RWA | HSBC "Gold Tokenization" Utilizes Blockchain to Offer Customers New Trading Services

According to a report by Bloomberg, the international precious metals settlement institution HSBC Bank is attempting to tokenize gold using blockchain technology, creating a new product under its digital platform HSBC Orion to provide institutional investors with a more convenient gold trading platform.

HSBC Holdings Plc recently launched a product that tokenizes the ownership of physical gold held in the London vaults using distributed ledger technology, creating a cryptocurrency representing ownership of gold.

Tokenizing Gold is Not a New Thing

Paxos

While the trend of Real World Assets (RWA) has been growing recently, tokenizing gold is not new. Back in 2016, Paxos began experimenting with tokenizing gold by partnering with traditional financial institution Euroclear to establish blockchain-based settlement services for transactions in the London gold market.

Although the collaboration between the two companies dissolved the following year, Paxos continues to offer RWA tokens representing ownership of gold, known as PAX Gold (PAXG), with each PAXG token equivalent to one troy ounce of gold, the weight of a London Good Delivery gold bar. The current market value of PAXG is approximately $480 million.

Tether

Tether, known for issuing the stablecoin USDT, also started issuing tokens pegged to the price of gold in 2020, backed by physical gold bars. Currently valued at around $490 million, Tether, along with Paxos, dominates almost the entire market for tokenized gold.

Advantages of Gold RWAs

Tokenizing gold allows anyone with a crypto wallet to easily increase their gold asset allocation. The divisibility of ERC-20 tokens further lowers the barrier to entry, and the composability of smart contracts can enhance operational strategies and capital efficiency, such as using AAVE to lend PAXG and earn interest.

Gold RWA tokens enable individuals to conveniently increase gold exposure using blockchain technology in a less frictional manner, a potential opportunity recognized by HSBC.

HSBC's Gold RWA Project

According to data from the London Bullion Market Association LBMA, approximately 698,000 gold bars with a value of around $525 billion are stored in vaults in the Greater London area, indicating a significant market size. However, the London gold market still heavily relies on manual records and operates mostly over-the-counter.

HSBC aims to utilize blockchain technology to expedite the settlement process in the gold market, allowing clients to easily track their gold assets through the platform, including the serial numbers of each gold bar. Their goal is to reform the $11 trillion global gold market.

HSBC also plans for the platform to incorporate other precious metal markets in the future.

What Sets This Apart

Compared to existing competitors, HSBC's advantage lies in its significant influence in the precious metals market. HSBC is one of the largest custodians of precious metals globally, and is one of the four clearing institutions in the London gold market, with over $30 billion in precious metals traded daily.

Currently, HSBC's target client base is institutional investors rather than retail investors. However, HSBC has indicated that if regulations in the retail investor's jurisdiction allow, the system may eventually enable retail investors to directly invest in gold.

HSBC's Crypto Blueprint

In recent years, HSBC has made various investments in the crypto space, becoming the first bank in Hong Kong to allow crypto ETF trading and deciding to acquire the UK branch of Silvergate, demonstrating its optimism and future direction in blockchain technology.

Since last year, HSBC has been promoting the digital bond platform HSBC Orion based on blockchain technology, with this gold tokenization project set to be one of the services on the platform, providing a more comprehensive service for institutional investors.