McKinsey & Tokenization: A digital-asset déjà vu. Including Carbon Credits.

In spite of the highly tumultuous and turbulent past 12 months for digital assets and Web3 players, companies in financial services, retail, music, gaming, and media, among other sectors, continue to pursue opportunities in Web3. Here some examples.

• tokenized loyalty programs

• blockchain in the financial services

• tokenization and distributed ledger for banks, asset managers, and other institutions

• digital securities tokenization

Considering the first "tokenization wave" of 2017, what would be different this time?

"Tokenization refers to the process of creating a token on a blockchain that represents an asset. These tokens can be representations of traditional tangible assets (such as real estate, agricultural or mining commodities, analog artworks), financial assets (equities, bonds), or nontangible assets such as digital art and other intellectual property."

As such, benefits could include some of the following:

• Improved capital efficiency

• Democratization of access

• Operational cost savings

• Cheaper and more nimble infrastructure

• Enhanced compliance, auditability, and transparency

"A high-profile example is carbon credits, where blockchain technology can provide an immutable and transparent record of the purchase, transfer, and retirement of credits, with transfer restrictions and measurement, reporting, and verification (MRV) functionality built into a token’s smart contract. This way, when a transaction of a carbon token is initiated, the token can automatically check up-to-date satellite imagery to ensure that the underlying nature-based removal project is still operating, enhancing trust in the ecosystem."

There are some limitations, though. Available infrastructure, wallet solutions specific flexibilities, interoperability challenges and regulatory uncertainties, to name a few.

"Even carbon credits as an asset class have encountered challenges in gaining alignment on an established registry. At present, Gold Standard is the only registry publicly preparing to support tokenized carbon credits, despite the clear benefits of enhanced transparency." Recall here our post "Tokenisation consultation feedback and next steps for Gold Standard".

Click at the image below to read McKinsey's full study.

And stay tuned, as in the coming days we plan more posts related to this topic.

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