HSBC has launched a platform that uses distributed ledger technology (DLT) to tokenize the physical gold of institutional clients, stored in its London vault. The platform will allow each token, equivalent to 0.001 troy ounce of the client's physical gold holdings, to be traded between the bank and investors. This development is seen as a response to the growing demand for real-world linked tokenization solutions, as pointed out by John O'Neill, global head of digital assets strategy, markets and securities services at HSBC.
The advanced platform creates a 'digital twin' representing loco London gold, which facilitates trade through the HSBC Evolve platform or an API. This innovation generates a permissioned digital representation of clients' physical gold holdings, which is integrated into HSBC's operational infrastructure. The system enables efficient tracking of allocated and unallocated gold positions corresponding with physical holdings.
Apart from facilitating potential fractionalization of loco London gold bars and direct retail investor participation, the platform also allows clients to view their tokenized gold trades. The tokenization of gold is seen as a part of a "flight to quality" among investors, possibly towards gold, which is currently the second-most tokenized asset after USD.
In addition to this initiative, HSBC also plans to launch HSBC Orion, a platform that will allow institutions to issue digital bonds. This move aims to connect real-world assets like gold to the rapidly evolving tokenization space. The tokenized gold market is primarily dominated by Tether Gold (AUT) and PAX Gold (PAXG), both having market capitalizations around $490 million and $480 million, respectively.
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