Alongside network risk, risks inherent in the creation and maintenance of tokenised securities are a key potential concern – and therefore also need to be taken into account in a revised RWA framework for digital assets. In this context, SC60’s clearly defined criteria provide transparent and consistent thresholds, against which all digital assets can be managed.

Central to these criteria is the robustness of the ‘pegging’ mechanism that sustains the link between a digital security and its traditional, underlying asset. This includes considerations around whether the peg is indeed transparent (i.e. is one token directly exchangeable for one ounce of gold or one dollar?); how effectively that pegging mechanism performs during times of market stress; and also whether the digital asset includes the same level of ownership rights as that of the underlying asset.

If the digital asset behaves, at all times, in exactly the same way as the underlying traditional asset, then both should trigger the same RWA treatment. If there is any difference between the two assets, then additional risks exist and hence need providing for.

Based on our research, considerations around digital asset risk are significantly better understood today than the above network considerations. A full 88% of respondents are confident that their digital assets confer exactly the same rights as their underlyings and 58% have provisions in place to ensure redeemability within 5 calendar days.

But if there is one area of concern it is market volatility. Only 50% of respondents are confident that the pegging mechanisms in place today to maintain the linkage between their digital and traditional assets could survive periods of high stress. More work is ostensibly needed if we are to avoid punitive balance sheet requirements in this space.