HSBC Switches to Blockchain Tracking for $20B Worth of Products
The bank will use encrypted storage instead of paper-based record-keeping in a large-scale example of blockchain adoption.
The platform, which will be called Digital Vault, is one of the biggest permissioned uses of blockchain by a large-scale bank. However, HSBC will not use any of the already available public blockchains.
Blockchain has been offered as a solution to immediate settlement and cutting out middle men in transferring and recording ownership of financial products. However, so far big banks have only superficially tested already existing systems.
HSBC has not mentioned any of the digital asset projects that target banks as their chief users - Ripple and Stellar. The Digital Vault will be a proprietary technology mostly dealing with debt products.
In the past, multiple traditional financial products have been tokenized on the blockchain. But in 2019, the trend for security tokens and asset tokenization failed to pick up at the expected scale. At the same time, banks only made internal tests for blockchain products. HSBC, for now, has not hinted at the creation of its own stablecoin, a product which has angered regulators worldwide.
So far, only J.P. Morgan Chase has established a dollar-pegged digital asset for internal use. But the bank has not attempted to displace the US dollar.
HSBC has chosen the blockchain solution for its branch of private debt placement. The sector is expected to reach a volume of $7.7 billion in 2020, as firms seek to raise capital without falling under the requisite scrutiny for using the public markets.
However, HSBC does not predict significant savings in using the new record-keeping tool. At this point, it is uncertain if blockchain would revolutionize the sector.
Public blockchains also pose multiple challenges, from attacks to dishonest players and congestion. Additionally, so far few traders are capable of buying and exchanging traditional assets. Crypto exchanges do not carry tokenized securities, and so far those types of assets have only been sold as private placements.