In a significant move today, Coinbase, the leading cryptocurrency exchange, revealed its latest venture, Project Diamond, aimed at tokenizing native digital assets for institutional use. The announcement comes on the heels of Coinbase’s issuance of a debt instrument on the platform in November, a strategic move preceding its entry into the regulatory sandbox of the Abu Dhabi Global Market (ADGM) RegLab. The initiative is designed to align with regulatory standards and foster “institutional adoption” of digital assets.
Project Diamond, under the stewardship of Coinbase Asset Management, is actively seeking partnerships as it aspires to revolutionize the landscape of creating, distributing, and managing a diverse array of digitally-native assets directly on the blockchain. The platform’s technological foundation includes the layer-2 Coinbase blockchain Base, the stablecoin co-founded by Coinbase, USDC, the Coinbase Web3 wallet, and the Coinbase Prime custody solution. Notably, the issued debt instrument was a short-term discount note denominated in the USDC stablecoin.
According to a blog post by Coinbase, the initial use cases for Project Diamond will be targeted at registered institutions outside the United States. The platform has received in-principle approval to participate in the ADGM RegLab, marking a significant step toward regulatory compliance.
Coinbase, known for its institutional collaborations, boasts BlackRock, the world’s largest asset manager, among its clients. While the announcement does not explicitly mention Real World Assets (RWA), it underscores the platform’s focus on being inherently digital, distinguishing itself from the traditional linkage to off-chain assets. This approach aligns with the prevalent trend in digital securities launched by major traditional banks (TradFi), especially in countries like Switzerland and Germany, where supportive legislation facilitates the issuance of natively digital assets.
The article notes that the digital securities landscape faces challenges in regulation, with the Basel Committee soon expected to update crypto rules for banks. The likelihood of tokenized securities being classified as low risk may hinge on their existence on permissioned blockchains. This poses a particular challenge for underwriters, as opposed to asset managers who are not bound by these restrictions and often favor public blockchains.
In the broader context, central banks are also showing interest in tokenization, with the Bank for International Settlements (BIS) actively contributing to the development of the Unified Ledger. This initiative aims to encompass tokenized deposits, Central Bank Digital Currencies (CBDC), and digital securities. Notably, the BIS is opting for a permissioned blockchain, reinforcing the ongoing debate between permissioned and permissionless blockchains in the financial sector.
