Leveraging tokenized real world assets for global collateral opens the doors to more asset mobility and improved market stability

Collateral discussions often focus on practicalities – how much collateral is needed, where it is, and how it can be more accessible. These questions underlie much of the collateral innovation currently underway to deepen liquidity and enable mobility.

However, in focusing on ‘how’, let’s not forget the underlying ‘why’ of collateral – which is to manage counterparty risk. Collateral’s primary objective is to secure transactions.

In the event of a default, the party holding the collateral has the legal right to those assets to offset the failed transaction. On a day-to-day basis, the role of collateral in capital markets and financial stability can be easy to overlook- but it is critical to the function of global markets. Significant market events over the past two decades have shown what can happen when collateral cannot be readily accessed, utilized, or claimed. 

If those same scenarios happened today, the use of tokenization and the Canton Network’s blockchain technology might yield very different outcomes.

When financial market infrastructure fails

To understand how tokenization and blockchain could mitigate market challenges, this article looks at seven events from the last two decades. Each demonstrates how the inability to efficiently move assets, access liquidity or meet obligations in real time can initiate or magnify a crisis.