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Tokenization of Infrastructure

2023-06-19   |   by Carl Cohen   |   945

Financing sustainable infrastructure through a blockchain based solution

Here is a great validation for our core ideas and concepts, prepared not by anyone, but by the World Bank itself. Real-world Financial Assets is going to be the next big thing and we're more than eager to lead and pave the way for it to happen!

Blockchain technology offers numerous benefits, including lower transaction costs, improved transparency, increased liquidity, access to alternative capital sources, enhanced transaction efficiency, and reduced counterparty risk through decentralization. The growing acceptance of cryptocurrencies and tokens indicates the recognition of these benefits among financial market participants. However, it's crucial to differentiate between crypto as an asset class and tokenized securities, with the latter being the focus of this paper. Tokenized securities function similarly to traditional securities and are subject to the same regulations. While blockchain serves as a digital vehicle for tokenized securities, they are not inherently "blockchain native" like cryptocurrencies.

The main barrier to using blockchain for infrastructure finance is the lack of regulation designed for tokenized securities. Different jurisdictions vary in the extent to which they accommodate tokenization within their security regulations. To fully realize the potential of tokenized securities, significant regulatory work needs to be done. This includes minimizing the reliance on off-chain components for regulatory compliance and finding ways to democratize finance while adhering to securities regulations.

The World Bank can play a crucial role in driving change in financial regulation to better accommodate tokenized securities. By leveraging its influence as a leading development finance institution, the World Bank can advocate for more regulatory attention and actively shape financial regulations to support the use of tokenized securities. This can involve educating regulators and policymakers and working with other stakeholders to create a more conducive regulatory environment.

Additionally, by launching a tokenization pilot, the World Bank can demonstrate leadership in the use of blockchain technology. This pilot can generate interest and confidence among other development finance institutions and stakeholders in infrastructure finance. It would encourage further experimentation and development of the tokenization ecosystem, ultimately leading to more efficient and widespread adoption. Furthermore, the World Bank's involvement would provide incentives for regulators to provide clearer guidelines on the tokenization of securities.

Interacting with the crypto ecosystem is another opportunity for the World Bank. The crypto market represents a significant capital pool that should not be overlooked. Through a tokenization pilot, the World Bank can tap into this capital pool for financing its infrastructure projects at potentially lower costs. It can also explore opportunities in decentralized finance (DeFi), leveraging asset-backed infrastructure tokens in DeFi applications. Additionally, building a virtual community of token holders can help secure support from various stakeholders and potentially crowdsource additional financing for the project's lifecycle.

The World Bank's past experiences with initiatives like the issuance of the first green bond demonstrate the potential long-term impact of embracing new technologies. Despite the initial costs, such initiatives have shaped markets and paved the way for widespread adoption. Similarly, the World Bank's exploration of infrastructure tokenization should be driven by its long-term aspirations for advancing blockchain technology in infrastructure financing. In conclusion, the World Bank should consider infrastructure tokenization to drive regulatory change, demonstrate leadership in blockchain technology, and engage with the crypto ecosystem. While there may be short-term costs associated with launching a tokenization pilot, the potential long-term benefits in terms of regulatory evolution, technological innovation, and financing opportunities are significant.

This text is a resume of the recent report "Infrastructure Tokenization - Does blockchain have a role in the financing infrastcuture", prepared by the World Bank.
Link to the report:

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