Club @ Sibos
ASSET TOKENISATION
The DIY investment model
Tokenisation is opening up a whole new world of tradable assets along with revolutionising
the way the market can trade traditional products. Jonathan Watkins investigates
W
hat if I told you the portfolio of
the future could contain horses,
artwork and Beyoncé tickets? If
your first thought is ‘who is Beyoncé?’ then I
suggest spending more time away from your
desk. But if your response is ‘that sounds
interesting, how could this possibly occur?’
then read on as we’re about to explore how
tokenisation is set to open up a whole new
world of trading non-bankable assets, along
with adding efficiency to existing products.
Let’s say you wanted to invest in re-
al-estate without fronting up a whopping
six-figure sum; well tokenisation is a method
that converts rights to an asset into a digital
token. So theoretically a USD 500,000
apartment could be divided into 50,000
tokens, allowing for fractional ownership.
Underpinned by blockchain technology,
which would ensure irrefutable records of
ownership, these tokens would be issued
on a platform supporting smart contracts
allowing them to be traded.
This could work with anything from a Mon-
“Family offices aren’t FinTech
guys …when you talk about the
merits of STOs and link it back
to private equity for example,
you are talking a language they
are understanding.”
HIRANDER MISRA, GMEX
et painting to fine wine where assets can be
broken down into pieces – digitally of course,
please don’t attempt to tear a Monet to pieces
and claim Club@Sibos told you to do so.
“We’ve had all these different kinds of
instruments that need to trade on their
own specialised kinds of markets,” explains
Joseph Lubin, chief executive of Consensys.
“We are starting to realise all these instru-
ments in essentially the same form whether
it’s a cryptocurrency, a debt instrument, an
equity, or a Beyoncé ticket, it’s all just one of
these cryptographic tokens.”
This is uncharted territory for a financial
industry where new products have been few
and far between over the best part of a centu-
ry. The emergence of exchange-traded funds
and cryptocurrencies have been eye-openers,
but exposure to movies, museums and dia-
monds will be something else entirely.
“Everything that was not in the reach of
the financial industry now becomes some-
thing you can start looking at,” says Valerio
Roncone, head, product management and
development at SIX, which announced a new
initiative to create an integrated infrastruc-
ture for the digital asset value chain back in
July. “Take an art gallery or museum, today
the museum has to go to the government to
ask for money, tomorrow the museum can
tokenise a part of its collection and the public
can buy it. You can have a token against it and
that token can be traded and integrated in
your portfolio, you own a share in something
you would not have been able to have to this
extent in the past.”
While this may sound similar to the way
shares are traditionally bought and sold, it’s
the underlying technology which sets it apart.
Ledger technology allows any form of value
to be transferred at low cost, in real-time and
in a trustless environment, with know your
customer and anti-money laundering issues
taken care of through smart contracts. It
also removes many of the intermediaries and
complexities in the process, opening up these
asset classes to new customers and blurring
the lines between public and the more tradi-
tionally bilateral private markets. Ownership
information, rules and enforceable rights are
coded into the distributed ledger in the form
of smart contracts. Through DLT, movements
and authenticity can be reliably and securely
tracked and verified.
“We can build compliance into these smart
contracts, so that you don’t need a headcount
of hundreds or thousands and financial insti-
12 | CLUB@SIBOS | Bringing the world to Sibos and Sibos to the world
tutions and you can specify how different in-
struments can trade and then there will be no
reason why I can’t buy Apple stocks with my
Beyoncé ticket at some point in the future,”
adds Lubin, known as one of the founders of
Ethereum.
Matthew Pollard, a co-founder and chief
financial officer of Archax, an institutional
digital asset exchange, writes that through
tokenisation “the act of transferring an asset
from seller to buyer is simplified”.
“Transactions on a distributed ledger lessen
or remove the roles of the intermediaries his-
torically used to facilitate the transaction,” he
adds. “It reduces costs, increases transaction-
al velocity and helps price discovery on assets
that may have historically suffered from
liquidity discounts. Put simply, as an issuer,
this technology should drive down the cost of
capital and reduce liquidity discount.”
Custodians are backing tokenisation as the
future, with support for the notion already
voiced by the likes of Standard Chartered,
State Street and SIX Securities Services.
“There are a lot of assets that are not
very tradable and not very liquid, because
by their nature they are ‘old world’ assets,
real estate for example,” explains Margaret
Harwood-Jones, global head of securities
services, Standard Chartered. “If you can
create them in a digitised form, then in terms
of marketability and tradability they move to
a very different league.
“We are working with the financial markets
business at the bank on another such oppor-
tunity where they have structured finance
products which we are turning into digital-
ised form to allow for more effective trading
around those instruments.”
So in its most simplistic form you take an
asset, tokenise it and then create a digital
representation through distributed ledger
technology, with the clear benefits being a
lower barrier to entry, a secure and efficient
underlying technology and a liquid asset.
Whether this will take place through an
existing market infrastructure or pave the
way for disruptors to truly carve out a space
for themselves in modern finance, only time
will tell. Both will likely bid for their places
in this new ecosystem, as we await to see who
will issue these tokens in question.
A real-life example of tokenisation oc-
curred with Andy Warhol’s 14 Small Electric
Chairs artwork, which was sold to qualified
participants on Maecenas, an art investment
platform built on blockchain, in the private