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Visa has introduced a new platform intended to help financial institutions issue fiat-backed tokens on the Ethereum network.
Visa Tokenized Asset Platform (VTAP), led by Visa’s crypto division under the guidance of Head of Crypto Cuy Sheffield, offers banks a regulated environment to explore and adopt tokenization technology.
The platform will enable the development of fiat-backed tokens powered by smart contracts, which will help digitize and automate existing processes and power the exchange of real-world assets (RWAs).
The move comes as major financial institutions and banks are making significant moves in the tokenization space. Goldman Sachs, for instance, plans to launch three new tokenization products later this year, driven by growing client interest.
“We think that creates a significant opportunity for banks to issue their own fiat-backed tokens on blockchains, do it in a regulated way, and enable their customers to access and participate in these on-chain capital markets,” Catherine Gu, Visa’s head of CBDC and tokenized assets, told Blockworks.
Visa to Assist Banks in Tokenizing Assets
One of the early adopters of this platform is Spain’s Banco Bilbao Vizcaya Argentaria (BBVA). BBVA is set to launch a pilot project on the Ethereum blockchain in 2025 and has been testing the VTAP sandbox this year.
The potential applications of fiat-backed tokens are vast. Banks could use these tokens to facilitate seamless money transfers between clients, similar to the JPM Coin System, which functions as a permissioned payment rail.
In regions where central banks are developing wholesale Central Bank Digital Currencies (CBDCs), these tokens could also play a crucial role in inter-bank transfers, further streamlining financial transactions.
“For multinational corporates moving money 24/7, current rails are limited,” Gu added.
Blockchain technology offers a solution by enabling faster and more efficient transactions, making it an attractive option for major banks. With this platform, banks could offer clients a more streamlined, 24/7 money movement solution.
Moreover, Visa said fiat-backed tokens could be used for interacting with tokenized real-world assets. Banks could enable customers to use these tokens to purchase commodities or government securities, with blockchain technology ensuring instant settlement.
Additionally, Sheffield pointed out that banks could utilize smart contracts to create structured financial products, such as automated lending against tokenized commodities.
Despite the opportunities, Visa noted that certain challenges remain, particularly the fragmentation of tokenization platforms. Different institutions may opt for different platforms, depending on their specific needs and regulatory environments.
The lack of standardization poses a hurdle to widespread adoption, complicating interactions between institutions. To address this, Visa is advocating for global standards in blockchain-based financial services, ensuring that institutions can operate across different networks.
Visa Remains at Forefront of Blockchain Innovation
Visa has been at the forefront of blockchain innovation in the financial sector. Earlier this year, the company partnered with Web3 infrastructure provider Transak to enable users to convert crypto to fiat currencies directly through Visa debit cards.
The integration allows real-time withdrawals from wallets like MetaMask and enables users to spend their crypto balances at over 130 million merchant locations worldwide.
Visa has also been increasingly involved in tokenization projects worldwide.
Earlier this week, the payments giant revealed that it has been selected to participate in the Hong Kong Monetary Authority’s (HKMA) Phase 2 e-HKD Pilot Programme, which focuses on cross-border payments and asset investment through tokenization.
Excited for Visa to partner with @ANZ_AU for Phase 2 of the Hong Kong Monetary Authority e-HKD pilot to explore the use of tokenized deposits for cross border settlement of tokenized securities https://t.co/tsaMMDbnOh
— Cuy Sheffield (@cuysheffield) September 24, 2024
This initiative builds on the success of Phase 1 and aims to explore innovative use cases for digital money, such as e-HKD and tokenized deposits. The project, named e-HKD+, seeks to broaden the scope of digital currency applications for both individuals and businesses.
During the 12-month pilot, Visa and ANZ will test a new tokenization solution in a sandbox environment to enable Australia-based corporates to invest in Hong Kong-based funds using digital money.
“Enabling secure payments across borders is central to what we do at Visa,” Paulina Leong, General Manager of Visa Hong Kong and Macau, said.
“From remittance and commercial payment to procurement and trade settlement, we are harnessing cutting-edge technologies like blockchain and tokenization to strengthen our payments infrastructure and pave the way for a more seamless, secure, and inclusive financial future.”
The Bottom Line
Payments giant Visa, which has been working on numerous crypto initiatives over the past year, has now turned its focus to tokenization, which many are hailing as the next big thing in crypto.
The firm’s VTAP platform would enable the development of fiat-backed tokens powered by smart contracts, which could help digitize and automate existing processes and power the exchange of RWAs.
