The tokenization of real-world assets offers “far-reaching” new functions, according to Travis Hill, the vice chair of the U.S. Federal Deposit Insurance Corporation (FDIC).

In a new speech at the Mercatus Center, Hill says real-world asset tokenization offers programmability, the ability to hard-wire value transfers that automatically self-execute when certain conditions are satisfied.

Tokenization also enables the simultaneous exchange and settlement of payment and delivery, known as atomic settlement, and it provides a shared, immutable ledger that offers a reliable audit trail, according to the FDIC vice chair.

“We already see powerful examples of how tokenization is beginning to deliver tangible benefits, such as the introduction of intraday-repo and dramatic increases in settlement times for multi-currency bond issuances. While the existing use cases have focused on institutional customers, in the future, the benefits could expand to retail; to give one example, programmability may be able to simplify the home-buying process by eliminating the need to place funds in escrow prior to closing.”

Hill notes, however, that programmability could make it easier for customers to remove funds from banks following negative news, which could intensify bank runs.

He argues that his agency and other regulators should provide additional clarity to banks interested in the blockchain sector.

“I appreciate the need for regulators to be deliberative and careful in approaching these issues. We should do our homework and make sure we understand the implications of new technologies that can reshape banking. And I recognize the value in being cautious regarding the extent to which the FDIC-insured banking system engages with the crypto economy.

But there are significant downsides to the FDIC’s current approach, which has contributed to a general public perception that the FDIC is closed for business if institutions are interested in anything related to blockchain or distributed ledger technology. The confidential nature of the existing process means there is little public information on what types of activities the FDIC might be open to, if any.”

Hill thinks regulators should view real-world tokenization and crypto differently.

“The agencies need to distinguish between ‘crypto’ and the use by banks of blockchain and distributed ledger technologies. I do not think banks interested in the latter, insofar as it simply represents a new way of recording ownership and transferring value, should need to go through the same gauntlet as banks interested in crypto.”

The vice chair also argues that a poor regulatory approach will cede financial influence to non-US jurisdictions.

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