⛓️5. Why blockchain? Why now?

Regulatory clarity, Basel loopholes and access to global investors

Banks are compelled to find 3rd parties to assume risk — i.e. originators cannot own 20% or more of special-purpose institutions (South African Securitisation Notice, 2008, p. 29). The decentralised nature of a token provides a governance loophole for banks that is technically compliant with equity-based laws. Moreover, Web 2 candidates fail to resolve root problems:

1. Forex risk and administrative costs arise as investor funds are exchanged into several regional fiat currencies to be domiciled locally. This raises Counterparty-party risk, Moral Hazard and Settlement risks.

2. USD-transfer restrictions impede the extraction of returns from the Global South and add a ‘Recovery’ risk — this brings us back to Ground Zero.

Consequently, demand for TradFi synthetics in the Global South is constrained to underdeveloped domestic markets. Four inflexions in 2024 enable us to bypass these blockers:

1. New crypto regulation across BRICS nations: As of 2024 South Africa, for instance, enabled crypto asset providers to legally offer tokenisation services, including stablecoin payment and arbitrage services.

2. Crypto-native risk isolation: A core benefit of regulatory compliance is that investor funds can remain on-chain and still be considered ‘locally domiciled’. Thus, $BRICS is synthetically exposed to bank-intermediated trade risk without off-ramping. Unlike traditional securities, it's isolated from settlement, interest rate, and Forex risk.

3. Banks (and local Prudential Authorities) are increasingly desperate for capital relief ahead of the January 2025 Basel 4 deadline (‘Basel III Endgame’). Especially in the Global South, regional banks are actively looking for cost-efficient ways to facilitate USD-denominated risk transfer. They’ve increasingly turned to tokenisation to allocate risk-reward profiles—see, for instance, Standard Chartered’s exploration of tokenised trade receivables.

4. Access to global stablecoin/crypto investors: TradFi is constrained to “local money”: illiquid and homogeneous in risk appetite (conservative investment guidelines often constrain local institutions). Tokenised CDOs open a liquidity pipeline to institutional and retail crypto investors worldwide with varied risk-return profiles.