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.