Adam Back, one of the legendary figures in Bitcoin history, widely regarded as the closest person to Satoshi Nakamoto, the founder of Blockstream, appeared in Taipei, Taiwan on November 18, marking a milestone in the development of the Bitcoin ecosystem in Taiwan.
The next day (19th), Adam Back gave an engaging speech on Bitcoin, and in the afternoon session "Liquid in Asia and Beyond: Charting the Course for Digital Asset Development", he engaged in an in-depth discussion on the trend of asset tokenization with several experts.
Guest list:
- Chief Operating Officer of Bitfinex Securities Jesse Knutson
- Co-founder and CEO of Blockstream Adam Back
- Permanent Director of Japanese crypto exchange Crypto Garage Justin Dhingra
- Chief Operating Officer of BTSE Jeff Mei
Note: Liquid Network is a Bitcoin Layer 2 and sidechain built by Blockstream specifically for asset issuance.
Liquid Asset Tokenization Cases
Host Jesse Knutson first asked about the ongoing asset tokenization cases on the Liquid Network. Adam Back first shared Blockstream's security token - Blockstream Mining Note 1 (BMN1), which matured this July, providing investors with a return of over 1,200 BTC, worth around $80 million at the time.
The second asset (BMN2) has currently raised around $39 million, which is a 4-year computing power asset, with each unit representing 1 unit of computing power. Adam Back stated that compared to mining company stocks, this is an interesting asset, as mining company stocks also involve management team and mining company strategic decisions, while this asset is solely focused on the mining revenue of the specific computing power for 4 years.
Adam Back: Another interesting asset worth discussing is the fuel promissory note. Of course, this has been mentioned before, but worth noting is that its growth rate is quite rapid and is a natural development, as it genuinely improves and simplifies the paper-based processing system. This asset is primarily to provide working capital for small businesses in Mexico, and it seems to be absorbing around $100 million per month. The initial announcement was last March or April, when the scale was $200 million, and now it has exceeded $1 billion.
Justin Dhingra: We have issued the JCO token on the Liquid Network, and our motivation for creating this token is to facilitate cross-border trading between Japanese crypto exchanges and other global markets. One of the constraints in trading with Japan is the fiat currency. If an overseas exchange wants to trade with Japan, they need to set up an account. To set up an account, you need to be a local entity. But the cost of becoming a local entity is high, and it is not friendly for startups to engage in trading with Japan. So we believe the JCO token can serve as a facilitator for trading with Japan.
Jeff Mei: As an executive, we are always looking for new and interesting assets to combine. I think in the real world, especially in Asia, we see things like gold, real estate, oil, and commodities. These are the directions we are constantly exploring. I think the key is that Liquid is based on Bitcoin, and Bitcoin is the most institutionally or governmentally recognized asset. So I think that makes everything possible, and we will continue to explore.
Advantages of Liquid Network
Adam Back observed that institutions have a clear preference in choosing blockchains, as they do not want to bear the regulatory risks associated with the native tokens of other public chains, where the token's status as a security and its regulatory treatment are still unclear.
Jesse Knutson: Yes, this is exactly the point I wanted to express, as Bitcoin has the best anti-inflationary properties globally, and this extends to Liquid as well.
From the platform or even the issuer's perspective,
this reduces the risk of being deemed an unregulated security and causing all sorts of chaos.
Justin Dhingra also pointed out that the UTXO-based multi-signature architecture adopted by Liquid makes its codebase more robust. Therefore, in terms of consumer protection, he believes Liquid is top-tier.
Jesse Knutson: Jeff, perhaps Justin can also talk about how much interest you're seeing in RWAs (Real World Assets) within Asia, or the situation in other regions?
Jeff Mei: Yes, I can particularly talk about China. There was a time when nearly half of the crypto trading came from China, but since the COVID pandemic, they have been hit hard, and the economy can be said to be not as good as before... Therefore, many Chinese miners, as well as those holding a large amount of Bitcoin, are looking for new ways to generate income from their Bitcoin holdings.
So first of all, Liquid provides many different staking applications, where they can earn income while holding Bitcoin, especially in the context of reduced block rewards.
Second, I believe that Chinese investors generally tend to transfer their funds overseas, they are looking for new investment products, and RWAs just meet the demand, they are not as flashy as some AI or new tokens, but they do have solid assets as support.
Therefore, I believe there is a lot of interest in this area, and we have also seen this trend, especially in the areas of gold and real estate.
Japan Sparks Discussion on Public Chain Issuance of RWA
Justin Dhingra: In the case of Japan, the trend of RWA or STO, Japan is an early participant in STO. Japan has clear rules and regulations, which is a characteristic of Japan. One of the conditions is that the technical platform for issuing STO in Japan must be a private chain.
I see Taiwan using Hyperledger. In Japan, many cases are also using Hyperledger. One question that Japanese people often ask is, if you issue RWA on a private chain, why do you still need blockchain? It is a closed ecosystem. Therefore, STO has not really taken off in Japan, and it is still in the early stage.
And one event that has attracted the attention of Japanese financial institutions this year is BlackRock's issuance of a money market fund BUIDL on Ethereum, although this is not about Liquid, but that case is the first time we have seen RWA issued on a public network, however, Securitize basically controls the token, it is the gatekeeper.
So it is not truly open, but the participants in Japan are taking it as a case and using it to lobby the regulators, pointing out that the public blockchain is feasible. This is sparking heated discussion in Japan.
Jesse Knutson: I'm a bit curious, what's the logic behind it? Why do they insist on issuing on a private chain rather than a public chain?
Justin Dhingra: The main reason is for accountability. If there are errors or transaction failures, the Japanese regulators want the service providers to be able to modify the transactions. Therefore, it is due to considerations of accountability and consumer protection that such a requirement is in place.
The Importance of Stablecoins in STO and RWA
Jesse Knutson: The next question is about stablecoins. There are various stablecoins on Liquid, why are stablecoins important for the issuance of STO and RWA?
Adam Back: In fact, in some issuance cases, such as on the sideswap platform, you can use Bitcoin as a trading pair, or use stablecoins as a trading pair for other assets. Which trading pair is more reasonable depends on the asset itself. For mining assets, using Bitcoin for pricing is actually quite convenient, but for assets like dollar-denominated income funds, using the US dollar for trading will be more convenient.
Therefore, having a stablecoin as a trading pair is very useful, and for emerging markets, having a stablecoin in the same wallet is very convenient, which cannot be directly realized on the Bitcoin mainnet, so the Liquid wallet, through trustless exchange access to the Lightning network, can hold both Bitcoin and stablecoins in the same wallet, which is very in line with mainstream demand.
Jesse Knutson: Yes, that's absolutely right. I think if you believe in the idea of the convergence of the digital asset world and the traditional securities world, then stablecoins are very important in connecting these two worlds.
Future Tokenization Trends
Jesse Knutson: Finally, looking to the future, what do you think will be the main tokenization trends globally or particularly in Asia in the next few quarters?
Adam Back: I think RWA is a major new phenomenon. It must be noted that the assets in the traditional securities and bond markets are currently far more than Bitcoin, so this convergence is important. Not only the access to the stock market, but also the development of Bitcoin trading and its derivatives are equally important. For example, trading arbitrage through ETFs, and the approval of different derivatives and Bitcoin options in the United States, these are topics to be discussed next.
Currently, blockchain has not provided much value to traditional capital,
but blockchain does have the potential to ultimately realize these values.
Justin Dhingra: Yes, for Japan, I think this is a preliminary progress. As I said, Japan now has stablecoin regulations that came into effect last year. There are no stablecoins launched yet, but many companies are working on developing them. So I think this is the first stage. The second stage will be income-generating US assets, such as government bonds, income-generating money market funds may be the next stage, and then tokenization, such as tokenized investment trusts and tokenized stock funds.
So I think Japan tends to be more cautious. They issue regulations as quickly as possible, and then proceed in a gradual manner. We need to see stablecoins become widespread in Japan first, then income-generating assets, and then observe the subsequent developments.
Jeff Mei: I think from the trend, Hong Kong has always been a leader in Asia. Other Asian countries seem to be a bit behind. We see MAS and Singapore observing the regulatory situation, and we also see Hong Kong taking action, and even in Taiwan, there has been a lot of discussion recently about retail and wholesale CBDC.
So I think this is a trend, many Asian countries are moving in a certain direction, and this trend makes us more focused on the perspective of tokenized assets.
