Canton Network Might Push Institutional Interest in Assets Tokenization

Canton Network, 'a network of networks', is striving to become the most suitable blockchain for financial institutions. Some of the network's participants are SBI Digital Asset Holdings, Goldman Sachs, Microsoft, Deloitte, BNP Paribas, ASX, and other key figures in the financial industry.

But why are such networks have an edge over publicly available decentralized networks? How are they better?

Limitations of Public Networks

Canton Network believes that the current smart contracts fail to attract financial institutions for several reasons.

Indeed, in today's markets, projects compete for resources. If one project is demanding greater resources, it often reflects in the network fees. Ethereum is a great example of it. When Yuga Labs launched the Otherside land NFTs, Ethereum gas fees spiked over $100.

Another concern is that all data is publicly shared and available to all. Having confidential data publicly accessible is less desired by financial firms.

Canton Network is overcoming these limitations by using the Dami modeling language. Dami offers privacy to every asset or piece of information (sub-transaction privacy). In other words, privacy is applied to a public chain (like Zcash).

Additionally, Canton uses horizontal scaling, which means there are no limits on how many transactions can take place per second (TPS). The testnet is expected to launch in July 2023.

Permission and Permissionless

Canton Network is a permissioned blockchain (also known as a private blockchain). While part of the network is decentralized, it is controlled by private entities. While there are benefits to a permissioned network, such as privacy, scalability, and customizability, there is less transparency.

Permissionless blockchains are quite popular for DeFi projects. However, the reason why Canton Network chose a permissioned chain seems because of US regulations. Matthew McDermott, the Head of Digital Assets at Goldman Sachs hinted it may be the case at the Crypto Assets Conference, saying: "I'll speak from a highly regulated U.S. bank. We are not allowed to do anything on a public blockchain, be it permissionless or otherwise."

"The rationale being safety and soundness. Most of the development you will see certainly from the U.S. banks, JP Morgan, ourselves and many of the others, will be on a private blockchain."

Europe Has the Upper Hand

As opposed to Goldman Sachs, Taurus, a Swiss-based firm that has gained the interest of European firms, chose the public chain of Polygon for asset tokenization. Credit Suisse, Deutsche Bank, and Pictet are just some of the investors in Taurus.

Currently, Taurus is focusing on European and UAE-based firms. To push asset tokenization, the company will allow its clients to issue digital securities.

Enabling banks and brands to issue and custody any tokenized asset using @0xpolygon@taurus_hq, the European digital asset infrastructure leader is now fully integrated and automated #onPolygon 😎More: https://t.co/U2tT0azjkGpic.twitter.com/urFCzXN8eg

CMO and the Head of Strategic Partnerships at Taurus said: "Building on Polygon, one of the leading blockchain ecosystems, is a natural step for Taurus. Our banking, consumer goods and sports & entertainment clients can now benefit from low fees and faster transactions for any tokenization use case: equity, debt, structured products, funds, NFTs."

Earlier this year, Siemens issued a EUR 60 million bond on Polygon. Ramin Ghafari, the Head of Financial Technologies at Siemens Treasury affirmed the company wishes to be independent of individual banks. The digital bond issuance was possible due to Germany's eWpG legislation.

Private or Public Chain

The US regulations are subject to change. It is possible that in the very near future, the US will adopt Germany's eWpG legislation. While private chains have their benefits, public chains may have the upper hand. One of the benefits blockchain tech brings is transparency, which has been lacking in several sectors.

Although, providing a secure and transparent environment may have greater appeal than private chains. BlackRock's CEO, Larry Fink said that: "The next generation for markets, then next generation for securities, will be tokenization of securities."

The future of tokenized assets is promising. According to a report released by BCG and ADDX, asset tokenization is expected to reach a $1.6 trillion market by 2030. At this rate, tokenized assets may make up 10% of the global GDP.

Tokenizing assets will also enable investors from all over the world to access markets they were previously unable to. The growth is projected to take place in real estate, bonds, and equities as well as patents.

Other Chains Will Be Explored

'The race to blockchain mountain' is likely to intensify in 2023. Blockchain firms will compete to lead the herd in tokenizing securities.

While Polygon has garnered some institutional interest, firms will attempt to stand out from the crowd by choosing other public chains. For example, Tokeny partnered with Avalanche for tokenizing assets via ERC3643. Furthermore, Token partnered with CoFund to tokenize real-world assets (RWA) in Bali.

And, if I must speculate, Arbitrum and Celo may be next in line to be adopted by tokenization platforms.