due to inconsistent or insufficient information. By implementing these measures, the ESAs seek to strengthen the regulatory framework, reduce disparities between Member States, and mitigate risks of regulatory arbitrage. The guidelines include detailed templates for various scenarios, such as ARTs and other crypto-assets not classified as ARTs or electronic money tokens (EMTs). These new standards are set to apply three months after their publication in all official EU languages, marking a significant step towards harmonizing crypto-asset regulation across the EU

The European Banking Authority (EBA) has published a report on tokenised deposits, highlighting the potential benefits and challenges of this emerging financial innovation. According to the EBA’s Spring 2024 Risk Assessment Questionnaire, 17% of the 85 surveyed credit institutions in the European Economic Area (EEA) expect to engage in tokenised deposit activities within the next two years or more. Despite this growing interest, the EBA has identified very few actual cases of tokenised deposits in the market to date, with only one implemented use case and one project reported by national competent authorities in the EEA.

The report emphasizes that tokenising a deposit - recording the deposit claim on distributed ledger technology (DLT) instead of a traditional ledger - does not fundamentally alter its regulatory classification as a deposit. Potential benefits of tokenised deposits include improved transaction efficiency through programmability and enhanced compliance with anti-money laundering and counter-terrorism financing requirements. However, the EBA also notes challenges such as consumer protection issues, operational risks, and the application of existing regulatory frameworks to this new technology. While the EBA has not identified an immediate need to adjust the current regulatory and supervisory framework, it will continue to monitor market developments and promote discussion on the potential impacts of tokenised deposits in the EU banking sector.