HSBC announced the first trades tokenising the ownership of physical gold held in HSBC’s London vault, using distributed ledger technology (DLT).

HSBC has developed this capability by creating a ‘digital twin’ of an existing physical asset – specifically loco London gold that is custodied in HSBC’s vault. Tokenised physical gold can be traded between HSBC and institutional investors through the HSBC Evolve single dealer platform, or through an application programming interface (API).

Richard Bibbey, HSBC’s Global Head of FX, EM rates and Commodities, said:

“As one of the earliest adopters of DLT, we are pleased to reinforce our leadership position in the gold market by tokenising physical gold. We continue to pave the way for improving the post-trade market infrastructure of capital markets.”

HSBC’s approach to gold tokenisation generates a permissioned digital representation of clients’ physical gold holdings, which is integrated into HSBC’s operational infrastructure, including HSBC Evolve. This provides a digital overlay for clients to see their tokenised gold trades and positions that correspond with their physical holdings.

This in turn allows for an automated and, therefore, more efficient and cost-effective way for investors to keep track of their allocated as well as unallocated gold. This approach enables an automatic allocation of gold bars, which meet investors’ criteria, and then tokenises them.

While loco London gold bars are 400 troy ounces, one token on HSBC’s gold tokenisation platform is equivalent to 0.001 troy ounce. In due course, this could enable fractionalisation of loco London gold bars and direct investment by retail investors, depending on the jurisdiction and regulatory framework of where the retail investor is based.

HSBC’s gold tokenisation approach complements HSBC Orion, the bank’s existing platform for issuing and storing native digital assets such as digital bonds.

John O’Neill, Global Head of Digital Assets Strategy, Markets and Securities Services, HSBC, said:

“Tokenising physical gold represents a further advance in HSBC’s overall digital assets strategy. In addition to demand for native digital assets, we are seeing appetite for tokenisation solutions that can maintain a link to specific real-world use cases, such as gold. Our approach to gold tokenisation complements HSBC Orion, and is part of our commitment to creating a world-leading set of digital asset capabilities to best serve the needs of our clients.”

HSBC is one of the world’s largest precious metals custodians and is one of four clearers of the loco London gold market, where, according to the London Bullion Market Association (LBMA), over 20 million ounces of gold are cleared daily on a net basis.