Published in: finanzmonitor
Luxembourg, 06 November 2023 – Since the introduction of blockchain technology, the tokenisation of assets has dominated the financial sector. But projects are often thought out from a technological standpoint and without reference to realities in the conventional securitisation market. This is usually the cause of an early failure. “Successful tokenisation uses existing processes in the traditional business, develops them further with the help of digitalised securities, increasing the potential for efficiency and transparency – and all of this while reducing costs”, says Alex Tichter, founder and CEO of thidon Services SA, a tokenisation specialist and financial services provider.
The art market has been a trailblazer for the development in the financial sector. Non-Fungible Tokens (NFTs) were an early catalyst for its growth and transformation. Service providers and consumers for whom technology trumped art were predominantly involved in the beginning. How else would photographs of monkeys be valued at hundreds of thousands of dollars each? Meanwhile, the market has matured, classical art market principles have taken hold, and art is once again appraised in accordance with conventional metrics. However, tokenisation continues to exist and is accompanied by significant productivity increases.
A similar scenario is foreseeable in the traditional financial sector. “The objective of thidon is to use cutting-edge technology to improve upon time-tested procedures from the old world. We have an established partner in securities.lu that has already securitised significant volumes, setting us apart from competitors that focus solely on the crypto space and so often fail due to legal restrictions”, adds Tichter.
The blockchain technology is here to stay. Since it is obvious that the financial markets, including securities, are being digitalised at an increasing rate. Currently, structures are still being utilised that were formerly established for depositing share certificates or other papers, even if they are digitally mapped. Certificate central securities depositories, for instance, are rigid in their operations from issuing to trading to custody; they are also mostly analogue and, in any event, rather pricey. With a market cap of roughly $100 trillion, it is clear to see how much money might be saved and invested if securities were fully digitalised.
The necessary statutory provisions have already been set up. “That is also where we’re coming in with thidon. After all, the financial sector as a whole will only employ security tokens as a complementary medium for securities”, says Tichter. These are already covered under existing Luxembourg legislation. There is no extra work required to meet regulatory and legal criteria because they are similar to those for conventional products. Instead, digital tokens are used throughout the process in place of analogue securities. The use of a paying agent for settlement is therefore also digitalised, with the conventional duties of a paying agent being replaced by similar but streamlined operations. Experienced securitisers thus have a significant advantage since the procedures are uniform.
When an established industry adopts cutting-edge technology, new doors of opportunity appear. “In this regard, our partnership with securities.lu has been really beneficial. Since they are a Luxembourg-based securitisation solution provider, they know exactly how the traditional securitisation business works, and they can give us valuable input in implementing tokenisation as well as direct feedback regarding applicability and quality”, adds Tichter. The time and effort required to create, value and trade security tokens is greatly diminished with the use of cutting-edge blockchain technology. Tokens will eventually provide the same functionality at a lot lower cost, better speed and more transparency.