2.8 What Basel regulation do we leverage?

ChinaAI leverages the July 2024 framework on crypto asset exposures to align its application of tokenized CDOs with accepted risk mitigation standards. The directive categorizes crypto assets into Group 1a (tokenized traditional assets) and Group 1b (stablecoins), confirming that tokenized bank-intermediated receivables can receive the same risk-mitigation treatment as their “real-world” counterparts.

Key Reference:

Basel’s July 2024 Directive: BIS Press Release

Additional Interpretations of Basel’s Rules

1. Skadden’s detailed interpretation highlights the implications for tokenized assets under the Group 1a classification. Read Skadden’s Analysis

2. The Hong Kong Monetary Authority provides a synthesized classification of Basel’s rules, making it easier to visualize the treatment of Group 1a and 1b assets. View HKMA’s Diagram

Basel's crypto-asset classification

Implications for ChinaAI’s Structure

1. Risk Mitigation through Tokenization: Tokenized “real-world” securities can be de-risked via:

   1. Credit Enhancement: such as over-collateralized tranching.

   2. "Zero-Risk Weighted" Guarantees: using cash or sovereign bills as collateral.

2. Role of Underwriters: A highly rated underwriter (e.g., NASASA-Old Mutual) can further enhance the security of tokenized assets, making them compliant with Basel standards.

3. Section 7 elaborates on the various 'credit enhancements' employed.

By aligning with Basel’s crypto asset framework, ChinaAI removes critical regulatory barriers. This ensures that tokenized bank receivables are not only optimized for risk-adjusted returns but compliant with global financial frameworks.