Future of Finance


SDX is betting on openness to accelerate the adoption of tokenised assets

[MAY 2023]

Key insights from this interview

• Tokenisation will take five to 15 years to achieve substantial scale, advancing through the growth of a parallel native digital asset industry alongside the traditional securities industry, with financial market infrastructures providing inter-operability between blockchain protocols and between blockchain protocols and traditional securities markets.

• Tokenised asset markets will develop through inter-operability between tokenisation platforms owned and operated by exchanges, banks and non-bank organisations, thanks partly to the adoption of new and established data standards, but also through the provision of inter-operability services such as repo and reverse repo funding for atomic settlement. 

• The earliest issuers will be small and medium-sized, privately owned companies that benefit from a more up-to-date register of owners, easier transfers of ownership, the option to use their tokenised equity as collateral for borrowings and the enhanced ability to raise capital from third-party investors, including as part of preparations for an IPO. 

• Established capital markets intermediaries such as CSDs and custodian banks will survive because they are trusted by the institutional issuers and investors that alone can bring scale to the tokenisation markets and are valued by regulators as the entities that can implement regulations and make investors whole in the event of losses.

• The development of secondary markets in tokens will be aided by the adaptation to the regulated institutional markets of the automated market making (AMM) and token borrowing and lending services pioneered in the Decentralised Finance (DeFi) markets, but also by the adaptation to the token markets of conventional market-making services. 

• The Swiss central bank is working with the Swiss stock exchange to use central bank digital currency (CBDC) to settle real transactions with genuine counterparties in digital assets and to embed the CBDC as the central bank money foundation of a new order of digital money that embraces tokenised deposits as the primary form of commercial bank money.

• The difficulties in the cryptocurrency markets since 2021 have reinforced institutional demands for the regulation of digital asset markets as a whole and dented confidence in centralised forms of digital finance (such as FTX) while enhancing confidence in decentralised forms of digital finance (such as Uniswap).

SDX, the exchange for digital assets built and operated by Swiss stock exchange SIX, is working to accelerate the tokenisation of financial assets in Switzerland, Singapore and Germany, three locations whose legal and regulatory environments are accommodating of the new method of raising capital. Interestingly, the SDX strategy is an open one that looks to embrace competitors as well as issuers and investors as the company builds a network of networks of tokenisation platforms and their users. Dominic Hobson, co-founder of Future of Finance, spoke about the SDX strategy with Alexandre Kech, who took up the post of Head of Digital Securities at SDX in November 2022.

How will tokenisation happen?

Has dual listing of digital assets in non-digital form matched your expectations?

Which intermediaries are easiest to persuade of the merits of tokenisation and which the most difficult? 

How much does it matter that not all markets you are looking to be active in have reached the same level of development as Switzerland?

Do you face any serious legal or regulatory obstacles to getting tokenisation done in Switzerland?

Are privately owned SMEs a particular target for tokenisation?

What benefits do SMEs obtain from tokenising their shares?

Are funds a particular target for tokenisation?

How does your strategy accommodate the fact that banks are building their own tokenisation engines?

How disruptive is tokenisation for intermediaries, in terms of changing their internal systems and processes? 

The assumption now is that tokenisation will NOT disintermediate custodian banks and CSDs. Why not?

If tokenisation means reconciliations disappear, what will custodian banks and CSDs be doing instead?

Why is SDX co-operating with other, non-bank tokenisation platforms in Switzerland?

Won’t inter-operability between tokenisation platforms require data standards?

What is needed to develop secondary markets in tokenised assets?

How close are we to having central bank money – CBDCs – available on tokenisation networks?

Have the difficulties in the cryptocurrency markets slowed down progress on tokenisation?

How long will it take to develop fully tokenised asset markets on a global scale?