In Liechtenstein the token economy of the future is not just visible but understood

Crypto-currency trading provides returns commensurate with the volatility of the asset class, but not many people have subjected the characteristics of the investment to formal analysis. One person who has is Dr Martin Angerer, Assistant Professor of Finance at the University of Liechtenstein in Vaduz.

He not only teaches modules in Financial Technology and the Basics of Blockchain, and researches crypto-currencies and tokenization, but advises crypto-currency investment funds. Dr Angerer is also closely following developments in the Liechtenstein security token market following the passage of the Blockchain Law in January 2020. He spoke to Dominic Hobson, co-founder of Future of Finance, about crypto-currencies, crypto-currency funds, security token offerings, DeFi and the market infrastructure a token economy needs to make it grow.

Questions that are being asked

1. You have studied the performance of crypto-currency exchanges in terms of liquidity and price discovery. What were your main findings?

2. You have also advised crypto-currency investment funds, such as the digital and physical gold fund run by Incrementum AG. What have you learned in terms of the liquidity, volatility, risk and performance of the fund?

3. What have we learned from the 2016-18 ICO boom in terms of issuance techniques?

4. How would you distinguish between ICOs and crowd-funding – are the fund-raising techniques converging?

5. Liechtenstein has had a broadly conceived (i. e. you can tokenize anything) Blockchain Law in place for 18 months. What issuance activity has taken place as a result?

6. In so far as issuance activity has taken place, (a) where did the issuers come from (in terms of geography and industrial sector) and (b) where did the investors come from (e. g. clients of private banks, funds etc.)?

7. There is an emerging consensus that in the financial markets tokenization will focus on illiquid and privately managed assets. Do you agree – and do you see it actually happening?

8. What sort of institutions – investment advisory banks, brokers, lead brokers, market-makers etc. – are needed to make token markets successful as places to trade (as opposed to invest)?

9. What sort of infrastructure – settlement, custody, asset-servicing, unconflicted exchanges – is needed to attract traders and investors?

10. Do you think (a) central securities depositories (CSDs) and (b) central counterparty clearing houses (CCPs) could play any useful role in token markets?

11. Tokenization creates the possibility of fractionalization. What are the costs and benefits of fractionalization?

12. Would you describe what is happening in the Decentralized Finance (DeFi) market as a classic bubble which must collapse at some point?

13. What experiments currently taking place in DeFi do you think will endure and become part of the financial markets in the future?

14. Do you have adequate price and other data to assess novel techniques such as ICOs and security tokens and DeFi tokens adequately and, if not, what needs to be done to improve the availability of data?

15. Smart contracts have been criticised for code vulnerabilities and for being open to manipulation. Do you think they will become a permanent feature of financial market innovation?

16. Safekeeping of private keys has evolved from hot and cold storage, through dongles and multi-signatures (multi-sig) to multi-party computation. Is private key security a Red Queen race or a race that can actually be won by the good guys?

17. KYC, AML, CFT and sanctions screening checks have become an expensive burden for financial institutions. Do you detect any appetite among the firms you know in Liechtenstein and elsewhere for adopting digital identities?

18. Do you think tokenization issuance in Liechtenstein would accelerate if private or public interests in the Principality built a token exchange?