Coinbase proudly unveiled Project Diamond today, showcasing its groundbreaking tokenization solution designed for native digital assets. In a strategic move last November, the platform issued a forward-looking debt instrument as part of its meticulous preparations for entering the Abu Dhabi Global Market (ADGM) RegLab sandbox. The objective is crystal clear: to adhere to regulatory standards and pave the way for widespread institutional adoption.
Crafted by the adept team at Coinbase Asset Management, the platform extends an invitation to potential partners to join this pioneering initiative. The issued debt instrument, a short-term discount note, was ingeniously denominated in the stablecoin USDC, further emphasizing Coinbase’s commitment to innovation.
Technologically, Project Diamond leverages the power of the layer-2 Coinbase blockchain Base, the well-established USDC stablecoin co-founded by Coinbase, the advanced Coinbase Web3 wallet, and the secure Coinbase Prime custody solution.
In a confident assertion, the official blog post declares, “Coinbase Asset Management is spearheading Project Diamond to shape a future where institutions can seamlessly create, distribute, and manage a diverse array of digitally-native assets directly onchain.”
It is noteworthy that the initial application of Project Diamond is earmarked for registered institutions operating outside the United States. This strategic focus aligns with Coinbase’s proactive approach, considering its ongoing legal battle with the SEC. Importantly, Project Diamond has received preliminary approval to participate in the ADGM RegLab, marking a significant step towards its ambitious goals.
Collab with TradFi?
Coinbase has a strong track record of engaging with institutional partners, boasting the world’s largest asset manager, BlackRock, among its clients.
While the recent Coinbase announcement refrains from explicitly mentioning Real World Assets (RWA), it is evident that the focus is on being inherently digital rather than tethered to off-chain assets. It’s worth noting that many digital securities introduced by major traditional banks (TradFi) around the globe are also inherently digital, thanks to supportive legislation in countries like Switzerland and Germany. In contrast, the United States often sees compliant digital securities mirroring conventional counterparts.
For TradFi, navigating regulatory frameworks poses a significant challenge, especially with the Basel Committee gearing up to revise crypto regulations for banks. There’s a growing expectation that tokenized securities may need to reside on permissioned blockchains to qualify as low risk. This presents a unique challenge for underwriters, as opposed to asset managers who aren’t bound by the same restrictions and are increasingly drawn to public blockchains.
Simultaneously, the Bank for International Settlements (BIS), often referred to as the central bank of central banks, is actively exploring tokenization through its involvement in building the Unified Ledger. This comprehensive platform encompasses tokenized deposits, central bank digital currencies (CBDC), and digital securities. Notably, the BIS opts for a permissioned blockchain, aligning with its strategic approach to these emerging financial technologies.