As they retreat from their push into renewable energy and downgrade their ambitions to build major exposures to electricity generation, the British and European oil companies are refocusing on their traditional oil and gas businesses. Where previously they planned to cap or reduce their production, now they are planning and investing to increase it. Shell has scaled back its investment in renewables and abandoned its objective of becoming the world’s largest electricity company. Credit: Bloomberg Last year, BP raised its forecast of oil equivalent production from 1.5 billion barrels a day by 2030 to 2 billion barrels a day, planning to invest $US8 billion ($12.6 billion) more than previously budgeted on new oil and gas investments. Since Auchincloss became chief executive, that focus on lifting hydrocarbon production has intensified. The commercial logic in what they are doing is clear. BP generates returns of 15 to 20 per cent on its fossil fuel investments but only 6 to 8 per cent from its renewable assets, with wind’s returns inferior to solar’s.

Ploughing billions each year into wind, solar, and hydrogen dilutes the overall returns on capital and reduces the returns to shareholders, making them most unhappy. Having invested about $US18 billion over the past five years in lower-returning renewables between them, BP and Shell investors have become increasingly unhappy. Moreover, the British and European energy majors are always compared with their US counterparts. Loading Exxon and Chevron haven’t been anywhere near as committed to lowering the carbon intensity of their portfolios as their transatlantic rivals. The US majors were committed to the “drill, baby, drill” mantra before Donald Trump and saw that reflected in their share prices relative to their UK and European counterparts. Where over the past five years, Exxon’s share price has risen 54 per cent, and Chevron’s 23 per cent, BP’s has fallen 22 per cent and Shell’s more than 6 per cent. That kind of disparity in performance tends to galvanise shareholders, along with executives motivated by their remuneration.

By moving its offshore wind assets into a joint venture vehicle and off its own balance sheet, BP will keep an exposure to wind but significantly reduce the amounts of capital devoted to it and the levels of debt supporting it. Between them, BP and JERA plan to spend up to $US5.8 billion on their combined portfolios (which includes the proposed Blue Mackerel offshore wind farm in Bass Strait) by the end of 2030. With shared investment and non-recourse funding, BP’s capital commitment will be modest relative to what it would otherwise have been. Both BP and Shell still seem committed to solar, which is less capital-intensive than wind, but that won’t help them escape the criticism from climate activist groups and ESG (environmental, social and governance) investors, who are particularly vocal and litigious in Europe and the UK. The problem, of course, is that the companies can’t satisfy both constituencies, and a contest between emissions and returns is one that, ultimately, shareholders will always win. With Donald Trump about to return to the White House and open up US federal lands to more drilling for oil and gas, and incoming Treasury Secretary Scott Bessent having a “3-3-3” plan that includes lifting US energy production by 3 million barrels of oil equivalent a day, the contrast between the environment for the US producers and their competitors elsewhere will only become starker, and the pressure from shareholders on companies like BP and Shell will only intensify.

Trump also plans to remove the generous 10-year tax credits for renewables within Joe Biden’s Inflation Reduction Act, which, if he is successful, would make the returns from investment in US renewables even less competitive with those from fossil fuels. Any increase in US oil production would add to the existing glut in the oil market and depress prices that are already under pressure despite the withdrawal of about 6 million barrels a day of supply by the OPEC+ cartel. Renewables are set for another five years of record growth, the International Energy Agency says. Credit: Getty The lower prices being experienced now and likely to continue into at least the first half of next year, however, aren’t an argument for the oil majors to invest in renewables. Returns from oil and gas will still be superior to those from renewables, and if oil and gas prices and profits are under pressure, there will be even more of an incentive to invest only in the highest-returning assets.

Those who invest purely in renewables appear unconcerned about the gradual withdrawal of the oil majors who gatecrashed their sector and, seeking to gain scale rapidly, drove up the costs of developing greenfield projects. Ploughing billions each year into wind, solar and hydrogen dilutes the overall returns on capital and reduces the returns to shareholders, making them most unhappy. There are a lot of environmentally sensitive and patient investment funds available from sources other than the oil majors, which are willing to trade off returns for their convictions and/or consistent long-term returns, so losing some investment from the oil companies shouldn’t retard renewables developments. It was always going to be difficult for BP and Shell to try to produce a balance of their traditional oil and gas businesses and renewable energy portfolios while satisfying both financially motivated and ESG-driven investors. Loading

The crypto markets’ focus on real-world asset (RWA) tokenization has gained momentum throughout 2024, and multiple entities within the traditional finance (TradFi) industry are also integrating blockchain and asset tokenization into their portfolios.

Cointelegraph Markets spoke with Victor Sanchez and Alan Keegan, the co-founders of the RWA-focused blockchain project Kinto, to explore the market potential of tokenized RWAs. Both shared their views on the factors behind the rapid growth of RWAs and why they believe “big institutions” such as BlackRock are bullish on the asset class.

Cointelegraph: What would you say is the driving factor behind the rapid growth of RWAs this year?

Victor Sanchez: Interest has always existed due to the obvious advantages: removing middlemen (and their costs), an incredibly liquid and efficient 24/7 market and a transparent ledger. RWAs and TradFi have now found a counterparty safe, secure, composable and usable space in places and processes like the ones we implemented at Kinto.

Tokenized treasury products grew 782% in 2023, worth over $931 million as of Feb. 1. Source: CoinGecko

CT: Can you share your views on why BlackRock has suddenly become quite bullish on RWAs?

VS: RWAs are a multitrillion-dollar opportunity, and these big institutions are aware that blockchain technologies can go from 0 to 100 in a single bull market.

Real-world assets’ total market capitalization. Source: Galaxy Research

I honestly believe missing that train was simply not an option despite the day-one issues of being welcomed with a Tornado Cash dusting.

CT: Could you elaborate in a few sentences about what types of liquidity can be unlocked from RWAs and how this increases the bottom line for money managers?

Alan Keegan: Being able to transfer assets globally, 24/7, with T+0 settlement by itself is a huge benefit blockchains offer once the regulatory hurdles of using them to transfer securities are overcome.

However, the ability to have any arbitrary transaction neutrally and atomically enforced makes a lot of transaction types easier and more cost-efficient. This means overcollateralized borrowing, yield stripping, claiming collateral on bad debt, and even issuing dollar-pegged stablecoins as liquidity against treasury collateral at close to 100% LTV [loan-to-value] can be automatically done with a click of a button or triggered based on conditions.

It’s difficult to think of any transaction type that won’t be improved by being on-chain once we’ve done the regulatory work to actually use the blockchain as the financial infrastructure layer and unlock its potential.

CT: In terms of fragmented and stranded liquidity, what are the areas of unlocked capital that RWAs can free up, and how might this process take place?

VS: RWAs face a unique liquidity and usability problem. The last bull and bear markets proved to institutions that for some transaction types, DeFi infrastructure offers benefits vs. traditional alternatives and operates smoothly even in extreme market conditions — in passive liquidity provision and overcollateralized lending, for example.

However, despite being tokenized, most RWAs today aren’t usable for any of this on-chain. We can only unlock the value the institutions are looking for by doing KYC on the chain level while remaining an open network.

CT: Is there a difference between DeFi and RWAs?

VS: There are a few, but the lines are starting to blur, and that is a good thing. Many of the RWAs that are starting to get tokenized today are highly regulated products in the real world with strict counterparty requirements.

“Historically, RWAs were missing a key aspect of DeFi: composability. We are fixing that.”

CT: Can you explain how RWAs fix the composability issue that plagues DeFi?

As of today, RWAs require their own compliance framework, KYC systems, etc. Essentially, they are controlling who you are, what you own and who you can send it to. If you think about this problem on an L1 or on non-KYC’d L2s, it basically means that even for a very similar use case on different DApps or protocols, you need to go through their process, and they do not “talk to each other.”

This is why we believe the right abstraction model is to KYC at the L2 level so everyone is under the same set of rules and capabilities, allowing RWAs to free flow, compose and more.

How RWA bridges the gap between TradFi and Defi. Source: Binance Research

CT: What are the current counterparty challenges with TradFi requirements for managing counterparty risk?

In any network, it does not matter if we are talking about an L1 or an L2, you are free to send anything to anyone, 24/7. That is the promise of crypto, and it is great in 99.9% of cases.

However, in a compliance environment where you need to know exactly who sends you what and why, this becomes a true counterparty-compliance nightmare.

“In our conversations with Trad-Fi, this counterparty issue is one of the most cited reasons for not being on-chain, followed by security and usability.”

CT: What is Kinto doing to bridge the gap between TradFi and RWAs?

VS: Kinto is the safety-first L2. In Kinto, every individual or corporation is KYC/KYB [Know Your Business] at the chain level. This information never leaves the KYC provider without user permission (we call this user-owned KYC), and it solves the counterparty requirements.

On top of that, by doing this at the chain level, we enable, for the first time, the composability for these RWAs, allowing for products that can only exist on Kinto.

CT: It seems like RWAs are mainly for institutional investors and fund managers. How and when will retail investors be able to get a slice of the RWA pie?

VS: Due to the regulation we covered in previous questions, it was easy for these institutions and accredited investors to access these products.

However, as we facilitate counterparty requirements and other security elements (AML, fraud detection, Sybil resistance, etc.) protocols, we will be able to offer products to a much larger audience in Kinto than anywhere else.

CT: What is your utopian vision of what full RWA mainstreaming looks like in TradFi, and how would that benefit the average investor?

AK: Here is the dream for the future of Kinto. On Kinto, tokenized traditional ETFs could be provided as liquidity in an AMM like Uniswap or Curve. Your bank could be linked to your wallet, which is also used for payroll on-chain, and automatically approves and issues a mortgage using funds from an on-chain money market and the tokenized deed to your house as collateral.

Corporate treasuries could be held in on-chain assets, and corporate debt issuance could happen through a DApp. Any modern financial asset can be issued and traded on-chain, and any modern financial service can be provided on-chain.

“Our mission is not just to provide the first permissionless, decentralized network capable of supporting every traditional financial institution and every decentralized finance protocol. It is to provide the best infrastructure option for hosting the entire future financial system.”

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Bloomberg

U.S. financial firms plan to expand a secretive project protecting bank accounts against crippling cyberattacks so that it will also guard trillions of dollars in investment funds.

The industry-led project, called Sheltered Harbor, already is known to back up data for savings and checking accounts. But quietly, it’s wrapping in data on retail brokerage accounts at some of the nation’s largest firms, according to participants.

Ultimately, the goal is to expand it to an even heftier pool of 401(k) accounts and pension funds, whose breach could upend global markets. U.S. retirement assets total $21 trillion, nearly double the $12 trillion in deposits held at Federal Deposit Insurance Corp.-insured banks, according to the Investment Company Institute and the FDIC.

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Sheltered Harbor, which began coming to light over the past year, already includes about 50 firms that collectively hold roughly two-thirds of retail bank accounts. The project relies on a “buddy system,” in which companies pair off, promising to step in for their partner with a backup set of account information if hackers succeed in erasing or locking up files.

The idea came in 2014 after hackers ravaged Sony Corp.’s U.S. film unit, deleting troves of data while leaking upcoming movies and embarrassing emails. But in this case, the global financial system is at stake.

“Being able to restore a network quickly is one of the most crucial elements for coping with cyber breaches and increasing resilience,” said Edward Stroz, co-founder and co-president of Stroz Friedberg, a cybersecurity firm. “Sheltered Harbor is the financial industry’s way of showing how it can perform disaster recovery and thus maintain consumer confidence.”

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After the Sony attack, bankers conducting periodic cybersecurity exercises realized that a similar assault, even on a relatively small firm, could damage confidence in the financial system. One worry is that consumers could be spooked by a severe attack on one bank, then rush to pull funds from their own institutions, setting off a sweeping run. A similar scenario could play out with securities accounts.

Sheltered Harbor’s members include the nation’s largest lenders, such as JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc., as well as U.S. regional banks and some smaller firms (other names are secret like many other details). It’s a subsidiary of the Financial Services Information Sharing and Analysis Center, whose nearly 7,000 members range from multitrillion-dollar asset managers like State Street Corp. to retirement plan providers, insurers and other financial firms of all sizes.

Though a number of big firms have kept daily backups stored in secret mountain hideouts for years, that’s not much help without a functioning network. So, Sheltered Harbor’s members use a standard format to back up account data and collaborate with a partner company that can take over in an emergency.

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If one company’s computer system is devastated, the backup account data can be activated on the partner’s network, giving affected customers access to their accounts within 24 hours or so. Pairs are tasked with carrying out periodic exercises, using sample data to ensure they can re-create the other’s services.

The hope is that a stricken bank would soon restore its systems — hopefully within a few days — and resume control of its accounts. The aim is to prevent a stampede of retail clients.

There’s no plan to expand Sheltered Harbor to wholesale, institutional clients of the firms, according to executives. For the largest banks, whose institutional client businesses are probably just as large and important as their vast retail networks, the danger is that a disruption would still irreparably harm the company’s reputation and business. But the point is to guard the broader financial system.

In fact, some executives see Sheltered Harbor as a tool for resolution, not recovery — as regulators unwind the firm that has collapsed because of a cyberattack, its partner can provide access to retail accounts quickly.

“Sheltered Harbor doesn’t address the operational resiliency of member firms,” said Trey Maust, who became chief executive officer of the industry-funded operation this week. “Firms have their own continuity plans, and those typically address how to get back on one’s feet after such a disruption quickly without losing clients or business.”

Because some of the largest banks in the group operate major retail brokerages, data for those accounts already are included in the backups. Yet, organizers are still working out how to provide continuity for those operations.

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Offering basic payments capabilities for checking and savings accounts is relatively straightforward. But practices vary among firms for helping brokerage clients buy and sell equities, fixed-income products and other instruments — making it much more complicated.

“You could have two different partners, one for your checking and savings accounts restoration, one for your brokerage accounts,” said Sheltered Harbor’s Maust. “But both partners need to have transaction capability.”

Onaran writes for Bloomberg.