SBI Digital Markets - CK Ong Interview

Web3 Investing hosted SBI Digital Markets Chief Operating Officer CK Ong to discuss the potential for 2025 to be a pivotal year for the cryptocurrency and tokenization space. We have listed the highlights of the conversation here, and encourage you to listen to the full recording.

CK provides insights based on his extensive experience in both traditional finance and the digital asset realm, focusing on the evolution of technology in finance, the challenges and opportunities in tokenization, and the collaborative efforts underway to drive adoption and interoperability in the digital asset ecosystem. He emphasizes the importance of business adoption, regulatory clarity, and collaboration to push the boundaries of what's possible in this rapidly evolving landscape.

CK's Background and Transition

• Technology as a Process Improver: CK's career in traditional banking was rooted in leveraging technology to improve processes, streamline operations, and enhance efficiency. He highlights how essential skills have evolved, from Excel macros to data analytics and, now, smart contract design.
• Evolution of Operations: He foresees a future where operations roles transform from manual tasks to smart contract design. This shift requires operational staff to re-skill themselves to understand and design processes within smart contracts, eliminating the need for human intervention in many traditional operational functions.
• Blockchain's Impact: CK acknowledges the significant impact of blockchain technology on the financial industry, emphasizing that every banker should be forward-looking in terms of adopting and integrating this technology.

Misconceptions and Challenges in the Digital Asset Space

• The Myth of the "Secret Market": One of the most common misconceptions is the belief that tokenizing an asset will automatically attract a secret pool of capital. CK stresses that tokenization is a technology that offers operational savings and new transaction methods, but it doesn't create a new market of investors overnight.
• Education and Adoption Journey: He underscores the need for education and a phased approach for institutions, clients, and the industry as a whole to adopt tokenization. This journey involves understanding the benefits, structuring products for adoption, and gradually integrating tokenized assets into mainstream finance.
• Changing Perceptions of Bitcoin: CK recalls how, just a few years ago, many traditional players viewed Bitcoin as having no underlying value and dismissed it as a scam. The fact that countries are now considering holding Bitcoin as a reserve demonstrates the significant shift in perception.
• Open-Mindedness towards Altcoins: While acknowledging that many in the industry view meme coins and altcoins as valueless, CK advises keeping an open mind, drawing parallels to the initial skepticism surrounding Bitcoin. He suggests that some altcoins may prove to be resilient and establish consistent value as an asset class.

SBI Digital Markets and Project Guardian

• Collaboration with MAS: SBI Digital Markets is a key partner in the Monetary Authority of Singapore's (MAS) Project Guardian, a collaborative effort to enhance the liquidity and efficiency of financial markets through asset tokenization.
• SBI's Unique Contribution: SBI Digital Markets serves as the distributor and custodian of UBS's tokenized money market fund. The company, together with Chainlink, developed a smart contract that enables on-chain subscription and redemption, essentially digitizing the transfer agent function.
• Game-Changing Project: CK describes the project as groundbreaking, showcasing operational efficiencies and paving the way for digital transfer agents. Digitizing manual processes can bring significant cost savings to fund administrators, fund managers, and ultimately, investors.
• Rapid Execution: The project was executed in just eight months, demonstrating the potential for rapid progress when combining innovative technology with a practical approach. SBI aims to streamline the process and reduce the time required for future issuances and projects.

Interoperability and Chainlink's CCIP

• Importance of Cross-Border Transfer: CK emphasizes the importance of cross-border, cross-chain transfer of tokenized assets for mainstream adoption, estimating that this will become prevalent within the next three years.
• Global Buy-Side Alliance: SBI is spearheading an initiative to link tokenized asset platforms across jurisdictions, creating a common liquidity pool for the ecosystem. This initiative, called the Global Buy-Side Alliance (GBA), involves multiple jurisdictions and aims to bridge different chains, protocols, and platforms.
• Role of Chainlink's CCIP: Chainlink's Cross-Chain Interoperability Protocol (CCIP) is crucial for bridging the diverse platforms and protocols within the GBA. CCIP enables seamless and secure transfer of assets and data across different blockchain networks.

Partnerships and Ecosystem Development

• Focus on the Buy-Side: SBI Digital Markets focuses on partnering with buy-side entities, including digital exchanges, securities companies, private banks, and fintech platforms, to drive adoption and create a robust ecosystem.
• Regulated and Established Partners: The company prioritizes working with regulated and established partners to maintain the integrity and reputation of the ecosystem.
• Lowering Barriers to Entry: SBI aims to lower the barriers to entry for companies to connect to the tokenized asset ecosystem. Traditional connections can be costly and time-consuming. SBI is working on a template that reduces the technical, operational, and legal hurdles for participation.

Convincing Major Institutions to Adopt Tokenization

• Challenges of Adoption: CK acknowledges the difficulty of convincing major institutions to adopt new technologies like blockchain, drawing parallels to the challenges of introducing new systems in traditional banking. Revamping technology and business flows requires significant effort and buy-in.
• Increased Traction and Regulatory Clarity: The growing traction of digital assets and clearer regulations in many countries have made institutions more receptive to the idea of tokenization.
• Focus on End-to-End Implementation: The challenge lies in helping institutions adopt the technology by setting up processes, addressing risk and security concerns, and assessing operational impacts. This requires revamping policies and frameworks, which takes time and standardization.

The Urgency of Adoption and Avoiding FOMO

• Adopt or Get Left Behind: CK agrees with the sentiment that companies need to adopt tokenization or risk being left behind. However, he cautions against joining the space solely out of fear of missing out (FOMO).
• Leadership and Long-Term Vision: Institutions need to take a proactive and long-term approach, investing in the technology and becoming leaders in the space. This involves taking risks, testing, and working with experienced players like SBI Digital Markets.
• Open Ecosystem: SBI aims to provide value to institutions through partnerships and an open ecosystem that allows them to leverage existing infrastructure and expertise.
• Phased Approach: Everyone needs to go through a learning journey in phases. Starting now, rather than waiting for things to happen, is crucial.

Sentiment vs. Reality

• Consolidation and Business Focus: The industry is undergoing consolidation among technology players, with a shift in focus towards business applications rather than purely technology-driven development.
• Shortcut to Learning: Companies can shorten their learning curves by partnering with experienced players who have already navigated the challenges of tokenization projects.
• No Skipping Steps: While partnerships can accelerate the process, everyone needs to go through a learning journey in phases.
• Three Groups of Players: CK identifies three groups: those ready for commercialization, those focused on targeted testing, and those who are watching closely but risk being left behind.

Bitcoin ETFs and Token Adoption

• Initial Reservations: CK was initially concerned that the rise of Bitcoin ETFs might hinder the adoption of tokens and wallets. He believes that tokenization of traditional assets is a key step in bringing institutions into the digital asset space.
• Traditional Wrapper vs. Native Tokens: Bitcoin ETFs allow access to Bitcoin without the need to hold the underlying token, which seemed contrary to the push for token adoption.
• Increased Recognition: However, Bitcoin ETFs have increased the recognition of Bitcoin as an asset class, allowing institutions to participate without directly holding the token.
• Hybrid Approach: CK now believes that a hybrid approach, with both tokenized traditional assets and traditional wrappers around tokens, may be the optimal path for broader participation in the digital asset world.

Bitcoin as Payment vs. Store of Value

• Original Vision of Payments: CK believes that Bitcoin was originally created for payments, and its use as a payment mechanism would provide a clear and understandable use case for investors.
• Market Evolution: However, the market has evolved, and Bitcoin is now widely recognized as an asset class and a potential digital gold.
• Coexistence: Both use cases can coexist, with Bitcoin and other cryptocurrencies serving as payment mechanisms, while Bitcoin also functions as a store of value. Adoption will depend on institutions and governments.

Looking to 2025: Breakthrough and Contribution

• Global Buy-Side Alliance (GBA): CK is most excited about the GBA, which aims to facilitate cross-border tokenized RWA transactions and create common liquidity. SBI Digital Markets is leading this initiative.
• Turning Point (If We Make It So): This year, 2024 will be a turning point for tokenization only if industry players actively push the boundaries and collaborate.
• Ecosystem Collaboration: SBI Digital Markets is fostering a large ecosystem of like-minded partners to drive adoption.
• Regulatory Clarity: Emerging regulatory standards in the US, Europe, and Asia will provide clarity and drive further adoption.

Conclusion

CK's insights paint a picture of a rapidly evolving digital asset landscape. While challenges remain, particularly in convincing traditional institutions to embrace tokenization, the industry is making significant progress. Regulatory clarity, technological advancements, and collaborative efforts like Project Guardian and the Global Buy-Side Alliance are paving the way for broader adoption. CK's vision emphasizes the importance of pushing boundaries, taking risks, and fostering a collaborative ecosystem to realize the full potential of tokenization and digital assets in the years to come. He encourages those who are still hesitant to join the journey, emphasizing that now is the time to act to avoid being left behind.

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