HSBC launches tokenized gold platform for the London gold market

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(Kitco News) – HSBC Holdings Plc, one of the world’s top bullion banks, has announced the launch of a platform that utilizes distributed ledger technology (DLT) to tokenize the ownership of gold held in its London vault as it looks to help usher in the digital age for the London gold market.

According to a report from Bloomberg, the new system creates digital tokens representing gold bars, which can then be traded through the bank’s single-dealer platform. This approach “generates a permissioned digital representation of clients’ physical gold holdings,” said Mark Williamson, global head of FX and commodities partnerships and proposition at HSBC.

The system is also designed to make investing in gold more accessible, as each token issued by HSBC is equivalent to 0.001 troy ounces versus the standard 400 troy ounces for a London gold bar. While the service will initially focus on institutional investors, HSBC said in the future, the system will allow for direct investment in physical gold by retail investors as long as local regulations allow it.

While there have been previous efforts to offer tokenized gold, including the release of Pax Gold (PAXG) by stablecoin issuer Paxos and the launch of Kitco Gold by Kitco Metals, the entry of HSBC into the tokenized gold market is notable as the bank is one of the world’s largest custodians of precious metals and one of four clearers on the London gold market, which processes more than $30 billion in gold transactions every day.

There are currently around 698,000 gold bars stored in vaults in the Greater London area, valued at around $525 billion, according to the London Bullion Market Association. However, the London gold market still relies on manual record keeping and conducts trades entirely over the counter.

The integration of blockchain technology promises to help make the process “quicker and less cumbersome” as clients can more easily track the gold they own through the platform, down to the serial number of each bar, Williamson said. As the service expands, HSBC plans to add other precious metals, he added.

HSBC has been one of the most active large banking institutions in recent years when it comes to exploring and integrating blockchain technology into its operations.

In December 2021, the bank partnered with Wells Fargo to use a shared settlement ledger to process transactions in U.S. dollars, Canadian dollars, Euros, and British pound sterling.

In November 2022, they announced their intention to launch a tokenization platform dubbed HSBC Orion, which would allow institutions to issue digital bonds. In February, the platform was used by the European Investment Bank to issue the first-ever pound sterling-denominated digital bond using blockchain technology. HSBC now serves as the central account keeper and records transactions in the digital bond on the HSBC Orion platform.

HSBC also participated in the Federal Reserve Bank of New York’s 12-week proof-of-concept CBDC pilot and is one of the 14 central and commercial banks collaborating with SWIFT in testing transactions with CBDCs and tokenized assets on existing financial infrastructure.

In June, HSBC announced the launch of local cryptocurrency services in Hong Kong, which included support for trading Bitcoin and Ether exchange-traded funds (ETFs) listed on Hong Kong’s stock exchange.

On Wednesday, HSBC announced that their collaboration with Ant Group had successfully tested the potential of tokenized deposits in a sandbox arranged by the Hong Kong Monetary Authority (HKMA).

The pair sought to test a system that allowed for the issuance, transfer, and redemption of tokenized deposits. The goal of the trial was to determine the potential for tokenized deposits to enable a new era of efficiency where real-time treasury fund transfers for corporate accounts within the HSBC network can occur at any time, day or night, 24/7.

“It will pave the way for future research on how blockchain and tokenization can drive efficiencies and foster innovations in corporate treasury management,” HSBC said in a note shared with Kitco Crypto.