According to a Citibank executive, tokenization is at the heart of digital money’s “format wars.”

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The battleground of tokenization will determine whether the digital money format war is won or lost.

Tony McLaughlin, Citibank’s managing director of transaction banking, believes that digital money is the new front for another paradigm-shifting format conflict.

Speaking during the ongoing Finnovex Virtual Summit, McLaughlin said that digital money appeared odds-on to become the future of money. However, he argued that digital money itself was still in the process of significant evolution along three lines — financial institutions, fintech and crypto.

Tokenization, according to McLaughlin, would play a significant role in deciding the ultimate winner of the digital money format battle. During his presentation on Monday, McLaughlin detailed his research, identifying government legislation and assets versus liabilities as potential determining factors in the digital money format battle.

McLaughlin went on to say that constructing financial services infrastructure on tokens is superior to the current accounts-based paradigm. “A world of tokens has the potential to be more programmable than a world of traditional, siloed financial infrastructure,” McLaughlin believes.

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McLaughlin also mentioned the fact that token-based infrastructures operate continuously throughout his speech, stating:

“Token infrastructures are always on, and the traditional financial system clearly is not. RTGS systems are not always on, ACH systems are not always on, [but] instant payment systems are always on, but that’s the exception that proves the rule — bond markets, equity markets, fx markets, money markets — these markets are not run 24/7 but a DLT does.”

Aside from tokenization and continuous operations, McLaughlin pointed out that tokens are “inherently multi-asset,” which gives them an edge over the conventional conventional financial structure. Tokenization is a superior base-layer for asset representation, according to McLaughlin, since tokens are an eternal ledger with digital signatures.

As a result, Citibank’s transaction banking head advised financial services stakeholders to consider shifting their digital money efforts to a token-based scheme to reap benefits such as programmability and “always-on” operations.

Indeed, the new central bank digital currency surge sweeping through various countries is still centred on apex banks’ liabilities. As a result, when completely understood, these CBDCs would be the same accounts-based currency as fiat currency.

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McLaughlin also urged leaders in the financial services industry to expand their digitisation strategy beyond CBDCs and into multi-asset tokenization. Indeed, supervised decentralised finance, or reg-DeFi, is gaining traction among bankers.

Back in April, Banco Santander’s blockchain president, John Whelan, forecast that reg-DeFi — permissioned layer-two protocols on public networks — could be the future of finance. Even DeFi luminaries, such as MakerDAO founder Rune Christensen, have accepted that the new crypto business niche would necessitate substantial regulatory intervention in order to communicate with real-world properties.


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