Share
Where Finance Finds Its Future
Data provides the prices that drive activity in tokenised asset markets
Season 1, Ep. 119
•
Liquidity in privately managed assets is hampered by a lack of reliable and timely data about asset values. If value is hard to discern, privately managed assets are more difficult to buy and sell, harder to use as collateral and suffer from a less favourable accounting treatment. It is also difficult to develop secondary markets in which the assets can be traded.
A distributed technology such as blockchain is well-adjusted to capturing, validating and then distributing data scattered across multiple databases, within as well as between institutions. It enables Inveniam to deliver the data needed to value private managed assets regularly, frequently and reliably without the need to centralise it in a single data warehouse.
The data garnered by Inveniam is used by orthodox valuation agents such as Cushman & Wakefield, CBRE, Houlihan Lokey, Mercer and others to mark privately managed assets to market on behalf of their buy-side clients. The data enables the valuation agents to provide a faster, more frequent and more reliable valuation service to their clients.
Where privately managed assets such as real estate, infrastructure and private equity can be marked to market daily, weekly, monthly or quarterly, by an independent third party and at low cost through the use of technology to retrieve and process data from widely distributed and highly variegated systems, two-sided markets can develop to facilitate price discovery.
Accessible, reliable data improves valuations and makes two-sided markets possible, but liquidity ultimately depends on the engagement of market-makers with tokenised asset classes. They have already engaged with the cryptocurrency markets and can be expected to engage with the security token markets once issuance volumes gain sufficient momentum.
The emergence of two-sided markets on blockchain-based networks will attract issuers of privately managed assets and funds invested in privately managed assets in tokenised form, because better functioning markets will lower the cost of raising and servicing capital (for example, paying dividends). Estimates indicate savings of between 20 and 50 basis points.
Real estate will pioneer the tokenisation of privately managed assets in the United States because the impact of more accurate, frequent and independent valuations in reducing the capital financial institutions must allocate to the asset class is so dramatic. Similar benefits will accrue to holders of infrastructure and private equity investments as well.
Reliable valuation data also cuts the cost of fund accounting or calculating the Net Asset Value (NAV) of a fund. If the cost of the NAV is borne by the fund, it lifts returns. If it is borne by the management company, it widens margins for general partners (GPs). With independent valuations, it also becomes easier to post fund units as collateral for margin loans.
In the United States, the Decentralised Autonomous Organisations (DAOs) that issue tokens to raise funds and use smart contracts to service the tokens are now obtaining formal legal recognition. Three states have granted DAOs legal status and the leading jurisdiction for publicly traded corporations (Delaware) is expected to follow suit.
More episodes
View all episodes
163. Are the commercial opportunities in digital assets compelling enough to overcome the fear of disruption?
17:01Part 4/4A Future of Finance interview with Gilbert Verdian, CEO of QuantIncumbent financial institutions did initially retard progress towards large and liquid digital asset markets, by investing in a discovery process rather than commercial opportunities, but appreciation of the cost savings and the revenue and profit gains available from investing in and trading digital assets is now widespread, as the enthusiasm for spot Bitcoin ETFs showed.The criticism that most tokenisations so far have limited benefits because they are asset-backed rather than digitally native under-estimates the value of bundling and unbundling tokenised assets into new instruments and fails to recognise that tokenisation has yet to impact the global bond and equity markets in a significant way at all.Asset managers are in a powerful position to drive progress towards tokenisation because they have much to gain from reduced costs of investment and increased diversification of returns, and the downward pressure they are experiencing on ad valorem fees mean they also have strong incentives to push the investment banks to offer them alternatives.Policymakers and regulators are also in a powerful position to encourage adoption of tokenised assets by working with the private sector to devise legal and regulatory regimes that encourage the issuance of digital assets and attract institutional investors to purchase them, creating a virtuous circle that catalyses the growth of digital assets everywhere.162. How can blockchain-based token networks achieve full inter-operability?
15:14Part 3/4A Future of Finance interview with Gilbert Verdian, CEO of QuantInter-operability between blockchain networks, and between blockchain networks and traditional financial markets, is essential to overcome the isolation of digital asset and traditional asset markets and so fuel their liquidity and growth, and the digital finance system must be designed and built from the outset with inter-operability at its core. Proprietary solutions to the inter-operability problem cannot build inter-operability into the new digital finance system from the outset, so institutions in the private and the public sectors must work together to co-design and then co-build standardised infrastructures that enable tokens to be ported seamlessly between networks at the local, regional and global levels. The financial market infrastructures that serve traditional assets at the pre-trade, trade and post-trade levels cannot be replaced overnight but must be integrated into the new digital financial market infrastructures, where they will persist only until the cost of maintaining them exceeds the costs of investing in the more efficient and service-rich digital alternatives. A unified ledger, or single programmable platform, of the kind outlined by the Bank for International Settlements (BIS), the International Monetary Fund (IMF) and the Regulated Liability Network (RLN), will develop in layers as standardised national and regional platforms are built through private-public collaboration and start to inter-operate on a global scale.161. Digital Asset has built the tools to tokenise assets and is now encouraging network effects
01:13:46A Future of Finance interview with Yuval Rooz, co-founder and CEO of Digital Asset, and Eric Saraniecki, co-founder and head of strategic initiatives at Digital Asset.In October this year, Digital Asset will celebrate the tenth anniversary of its foundation. Under the flamboyant leadership of Blythe Masters, who was CEO from 2015 to 2018, no start-up did more to promote the potential impact of blockchain technology on the capital markets. Over the five years that have passed since she stepped down, Digital Asset has transformed itself from a pioneer of institutional-grade blockchain technology for financial market infrastructures into a provider of tools for building the smart contracts that enable assets to be tokenised, and a sponsor of the public but permissioned Canton Network blockchain network. Above all, it survived unscathed the cancellation of the flagship ASX contract, won in January 2016, to rebuild the post-trade infrastructure of the Australian stock exchange. Though the current strategy can be portrayed as a pivot away from the grand visions of 2016, the company has remained remarkably consistent in its (eponymous) belief that one day all assets will be digital, and that blockchain will provide a secure technological foundation for a network of networks that will encompass tokenised securities, funds, private equity, real estate, privately managed assets, commodities, rights and royalties, and collectibles. Dominic Hobson, co-founder of Future of Finance, spoke to Yuval Rooz, co-founder and CEO of Digital Asset, and Eric Saraniecki, co-founder and head of strategic initiatives at Digital Asset, about the history of the company, its products, the use-cases it has found and exploited, the thinking and the strategy behind the Canton Network, and the challenges the digital asset industry has still to overcome.160. What can be done now to overcome the absence of digital money on blockchain networks?
13:08Part 2/2A Future of Finance interview with Gilbert Verdian, CEO of QuantSettlement of digital assets without fiat currency being available on blockchain networks is problematic, and central bank digital currencies (CBDCs) remain a distant prospect, but commercial banks are increasingly excited by the efficiency savings and service enhancements made possible by the programmability of digital money, including tokenised deposits.Claims that money is already digital ignore the fact that payments require push-and-pull exchanges of data to complete transactions, whereas truly digital forms of money enable the sequence of actions that complete a transaction, such as financial crime checks and the availability of money in an account, to be programmed into the digital money itself.Cryptocurrency will continue to exist as a speculative investment, though institutional investors will favour regulated cryptocurrencies and cryptocurrency investment vehicles such as the spot Bitcoin Exchange Traded Funds recently authorised in the United States, and the regulated variety of cryptocurrencies can be expected to drive out the unregulated varieties.159. What can governments do to encourage the growth of digital asset markets?
20:39Part 1/1A Future of Finance interview with Gilbert Verdian, CEO of QuantThe time in which regulators observed rather than intervened in digital asset markets is now over, and regulators are starting to work with the private sector to design effective regulations that match the pace of technological development, but progress would be much faster if a single regulator was given responsibility for digital finance.The reliance of traditional finance on national forms of regulation is ill-suited to the genuinely global and highly mobile digital asset markets, as the constant migration of cryptocurrency exchanges in search of accommodating jurisdictions proved, so a major jurisdiction needs to establish a minimum standard all jurisdictions can support. The principal benefit of regulatory sandboxes is not to produce Unicorns or drive the reform of existing regulations but to prove that existing regulations are adequate to the task of regulating digital assets, which is of greater value to institutions that are regulated already than to new market entrants whose businesses test existing regulations. Experience has shown that existing frameworks of law are adaptable to novel conceptions of property such as natively digital assets, but at this nascent stage in the development of the digital asset markets, the flexibility of the law is less important than a clear line between what is acceptable within the law already and what must await the further evolution of the law.Governments can influence the rate of growth of the digital asset markets directly by encouraging equity investment in smaller companies and issuing government bonds in tokenised form, which would have knock-on effects in encouraging atomic settlement using tokenised central or commercial bank money as the cash leg of the transaction.158. Tokenbridge believes the funds industry will tokenise from the periphery not the centre
52:14A Future of Finance interview with Stephen Ashurst, CEO of Tokenbridge.Tokenbridge is a software company which has embraced a tokenised future for the mutual funds industry. Its founders, all of which have long experience of the traditional funds industry, believe tokenisation can make funds cheaper to issue and service but – unlike most blockchain-based start-ups in the industry - their vision has less to do with cutting the costs of production and operation and more to do with widening distribution. The blockchain-based system Tokenbridge has built offers issuers of funds (fund managers) and distributors of funds (wealth managers) the software tools to make tokenised funds easier to find, compare and buy through a single app (aggregation) and in forms and combinations that better suit the needs of the investor (personalisation). The company strategy is based on the conviction that using digital technology to transform how funds are distributed is not a nice-to-have. The Boomers that dominate fund ownership today are yielding to a post-Internet generation that expects investment advice, and fund purchase and sales processes and reporting, to be digitised. Delivering this, especially to portfolios of modest value, cannot be done without transformative technology. Yet fund managers and distributors that fail to use technology deliver a full and compelling digital experience, warns Tokenbridge, will enjoy a smaller share of a global marketplace that tokenisation will enlarge massively. Dominic Hobson, co-founder of Future of Finance, spoke to Stephen Ashurst, CEO of Tokenbridge, about how to apply the experience of the past to building a bridge to the future that does not require a revolution today.157. A European blockchain-based funds marketplace that is delivering on its promises
01:04:43A Future of Finance interview with Christophe Lepitre, CEO at IZNES and Valérie Gilles, CCO at IZNES.IZNES is a marketplace that enables issuers of funds (asset managers) and institutional investors in funds (such as insurance companies and fund distributors) to sell and buy and service funds in tokenised form on a Cloud-based private, permissioned blockchain. To avoid the build-it-and-they-will-come fallacy, IZNES has solidified its relationships with leading insurance and asset management companies by offering them equity stakes in the business. The strategy has obviously worked, because IZNES has already attracted 18 institutional investors and 36 asset management companies and has €18 billion of funds registered on its marketplace, and its platform is supporting both assert-backed and native fund tokens. Because its target audience is institutional, and institutions prefer to deal with regulated entities, IZNES has secured regulatory licences from two French regulators and used these to passport its services into other major European fund jurisdictions, including the two main fund servicing centres of Ireland and Luxembourg. The firm has also concentrated on providing services that alleviate obvious pain points in the funds industry such as entitlement allocation and distribution and especially the onerous on-boarding and regular customer due diligence checks needed to meet Know Your Client (KYC), Anti Money Laundering (AML), Countering the financing of Terrorism (CFT) and sanctions screening obligations. The longer-term plans include the development of a secondary market in funds, initially to support the less-than-liquid infrastructure funds now being encouraged by regulators. Dominic Hobson, co-founder of Future of Finance, spoke to Christoph Lepitre, chief executive officer (CEO), and Valerie Gilles, chief commercial officer (CCO), at IZNES.156. If Europe needs a single European CSD, who will build it?
01:17:28On 17 November 2023 Christine Lagarde, the President of the European Central Bank (ECB), told a conference of bankers that “a truly European capital market needs consolidated market infrastructures.”[1] European capital markets certainly lack them now. They are a quarter the size of the American capital market yet support three times as many stock exchanges, and 20 times as many post-trade financial market infrastructures. The lack of a European equivalent of the Depository Trust and Clearing Corporation (DTCC) does not reflect a lack of regulatory effort. A succession of reports and schemes – Codes of Conduct, several pan-European regulations and even an entirely new settlement system run by the ECB (T2S) – dating back nearly a quarter of a century have largely failed to accelerate the consolidation of the capital market infrastructures of Europe. The price of that failure, in a higher cost of capital, a less resilient financial system and lower rates of innovation and economic growth, is more evident than ever in the aftermath of Brexit, amid a steady closing of open markets, and ahead of looming demographic and climate crises. So who and what can meet the challenge set by Christine Lagarde? That is the subject matter of this Future of Finance webinar. For further background on the subject, see the accompanying Future of Finance article, European capital markets are inefficient, so why aren’t European CSDs doing more about it? What topics will be discussed?What are the costs of a fragmented post-trade infrastructure in Europe?What explains the continuing settlement inefficiencies of Europe, despite the introduction of T2S?What has prevented the CSDs of Europe consolidating in the past?Is the current ownership structure of European CSDs conducive to market-led consolidation?Can a single programmable platform (a sort of Ethereum for CSDs) achieve the same effects as a single European CSD?What part does blockchain technology have to play in improving the post-trade infrastructure of Europe?Is the EU Pilot Regime a flop and will the UK Digital Securities Sandbox be one too?Will pressure to settle on T+1 accelerate or decelerate change in European post-trade infrastructure?Are there helpful technical solutions (e.g., “atomic” settlement, using AI and predictive analytics help improve settlement rates) short of consolidation?What is the fastest way to a more efficient set of CSD services for the European capital markets – consolidation, cooperation and collaboration, regulatory intervention, market-led competition or technology?Who is on the panel?Dirk Loscher, Member of the Executive Board at Clearstream https://www.linkedin.com/in/dirk-loscher-9220b6248/Chris Richardson, CEO at Percival Software https://www.linkedin.com/in/chris-richardson-26842923/Andrea Tranquillini CEO Advisor at EDAA https://www.linkedin.com/in/andreatranquillini/Bill Meenaghan CEO at SSimple https://www.linkedin.com/in/billmeenaghan/Martin Watkins CEO at Montis Group https://www.linkedin.com/in/martinwatkins1/Moderator: Dominic Hobson, Co-Founder at Future of Finance https://www.linkedin.com/in/dominic-hobson-49b8222/155. The clue is not in the name: AsiaNext is thinking globally not regionally
43:11A Future of Finance podcast with Neil Thomas, Chief Commercial Officer of AsiaNext.AsiaNext, a 24/7, Singapore-based institutional-only digital asset trading platform, opened for business in January 2024. Owned by the Swiss stock exchange (SIX) and SBI Holdings of Japan, AsiaNext emphasises its sound governance and regulatory compliance, which its owners and management believe are the keys to attracting institutional money. The new exchange has already secured two operating licences from the Monetary Authority of Singapore (MAS) and has applied for a third. But easily the most striking ambition of the new exchange is its commitment to a global strategy, in which AsiaNext will form a triad with the Swiss Digital Exchange (SDX, owned by SIX) in Zurich and Osaka Digital Exchange in Japan (where SBI is a major shareholder). To make a reality of this ambition, much depends on the behaviour of others. Technologists must create the tools to facilitate the transfer of digital assets between platforms (interoperability) and central banks must provide the trusted, on-chain fiat currency (CBDCs) to pay for them. But AsiaNext is moulded in the image of its parents and its management does not hesitate to speak of ten-year time horizons as well as the returns that are waiting to be collected on the investment in radical change. Dominic Hobson, co-founder of Future of Finance, spoke to Neil Thomas, Chief Commercial Officer of AsiaNext, about the origins, character and destiny of the first self-consciously global digital asset trading venue.