Today HSBC announced the first trades of gold tokens where the physical gold is stored in HSBC’s London vault. Using distributed ledger technology (DLT), institutional clients create a digital twin of the physical asset. The tokens can be traded on HSBC Evolve, the bank’s digital platform for FX and precious metal execution.
The platform helps customers to track of the trades and the gold they own in a market where trading is over the counter. Gold bars that meet certain criteria can be automatically tokenized.
While it’s not currently retail focused, it could potentially support fractional gold investment, depending on laws in the jurisdiction. Each token represents 0.001 troy ounce.
HSBC is one of the world’s largest precious metals custodians and one of just four clearers in the London market. HSBC didn’t mention potential settlement benefits, but atomic settlement is one of the key advantages of DLT. Another is enabling greater mobility of collateral. But it’s likely early days for that.
“In addition to demand for native digital assets, we are seeing appetite for tokenisation solutions that can maintain a link to specific real-world use cases, such as gold,” said John O’Neill, Global Head of Digital Assets Strategy, Markets and Securities Services, HSBC. O’Neill is also responsible for HSBC Orion, its DLT bond issuance platform.
HSBC is not the first bank to tokenize gold, but it’s most certainly the largest. In January Russia’s biggest bank, Sber, launched a digital gold offering. And in Japan, Mitsui & Co Commodities unveiled a retail targeted offering based on London Metal Exchange gold.
Meanwhile, the World Gold Council and London Bullion Market Association (LBMA) are deploying an enterprise blockchain solution to trace the supply chain source of gold bullion back to mines as part of an integrity program.