Where Finance Finds Its Future

Privately managed assets have become the default choice for tokenisation enthusiasts. The reasoning behind their choice is hard to fault. The advertised benefits of tokenisation apply a fortiori to the asset class. Privately managed assets – especially hedge funds and real estate, but also equity issuers that might previously have used the private placement or crowd-funding markets to raise capital – account for a disproportionate share of token issues so far. But are the enthusiasts and the pioneering issuers missing the point of tokenisation? Hosted on Acast. See acast.com/privacy for more information.

Tokenisation may be making limited headway in the conventional securities markets but it is attracting considerable interest in less familiar asset classes. 360X, the digital assets marketplace backed by Deutsche Börse and Commerzbank, aims to tokenise rights in expert-verified and high-quality art, music and (in cooperation with Tectrex) real estate assets. 360X Music, which provides an infrastructure for structuring deals, issuing tokens and promoting them to investors, has already issued security tokens backed by music royalties, and 360X Art is set to follow. Dominic Hobson, Co-founder of Future of Finance, spoke to Fabian Schaum, Co-founder and CIO at 360X, about the progress the company is making with regulators as well as issuers and investors. Hosted on Acast. See acast.com/privacy for more information.

Securities are issued into CSDs. The integrity of every issue of securities is safeguarded by CSDs. Ownership of securities is recorded by CSDs. Transactions in securities are settled by CSDs. Securities are serviced by CSDs.So, if it happens, tokenisation will either disrupt or transform or eliminate these functions. It is therefore both an existential threat and an exciting opportunity for CSDs. What tokenisation is not is something that CSDs can afford to ignore.Attendees will hear speakers make the case for and against investing in tokenisation capabilities now. They will also be given the opportunity to vote on the Motion before the debate and again after the debate, to test whether minds were changed by the arguments. Hosted on Acast. See acast.com/privacy for more information.

Digital asset enthusiasts are finding that neither issuers nor investors are ready or able yet to let go of high levels of intermediation. Historically, keeping track of investors is the responsibility of the registrar who, in a blockchain-based future is made redundant by a digital ledger that is updated automatically every time an asset changes ownership. Small and medium-sized enterprises (SMEs) have rarely made use of a third-party registrar anyway, preferring to keep their register and cap table on a spreadsheet. Now they are finding that the benefits of digitising their existing liabilities – lower issuance costs, a lower cost of capital through increased liquidity and readier use of their own securities as collateral for loans – are hard to realise without a digital registrar to keep track of who owns which digital security and facilitate issuance and trading of digital securities on multiple trading platforms. SEC-registered transfer agent Vertalo fulfils that role. The company is working with digital asset issuers and trading platforms to overcome the challenges of maintaining up-to-date registers of owners by moving the necessary data quickly and securely between different issuance and trading platforms. Dominic Hobson, co-founder of the Future of Finance, spoke to Vertalo CEO and founder Dave Hendricks. Hosted on Acast. See acast.com/privacy for more information.

Four years have elapsed since the Swiss stock exchange (SIX) took the bold decision in 2018 to respond to the challenge tokenisation has issued to traditional securities exchanges. SIX opted to build alongside its existing infrastructure an entirely new, blockchain-based trading, settlement and custody platform for digital assets. In September 2021 the SIX Digital Exchange (SDX) received its operating licence from the Swiss regulator, the Financial Market Supervisory Authority (FINMA) - itself now part of the SDX network – and opened for business. The leadership of SDX also knew they could count on a supportive legal environment in Switzerland, and SDX has since November 2021 hosted digital bonds both for its parent company[1] and UBS that can be traded and settled at both SDX and SIX, and launched a service for cryptocurrency investors to earn a return on their holdings of cryptocurrencies[2]. But its principal focus now is capital-raising for small and medium-sized enterprises (SMEs). Dominic Hobson, co-founder of Future of Finance, spoke to Massimo Butti, head of equity at SDX, about the range of services SMEs require to issue tokenised securities successfully, the partnerships that SDX is forming to build a supportive eco-system for issuers and how the remaining obstacles to the self-sustaining growth of the tokenisation markets can be cleared. [1] See the interview with Stefan Bosshard, product head, fixed income, at  SDX, at: https://futureoffinance.biz/2022/02/16/sdx-explains-the-challenges-of-pioneering-a-regulated-digital-bond-issue/ [2] See the interview with Alex Smith, crypto product lead at SDX, at: https://futureoffinance.biz/2022/08/30/sdx-web3-services-non-custodial-ethereum-staking-service-is-live/o Hosted on Acast. See acast.com/privacy for more information.

Tokenised funds exist already in the United States and Singapore. Asset managers are not only issuing tokenised funds but backing projects whose ambition is to facilitate the large-scale tokenisation of shares in mutual funds. What are the benefits they see?In this podcast, the coming tokenisation of the mutual funds industry will be discussed, in terms of the incentives to change, the techniques employed and the timetable by which it will proceed.Whenever and however it happens, it will be a seismic transformation. According to the Investment Company Institute, there were at the end of June 2022 a total of 152,888 funds in existence around the world, worth a total of US$64.4 trillion.And the case for change is powerful. Mutual fund managers face challenges of profitability which existing methods of efficiency – automation, outsourcing and offshoring - cannot solve.It is why asset managers throughout the world – including eight leading organisations in London - are now investing in tokenisation, and not just of funds but of securities as a whole.They sense that shifting funds on to a blockchain-based operating model will streamline the infrastructure that separates fund issuers from fund investors, cutting costs to the benefit of both.It follows that existing intermediaries – such as transfer agents, fund accountants and fund platforms – must adapt their existing businesses to a tokenised future, or face extinction. Hosted on Acast. See acast.com/privacy for more information.

Safe custody is the service that will unlock corporate issuance and institutional investing in the securities, asset-backed, non-fungible and fund token markets. While there is widespread recognition that regulation of digital asset custodians would accelerate progress, regulators around the world have so far reached consensus on combating financial crime only. Even that is proceeding slowly and patchily, but regulation of digital asset custodians and digital asset custody risks is proceeding more raggedly still as different jurisdictions jostle for advantage.Secure custody emerged early in the history of cryptocurrency markets as the main barrier to the entry of institutional investors. It remains the major obstacle to the engagement of traditional, long-only institutional investors in tokenised assets such as Non-Fungible Tokens (NFTs) and security tokens.Even the more adventurous institutions pioneering trading and investment of tokenised assets – namely, hedge funds, wealth managers, exchanges, corporate treasuries, sovereign wealth funds and family offices – are now demanding custody services that are not only high-quality but regulated.It is not hard to see why. The task of safekeeping the cryptographic public/private key pairs associated with a digital wallet that confer ownership and control of a tokenised asset requires the mitigation and management of risks that are different from those of traditional cash and securities custody.Because they are used to store, manage and transfer tokenised assets, private keys also represent a single point of failure. In a traditional custody chain, by contrast, various intermediaries (brokers, depositories, clearing houses, custodians) reconcile holdings and transactions repeatedly. Hosted on Acast. See acast.com/privacy for more information.

The global Pandemic tested established operational resilience procedures in unexpected ways. It made redundant some conventional solutions, accelerated the digitisation and digitalisation that regulators were already fretting about, and prompted a concerted push by regulators around the world for financial institutions to enhance their operational resilience to the novel and rapidly mutating threats created by digital technology. Yet the ability of regulators to devise sensible measures and even to enforce their will is questionable. Which is why operational resilience is an opportunity for the regulated to work with the regulators more constructively, and map a path towards a more effective solution than any number of statements of principle about how to deal with the novel threats created by the Cloud and tokenisation: namely, lifting the industry on to an entirely new operating model which despises of most forms operational risk at the source. Hosted on Acast. See acast.com/privacy for more information.

One major frustration for digital asset markets enthusiasts is the stubborn refusal of security token issuance to, in the famous phrase of Walt Rostow, take off into self-sustaining growth. After all, the benefits seem plain enough, and cutting the all-important cost of capital is chief among them. So what is holding issuers back? Part of the answer lies in the fact that the natural pioneers of Security Token Offerings (STOs) are smaller companies, and what looks like a big saving in issuance costs on a US$100 million issue looks much less enticing on a capital raise of US$1 or US$5 or US$10 million. The obvious solution is to make the issuance process more efficient – and that is precisely the ambition of STOmaker, a start-up which provides issuers of security tokens with a set of Software as a Service (SaaS) tools for the preparation and issuance of their offerings at a markedly lower cost. Dominic Hobson, co-founder of the Future of Finance, spoke to the co-founder of STOmaker, Evangelos Lianos, who is responsible for regulatory issues and business development. Hosted on Acast. See acast.com/privacy for more information.

The slow and steady convergence of blockchain-based finance and traditional financial markets is now a widely accepted prognosis. True, the implosion of values on the cryptocurrency and decentralised finance (DeFi) markets since the autumn of 2021 has made convergence seem the obvious path in the future. But the acceptance of this possibility by all but the most unreconstructed voices at either end of the spectrum owes much to the efforts of a small number of early blockchain pioneers and enthusiasts that have long argued for regulators to embrace crypto-assets and cryptocurrency issuers to embrace regulation. Joseph Weinberg, co-founder of the Shyft Network, in one of them. He spoke to Dominic Hobson, co-founder of the Future of Finance, about regulation and the special importance of digital identity in creating a trustworthy industry as well as a regulated one. Hosted on Acast. See acast.com/privacy for more information.