Gold giant HSBC tokenizes its bullion for institutional customers

World-class custodian, HSBC ventures into gold tokenization thanks to blockchain. The institutional customers can acquire and exchange from tokenseach equivalent to 0.001 troy ounce.

HSBC continues to develop in the world of tokenization. Through its HSBC Orion platform, the bank already offers the issuance and custody of digital assets such as bonds.

Now, the financial group is embarking on the tokenization of a market valued at $11,000 billion: gold. And in this field, HSBC is one of the historical kings. Indeed, it is one of the world’s largest custodians.

Gold, an $11 trillion over-the-counter market

More than $30 billion worth of gold is traded daily on the London market, where vaults hold around 698,000 bars, representing a treasure trove of almost $525 billion (source: London Bullion Market Association).

Despite these staggering figures, the gold market still relies heavily on manual record keeping and over-the-counter trading. With the blockchainHSBC aims to simplify transactions and make gold more liquid.

Its solution is to tokenize this asset. Firstly, the use of blockchain makes it easier for owners to track their bullion, “right down to the serial number of each bar”, explains to Bloomberg Mark Williamson, Head of Foreign Exchange and Commodities at HSBC.

Retail and other precious metals in the pipeline

Tokenization also means easier trading. Bullion remains stored in the same place, but its ownership can change hands. But how? Through the sale of tokens. Each token is equivalent to 0.001 troy ounce.

One troy ounce is equivalent to 31.1034768 grams. In other words, one token issued by HSBC represents 0.03 grams, given that an ingot on the London market weighs 400 troy ounces. Tokenization therefore lowers the entry ticket in terms of investment.

This could potentially open up the platform to retail investors. HSBC is considering this scenario in the future. For the time being, however, its blockchain system is aimed at institutional investors. The bank also plans to extend it to other precious metals.

First attempt in 2016 by Paxos and Euroclear

But before moving into a new phase of development, the British group will first have to transform the trial. Indeed, it is not the first to tackle the simplification of gold investment.

In 2016, Paxos joined forces with Euroclear to this end on the same London gold market. The following year, the two partners terminated their joint venture.

Paxos, on the other hand, retains its gold-backed stablecoin, Pax Gold, with a market capitalization of $450 million. Euroclear, meanwhile, is pursuing its own tokenization strategy. The giant recently launched its Digital Securities Issuance product for issuing securities in digital format.

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