The State of Secondary Markets for Tokenized Assets | EBC11

Transcript

Can you hear me well? Great. Um, and thank you for staying with us through the uh second afternoon here. Really delighted to be here with this panel to talk about the state of secondary markets for tokenized assets. I'm Coco Chan from OffChain, which is the European Association representing financial institutions in wholesale markets. I lead on our DLT and digital asset coverage, um, and do a lot of work in Brussels as well as in London. So, really delighted to be joined here, um, by Amparo, Dan, and Pedro. Um, a very diverse panel, um, really representing uh a pretty wide spectrum of of the DLT ecosystem. Uh, maybe if I could just ask

the panel to introduce themselves and also, um, tell us a little bit about what you do at your company, but also what your company is tokenizing. Amparo, start with you. >> So, I'm Amparo Garcia Flores. I'm the CEO for Securitize a Euro brokerage and markets. Um, I've been working with the company for the last 4 years. The company is an American company. It's an American startup. Uh, it was set up back in 2017 and it holds the whole life cycle of digital securities. So, in the USA we've got three licenses and we are regulated by FINRA and and the SEC.

And we've got a transfer agent uh license, a broker-dealer license, and an ATS license. What we are doing here in in Europe is replicating that same model so as to be able to have the full ecosystem of digital assets within our platform. So, we already are a transfer agent because we've got a an investment firm license. So, we've got a transfer agent and a broker dealer license, so we can do uh tokenizations and we can do primary offerings and we are in the final stages of getting a TSS license under the EU pilot regime, fingers crossed, before the end of the year.

>> Great. >> And in terms of the things that we are doing, I think the the most the most relevant thing in terms of the activities we are doing in in the USA, because in Spain in Europe, where it's more focused on on the licensing process and on the on the commercial bit, is the Billel product that you very likely know. Uh it's a money market fund, the first digitally native fund over 4 billion US dollars uh issued by uh BlackRock.

>> Great. So, lot lots of activities in the MMF space. And maybe we'll come on to you um liquidity in the US versus Europe shortly. Dan, tell us >> to meet you. So, my name is Dan Mags. Uh I'm an innovation manager at ABN AMRO. Um our job is really to look and support our business where there's problems, where there's opportunities to use DLT to tokenize opportunities and and use cases. So, we've we've tokenized bonds. We've we've done a tokenized issuance in the past on public DLT uh on Polygon and on Stellar. And we continue to look for more opportunities around money market funds and other products of that nature as well. Um prior to ABN AMRO, I also worked at

Lloyds Bank in the UK. >> Put it more to your mouth. >> Ah. Getting microphone tips. Ah, that's better. I used to work for Lloyds Bank in the UK, um where I was the business lead uh for a fintech that we'd invested in called Fnality, which was the the UK's first and I think the world's first uh regulated payments blockchain or it was a regulated payment scheme on blockchain technology. So, that's me. >> That's awesome. Uh wonderful panel as you can see, you know, uh subject knowledge experts, no doubt. Uh my name is Pedro Vidal. I am the CRO for TokenFi and for Floki. TokenFi is a all-in-one >> A bit closer as well.

>> To Thank you so much, you know. >> We're going to see you. >> TokenFi is a all-in-one uh crypto token launcher and launchpad where you could uh create your own crypto projects, seed funding, uh connect with market makers, and then ultimately use our RWA tokenization module. It was uh created and managed by the Floki DAO, and Floki's the world's first uh community takeover in blockchain. And one of the things they wanted to do was, you know, leave blockchain better than what they found it. And with uh TokenFi and our RWA tokenization module, uh we're responding to the demands of the market. And then hopefully we'll be able to shed some some insight in some of the questions and misnomers you may have uh on the secondary markets for tokenized

assets. >> Great. Um so, I think we we have a super interesting topic about secondary markets. Secondary markets get a bit of a bad rap. Um it's I think it's one of the the arguments that a lot of traditional players use um to sort of argue against the use of blockchain because there is, I think, not as much liquidity in tokenized assets as there is in traditional assets at the moment. But, on the other hand, probably one of the areas where blockchain can actually bring the most utility and the most efficiencies. So, I just wanted to ask the panel, maybe starting you with Dan, um as you you're representing a bank here,

um how would you kind of characterize the development of secondary markets for tokenized assets so far? >> Yeah, I mean, I think you're right. The way that you you mentioned that there's there's there's liquidity, there's also different blockchains that many want to use and explore and I guess going back to when things were using like Euroclear or Crest as common standards, commonalities that people are familiar with and and they like and they trust those processes. Then when something new comes in and the jury's still out as to what you pick in terms of a blockchain of choice, uh you might get fragmentation like you say. Um and the work we've done to date with tokenized bonds has always been sort of primary issuances. There's no

secondary market opportunities. We've explored how you might do that by using private blockchains with like Euroclear, for example, but it goes back to that I guess the initial problem of you have one thing to settle, one system, one scheme, one thing to transfer ownership with the custodians and the CSD. And the whole idea of blockchain was it's a multi-asset venue. And I don't think we're there yet in terms of having people still believing that that's the way to go just at the moment. I think there needs to be more, I guess, agreed common standards, maybe, which goes a little bit back in time to the problems of today.

>> Yeah, absolutely. And we know that the legal and and regulatory structure, at least in Europe, um is designed in a way which uh centralizes functions as opposed to distributes functions. And Paro, I know that you have lots of experience with this. Um can you just tell us a little bit about how Securitize plans to um really try to innovate this market structure and what we can expect the benefits to secondary markets would be going forward? >> Yeah. So, in our case, we are as as I said previously, we're applying for the DLT pilot regime for the TSS uh license.

The beauty of it is that it puts together matching and settlement. So, that's That's in in itself is a big innovation. So, we will skip the T+2 or the T+1 for the settlement and do in a DB in a delivery versus payment uh methodology and forget about any compensation, forget about many players that are in the in the process, forget about any risk of any counterparty risk. That on the on the one side. On the other side, the way the pilot regime is structured, it lets you go for retail customers directly into the into the market, which is also an innovation.

It's a regulatory innovation because it means that you don't need to go to your investment firm just to be able to trade in the market, but you can directly go with your wallets and and directly interact with the assets you want to buy and and sell. So, for me, these are the two main innovations out of the out of the pilot regime. And and based on that and based on the use of these smart contracts and so on, there are many automations that bring more efficiencies, more transparency, and many more benefits associated to the innovation of the of the smart contracts.

>> Yeah. So, I think it's it kind of sounds like from what both of you are saying that we're not quite there yet in terms of really having enhanced liquidity in secondary markets for tokenized assets, but there are a number of benefits like fractionalization, direct retail investor access, but also the use of smart contracts for automating certain activities that that can really kind of bring even maybe more liquidity on chain. I don't know if you would you would you would agree with that and just kind of what what are you seeing in terms of you know, what your users want?

Is is is secondary market top of minds for them? >> You know, I absolutely and I absolutely you know, agree with Dan and with Amparo. There's there's a lot to be said about the efficiency, right? That that we're we're trying to seek here and I think that when we starting to look at the interop interoperability um, well as just increasing the the amount of exposure we get to clarity in terms of of the legal framework would make things, uh, like a lot easier. That's something that's currently lacking, but in terms of what we're seeing, um, from, you know, the traditional like retail, uh, you know, uh, customer and clients within our community is that they want to see fractionalized ownership in real estate. They're interested in the

secondary market. There's an education component, and then there's there's there it goes beyond that because it it it, uh, there's variances based on your local jurisdiction. So, always seek, right, legal clarity, but we're creating the platform for you to be able to utilize and within it there's variables that control the legal framework so it could adhere to wherever you are, but, uh, there's a huge huge, uh, want, need, and demand for for secondary markets of tokenized assets without question. >> Yeah, definitely. And And what do you think, Dan, will kind of unlock the development of secondary markets? >> Well, I think one of the things that we're working on at ABN AMRO is infrastructure, wallets, and giving clients the ability to do that and have a wallet with the bank. So, we think we can offer a role, uh, not

for corporates or not necessarily just for corporates, but for retail as well where we could provide wallet infrastructure that can allow your maybe your tokenized assets to sit there, or maybe you have a tokenized money market fund, or maybe in some future we have cryptocurrency stored with the bank, and all of those things could be stored within a wallet, and that's where things are initiated, and that's how you can unlock more I guess usability, but also interoperability when you want to exchange and open things up for opportunity. So, a big focus that we're trying to support our business units on is building out wallet capability and letting uh, you know, teams innovate and explore, and then we can support them in our role within innovation. So, I think building wallets is what I'd like to give as a

takeaway really from what we're doing at ABN. >> Yeah, absolutely. And I think it it really kind of provides that single source of access for investors where they can access traditional assets but also tokenized assets and perhaps crypto assets as well. Um Amparo, is that is that sort of aligned with with also the solution and platform that you're building? And and how would you say so so a company like Securitize could connect to traditional players in the market? How would you envisage that interoperability playing out?

>> So, in in our case, we're we're targeting uh traditional investors and new investors. And and that's where we we have created uh two ways of doing the um the maintenance and settlement. We have created thinking of customers who are still very traditional. Uh depending on the assets, the issuer can define whether they wanted the asset to be traded either in fiat currency or in web 3 mode and based in uh stable coins which are MiCA compliant. So, what we are doing is uh depending on on the case, they can either operate through what we call the traditional the

the uh classic trading mode which includes uh a cash account, a traditional cash account at BBVA in our case, and uh the the the usage of of our Omnibus wallet >> where we do the trading of the of the securities. If we go for the other bit, which is for the new customers that are more focused on on the new ways of having the tokens and having the ownership in the wallets, they will do the trading and the settlement both from wallet to wallet without the need of having either fiat money or an Omnibus account or anything on on on our end.

So, it will be in their end in their wallets from one wallet to the next. >> It sounds a lot more efficient than >> It is. >> what we have now. >> Yeah, but it I mean I think that this is a journey. There are many people who are early adopters, but there's also a huge amount of people who are still working with banks and so on. So, we need to do the transition from one to the to the other and change management is one of the things that we think we need to be working on. That's why we put in the two alternatives.

>> Definitely. And I think if you look at the development of secondary markets, a lot of it is also about bridging different liquidity pools and bridging institutional liquidity pools or retail liquidity pools as well, where you have all these assets that come together in their tokenized formats that could potentially be transacted against each other or transacted against cash assets. And it I think as you already rightly pointed out Amparo, we'll have actually greater settlement choice for investors in a tokenized world compared to the the the current analog world. And Pedro, I guess you you see a lot of this on on your platform, what you're trying to offer to investors is really this end-to-end seamless journey. Um do you want to tell us a

little bit more about how you think you can provide to these retail investors the sort of liquidity that's maybe currently available to to bigger players and how they can interact with in the space? >> Certainly. So, I think one of the big things is trying to remove the intermediaries, right? I think that that's like step one. Obviously, there's there's inherent benefits to that, right? So, number one is more efficient, right? In in in theory, it's cheaper, right? Faster. And these are all things that that could be heralded as successes. So, that's one of the things that we absolutely look for and try to do. But outside of that is is I think that the the cross-chain interoperability is so important because if you could increase the options for

different liquidity options, then the product offerings could be more successful. And what we need now is a lot more wins, right? A lot more use cases and people need to understand that from cradle to grave, you can start a project, find a market, um have the appropriate liquidity so that we could kill one of the big issues that we're seeing in crypto right now, which is volatility of specific assets. So, if there's more liquidity, you know, based on on on those variables, things can go smoother. So, we're focused on the fundamentals, we're focused on the basics, but we have to provide the avenue and the platform so that it's easy for retail and for institutions alike to be able to transact.

>> Yeah, definitely. And I think you're painting a very very nice picture for maybe what we can achieve in the the short to medium term. And I think there there probably are a number of different tools that can help the industry achieve this, um the sort of cross-chain interoperability that I think you're you're all alluding to. And I just wanted to kind of ask, what do you think is most important technologically in terms of really achieving this interoperability? >> So, I think one of the important things is thinking about the use case in mind with blockchain. So, you might have a certain use case where the TPS requirement is X, another one, a retail CBDC, the Bank of England a few years ago wanted 30,000 transactions a

second or something. And it was really really high. And then if you want to put other things on top of that, it's just going to cause issues. So, I think that's when you really think about choosing a layer one and then a layer two on top of it for different use cases. And it kind of makes me think it's similar to how payments work today. How you have TARGET2 and you have SEPA. And TARGET2 is for your large volume your large value low volume payments. SEPA is for your higher frequency type transactions, you're sending a bill to somebody or paying in a restaurant. And that's maybe more akin to a layer two type use case. And maybe we need to think about things with a similar you know, format and fashion that there'll be certain use cases that work really well and then others that maybe

you sacrifice elements of decentralization for to have higher scalability. But finding the right rate the right way to bridge between those blockchains is imperative and Chainlink's done things with CCIP. We've seen that on Ethereum. Um but I think there needs to be more investigation. >> Yeah, and I I guess in terms of that that bridging journey, where do you think we are? Are we Are we at the start? Are we in the middle? Are we Are we near the the end state? Any Any views on this? Um I know that, you know, definitely from the perspective of the institutions that I represent, uh there isn't really a fixed view about what the end state would look like yet, but I think there is an emerging view that all the

technological tools and capabilities are becoming available. Um and it it's probably just uh for everyone to kind of coalesce and and come together and and figure out, you know, what we can build together and and also agree on common standards. >> Oh, yeah. Well, I would totally agree with you. I think if we could pick just like, you know, one point, right, out out of the hat, um it's just like a fundamental difference, right, um between the traditional, right, financial sector and traditional secondary markets with what we're seeing in the blockchain space because it it you know, one pillar is uh we're looking at transparency versus privacy. And that's just one thing that we need to look at cuz in blockchain

that's what we relish, right? We like the decentralized nature of the doing the transactions, but in the traditional sense, um it's more centralized, right? And and um they they don't actually adhere to the transparency part. It's all about privacy. So, there's some fundamental philosophical questions, right, that we need to be remedied outside of the technical legal uh framework. >> I think from a technological point of view, there uh of from a technological point of view, there are many tools we can use and most of them are fully developed. So, we've got Oracles, we've got features, we've got gateways, we've got APIs, we've got standards.

What we don't really have are two things. On the one side, a regulatory clarity on what is it that the regulator wants us to be doing in the in the future. >> Mhm. >> In for example, in the in terms of the DLT pilot regime, they they establish some limits and some products and now they're saying they will be opening up the products and the limits. >> But, at the same time reduction reducing the exemptions that we're going for and therefore changing the rules of the game in terms of the capabilities we use in the platforms. So, clarity on on the regulatory scheme is one thing that we are missing and the other one is once we've got that clarity having the standards uh harmonized because it's not the same

using a public blockchain and a private blockchain in terms of not only from a technological point of view, but also in other senses like for example, the cost of capital for the institutional >> customers is absolutely different if you buy an asset which is in in the public or in in a private network. >> Yeah, same asset but very different risk weights. Why is why is that? >> Absolutely. >> A down >> I was I was just going to jump in and say I think education is always something we go back to. Create a use case, create an idea, talk about blockchain in the bank and the first question you get back is I've heard it has higher energy consumption than Argentina.

And you know, those kind of things were around a while ago and we talked about Bitcoin mining and things, but those are the types of questions you get back. So, I think education is a necessity but also sometimes frustratingly going through a journey of using private blockchains first because again, you need to take the business on a journey with you. It's not going to be too efficient dual running existing systems with a private blockchain and having a bunch of banks that are all on the system together because you you trust them already. The whole point of this is decentralized to get some of the benefits of taking out costs. So, how is it cost-effective for a bank to do that and then pass on any saving to a customer? So, I think education is a really important thing in this space

to continue doing internally in the bank and then hopefully that can allow you to kind of jump start a little bit towards leveraging public blockchains and getting some of the benefits. >> Yeah, I think absolutely and and all the all the different digital asset teams that I've worked with within institutions have a very difficult job of kind of bridging two realities. The reality of the day-to-day of trying to kind of convince internally but also their their clients to engage with this technology but also the the kind of more promising future potential future reality of, you know, having tens of billions of savings in post-trade costs and the kind of complete reduction of settlement risk that I think as an industry everyone

everyone is trying to work towards. So, so kind of being I think constantly kind of stuck between these two different objectives and and kind of trying to really move forward on on this journey. But I think just just looking forward to the the future and I think some of you have already painted a very nice picture of what that might look like. But just kind of thinking I think I'm probably you alluded to this already in terms of the market structural changes that we might be able to see in the future that will deliver the both most benefits from using blockchain. Is there anything that you think can be done there in terms of, you know, not only having regulatory certainty but also

maybe an an end state that we we should all be aiming at? >> Well, for me right now we haven't got any clarity on on that one. Um because what the regulators are trying to do is replicating what we've got in traditional markets. >> And if we replicate it, we will get the same >> outcome. >> Yeah. And what we're saying here is that we want to have a more decentralized infrastructure and then and having more liberty, more freedom so to do things without having to go through the through those intermediaries, through those centralized services.

So, first thing I envision a world without so so much regulation. Secondly, I envision a world where DeFi and unregulated worlds come together more with the with the smart contracts and the protocols more usage of the assets in DeFi world to get further profitability and to enhance those liquidity pools that we're talking about and finding ways of bringing the those two worlds together.

>> Yeah, I think that that's really interesting and and I think certainly a future that we we all want to be aiming at. And there's a lot of different technological tools and capabilities that I know are are available to us outside blockchain world like AI and and also other new technologies. I don't know if Pedro you want to kind of touch on that and how your how Tokenfy kind of brings in those capabilities and embeds them in in the platform itself. >> Yeah, no, certainly. So, I think what you mentioned is absolutely true, Dan, about the the education component.

So, one of the things is you want to eliminate the barriers to entry, right? And and there's an informative challenge where people think it's difficult to do, right? And so, if we could create a platform with a easy-to-use UI that was safe, right, Uh audited, and that could meet some of the demands, then that would be a great tool, and that's exactly what what the Token Fight platform is. So, where you could uh create your own token, launch your own token, but you need to give tools to a developers or individuals that may have an idea, just like you see folks um that now with the with the enhancements with AI that you can have the first billion-dollar company led by one person, which is wild to even think about 10 years ago. So, we wanted to create uh essentially the road for you

to be able to create um like your own project and tokenize RWA. Within it, there's the AI component for the smart contract auditor, uh as well as uh generating any type of like NFT or art that you may need. And And this obviously is embedded with uh you know, the roots of of fractionalized ownership in real estate. So, essentially, the platform is is all-in-one, where you don't need developer experience, you don't need coding experience, but it has to be easy to use, and um you can't control the people that use it, but the idea is create a tool that serves the purpose, adheres to the regulations in the jurisdictions in question, uh and could um offer us considerable amount of cost savings to the to the end user. And then you can go peer-to-peer. Like, that's the idea, remove the

intermediaries, and learn from the process. So, that's what uh Token Fight is, and our mission is to be a leader in the RWA space. >> And And then, I guess in the traditional space, there kind of there's a similar story happening as well, but um obviously kind of proceeding at a more institutional level. Would you say? >> Yeah, I think so, but it's also keeping one eye on the future, building a groundwork for the future world that we will live in. One can imagine having an AI agent saying on that topic in the future performing actions for you.

Does it want to go through payment systems today, or just use a stablecoin to settle? Probably a stablecoin when you're programming it. And I think we need to design our bank in a future way, and first thing is having wallet capabilities, being able to store stable coins. So, I think it's preparing for the future, but you know, a long a long-term strategy is made up of a series of short-term events, and I think we're just on that at the moment. We're going through some of those short-term events. >> Definitely. And I think we we kind of keep uh going uh along those lines, and and I think kind of keep pushing the agenda as I've seen also um in the last couple of years in the traditional space where a lot of the cultural attitudes have shifted, and

actually a lot of different um innovative capabilities have been unlocked as a result. Um so, I think just to maybe end on a final note um to ask the panel if there is kind of one thing you want from the ecosystem, what would that be? Just one word. >> For me, it would be cooperation. Cooperation. >> Cooperation. >> Yeah, we need to work more together, even though we may be competitors, we need to create There's room for all of us, and I think we need to work more >> Yes, cooperation.

>> Uh I mean, I think interoperability is >> Interoperability. >> an overused word, but I think >> It's the operational equivalent of cooperation. >> I mean, private blockchains and different networks, they'll end up turning like Universal Studios and Disney World where you can only spend Disney dollars in one and credits in the other store, and you want to be able to move across and have singleness of money and acceptance. So, I think it's being able to interoperate between these systems and recognize that we can do that. >> Yeah, definitely. >> Andrew? >> You guys You guys stole my what I was going to say. Well, I think clarity, right? I think uh operating within a a legal framework that could be global, so set a standard, I think would be one thing that I would absolutely want on my wish list.

>> So, cooperation, interoperability, and clarity. That's great. And I I I think as as the the audience can see I'm really looking at tokenization from the lens of developing secondary markets. Really kind of gives you an idea about the challenges that are at hand, but also the many solutions that are available. Um so with that just wanted to thank the panel um for your insights and also to the audience for sitting with us through this um afternoon session. Thanks all. >> Thank you.