ASSET TOKENISATION
“There are a lot of assets that
are not very tradable and not
very liquid, because by their
nature they are ‘old world’
assets.”
MARGARET HARWOOD-JONES,
STANDARD CHARTERED
beta launch of the platform. The multi-mil-
lion dollar piece attracted over 800 sign-ups
within weeks and the auction raised USD1.7m
for 31.5% of the artwork at a valuation of
USD5.6 million.
Maecenas tokenised the Warhol work by
converting it into tamper-proof digital certif-
icates or “fractions” based on the Ethereum
network. Buyers then purchased fractions of
14 Small Electric Chairs with Bitcoin, Ether
or the ART token, a cryptocurrency created
for Maecenas.
Tokenisation is not confined to these
non-traditional assets either, with equities,
bonds and commodities also primed for this
feasible system of the future.
“The numerous benefits for tokenising
assets on distributed ledger technology are
generally speeding-up transaction times,
improving transparency, streamlining busi-
ness processes, and reducing costs,” explains
Michael Tae, corporate vice-president, corpo-
rate strategy, Broadridge Financial Solutions.
“But specifically for institutional investors, I
would break down the benefits into three key
areas. First, investors gain significant opera-
tional efficiencies into the markets across the
trading and post-trade lifecycle of the secu-
rities industry. Secondly, increased portfolio
liquidity and velocity of alternative assets
via improvements in areas such as collateral
management. And lastly, from the creation of
new avenues for capital generation.”
But unlike the Warhol example, in the case
where you have tokenised an existing trad-
Club @ Sibos
able asset such as an equity or bond, how do
you settle in a fiat currency across multiple
markets and time zones?
“On the one side you have a token for the
digital asset,” explains Tom Zeeb, chief
executive exchange services, SIX. “If you
digitalise the fiat currency, create a token out
of sterling or euros or Swiss francs or dollars
by segregating the underlying currency in
a CB account, then you can settle real time,
instantly, without having a liquidity gap and
you can also go across time zones.” This is
similar to the broad principle underpinning
depositary receipts, the difference being
that the account holding the fiat currency is
under the control of the central bank and the
resulting tokens would be used purely for
settlement purposes and not tradable in their
own right.
Tokenisation is also being used to raise
capital as an alternative to a costly and com-
plex initial public offering (IPO). With initial
coin offerings (ICOs) coming under scrutiny
from regulators and feeling less familiar to
traditional investors, suddenly security token
offerings (STOs) have become the latest rev-
elation born out of the cryptocurrency world.
Unlike ICOs, these security offerings are tied
to something with intrinsic value, something
easy to explain to an institutional investor,
and also a regulator. Like their ICO counter-
part, it’s still a process of producing a token
through a public offering to enable funding,
but more akin to the real world of purchasing
a share as it is backed by a ‘real-world’ asset
while it can also carry voting rights, decision
making, or even dividends.
“STOs hit that sweet spot in the middle,
they make the market more efficient and it
means there are fewer middle men,” explains
Hirander Misra, chief executive of GMEX.
“You’re creating asset packages with different
STOs: think of it as an ETF backed by assets,
you create a NAV on the fund on the value of
those assets that are underlying. Equity-re-
lated STOs are one component, the other
is gold, the other is stablecoins. Based on
high-risk, low-risk, medium-risk you can
package them accordingly. You get a diversity
of assets.
“Family offices aren’t FinTech guys, they
don’t know the difference between good and
bad ICO. They do understand equity and
value… 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.”
Evidently one of the major benefits is being
able to mobilise assets that have been tradi-
tionally difficult or complicated to move, with
some of the aforementioned new asset classes
exemplifying this.
A consortium of banks, custodians and mar-
ket infrastructure providers are also looking
at applying tokenisation to collateral, to solve
some of the widespread costs of collateral
mobility.
The system using tokenisation to reduce
eye-watering costs of moving high quality
liquid assets (HQLA) could even be ready at
the start of 2019.
HQLAx is a securities lending platform
using R3’s blockchain technology, supported
by Deutsche Boerse and six banks including
Goldman Sachs, Credit Suisse and ING.
The initiative allows collateral to stay fixed
with the legal entitlement moving and being
held for safekeeping by a custodian.
Following a successful securities lending
transaction on the platform at the start of
March between Credit Suisse and ING,
HQLAx is now looking ahead to the future
with sights on receiving clients on the plat-
form at the start of 2019, with actual use of
the service likely taking place early next year.
Mobilising high quality liquid assets has
become a huge burden and cost for the se-
curities services industry, but those involved
in HQLAx believe that by creating a token
so that the securities don’t physically move
themselves will solve widespread problems,
“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.”
VALERIO RONCONE, SIX
along with creating a tradable new asset class.
What place Bitcoin and cryptocurrencies
have in the financial markets of the future
is uncertain, but the underlying blockchain
technology is ushering in a new era for the
capital markets. Custodians are readying
themselves for this wave of tokenisation in
a sign that this could be the future, and one
they want to be a part of.
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