Henry Zhang: Bridging Worlds - From TradFi to Building DigiFT, the Future of On-Chain Assets

The world of finance is undergoing a seismic shift, driven by blockchain technology and the promise of decentralized finance (DeFi). At the forefront of this evolution is Henry Zhang, a finance professional with over two decades of experience in traditional banking, now leading DigiFT, a pioneering platform for tokenized real-world assets (RWAs). Henry recently joined the Alpha Un# podcast to share his journey and insights into the future of finance.

"Technology is a powerful enabler. I see in it the tremendous potential to address numerous pain points in the current financial system. We aim to bridge the gaps between DeFi, CeFi, and traditional finance." 

Sri Misra, Founder of aarna protocol recently had the chance to sit down with Henry for an in-depth conversation on the alpha un# podcast. You can watch the full insightful conversation here unhashed.co/henry

From Banking Halls to Blockchain Frontiers

Henry Zhang's career is steeped in traditional finance. His extensive experience managing international financial institutions provided him with a deep understanding of the existing financial system's intricacies and inefficiencies.

However, Henry has always lived and breathed technology. He recalls being the e-commerce head at Citibank 25 years ago, building the first versions of online payment systems. This early experience with Web2 financial technology gave him a unique perspective.

"Web 2, we can transfer information, but not values... In Web 3, based on the blockchain... we can transfer values with trust across the border... that will be the impact on the financial industry... much, much even bigger than the internet 25, 30 years ago." 

This conviction in the transformative power of Web3, particularly its ability to transfer value seamlessly and securely, spurred his transition. The "DeFi Summer" of 2020, showcasing the potential of decentralized marketplaces and peer-to-peer settlement, was a key catalyst. Recognizing the novel innovation, Henry founded DigiFT in late 2020.

DigiFT: The "Generation 3" Open Exchange

Henry describes DigiFT as a "Generation 3 open exchange." What does this mean?

• Generation 1: Proprietary platforms on closed networks (e.g., NASDAQ). Assets bought here can only be sold here.

• Generation 2: Proprietary platforms on open networks (e.g., centralized crypto exchanges like Coinbase/Binance). Assets (like BTC) can be moved between platforms but require withdrawal and deposit steps.

• Generation 3 (DigiFT): An open marketplace on an open network (public blockchain). The platform facilitates trades directly between user wallets without taking custody of assets. This enables self-custody, enhances capital efficiency, and improves connectivity and composability.

DigiFT operates as a regulated marketplace based in Singapore, specializing in on-chain real-world assets. It allows asset owners, primarily financial institutions, to issue security tokens backed by assets like bonds, equities, and money market funds.

Tokenization: The Future is Here

Henry firmly believes tokenization is the future, evolving from paper-based ownership (Phase 1) and electronic records held by central parties (Phase 2) to token-based ownership recorded on the blockchain (Phase 3).

"Tokenization or the assets in the token way is the future... the ownership is represented in the form of tokens. Then the token is recorded on the blockchain. So it's accessibility transparency." 

DigiFT focuses on tokenizing "standard assets" initially, like US Treasuries and money market funds, because they are easily understood. The vision, however, extends far beyond. Tokenization, combined with blockchain, offers unprecedented opportunities to combat the liquidity fragmentation plaguing traditional finance, where accessing different asset classes (stocks, bonds, derivatives) often requires navigating multiple, siloed markets across various jurisdictions.

Blockchain allows assets and stablecoins (as the medium of exchange) to exist on the same chain, or interconnected chains, enabling investors to deploy capital efficiently from a single point of access.

Navigating Regulation and Building Trust

Operating in the regulated space is crucial for DigiFT's mission to bridge traditional finance and DeFi. The company achieved a major milestone by obtaining a Capital Markets Services (CMS) license from the Monetary Authority of Singapore (MAS), graduating from its sandbox program. DigiFT was the first, and remains the only, DeFi marketplace licensed by the MAS.

Henry acknowledges the challenges of evolving regulations but remains optimistic, noting regulators are becoming more open-minded and recognize blockchain's potential as a tool for transparency and oversight due to its immutable record-keeping.

Key Milestones and The Road Ahead

A significant validation of DigiFT's model came recently when UBS Asset Management chose DigiFT as an approved distributor for its first tokenized money market fund (UMID) offered on a public chain. This followed BlackRock's similar move, signaling growing institutional adoption of on-chain RWAs.

Henry highlights the impact:

"In the mainly like a two months since the launch [UBS Fund], the inquiries, the market interest, I would say has been significantly changed in a good way... People start to think about how to build on the tokens..." 

The use cases for tokenized assets like money market funds are numerous:

1. Asset Allocation: Direct investment.

2. Treasury Management: Earning yield on idle cash, especially relevant for DAO treasuries holding stablecoins.

3. Collateral in DeFi: Offering a stable, liquid, yield-bearing alternative to volatile crypto assets or zero-yield stablecoins. Henry calculates that replacing just $10 billion of stablecoin collateral in DeFi with tokenized T-bills yielding 4.5% could generate an additional $450 million in revenue currently left on the table.

DigiFT envisions itself evolving beyond just an exchange into a "plug-and-play infrastructure for the future capital markets." It aims to be an open, compliant, multi-chain platform where asset issuers and investors can connect seamlessly, leveraging the benefits of instant settlement, enhanced liquidity, self-custody, and composability offered by tokenization and DeFi principles.

While challenges remain in areas like cross-border regulations and perfecting price oracles for all asset types, Henry is optimistic about global adoption, seeing activity and regulatory progress in Asia (Singapore, Hong Kong, Japan), Europe, the Middle East, and the US.

Henry Zhang and DigiFT are not just building a platform; they are building a bridge to a more efficient, accessible, and transparent financial future powered by blockchain technology.