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W
hat if I told you the portfolio of the fu-
ture could contain horses, artwork and
Beyoncé tickets? If your first thought
is ‘who is Beyoncé?’ then I suggest spending more
time away from your desk. But if your response is
‘that sounds interesting, how could this possibly
occur?’ then read on as we’re about to explore how
tokenisation is set to open up a whole new world
of trading non-bankable assets, along with adding
efficiency to existing products.
Let’s say you wanted to invest in real-estate
without fronting up a whopping six-figure sum;
well tokenisation is a method that converts rights
to an asset into a digital token. So theoretically a
$500,000 apartment could be divided up to 50,000
tokens, allowing for fractional ownership. Under-
pinned by blockchain technology, which would en-
“We can build compliance into these
smart contracts, so that you don’t need a
headcount of hundreds or thousands.”
JOSEPH LUBIN, CEO, CONSENSYS
sure irrefutable records of ownership, these tokens
would be issued on a platform supporting smart
contracts allowing them to be traded.
This could work with anything from a Monet
painting to fine wine where assets can be broken
down into pieces – digitally of course, please don’t
attempt to tear a Monet to pieces and claim Global
Custodian told you to do so.
“We’ve had all these different kinds of instru-
ments that need to trade on their own specialised
kinds of markets,” explains Joseph Lubin, CEO
of Consensys. “We are starting to realise all these
instruments in essentially the same form whether
it’s a cryptocurrency, a debt instrument, an equity,
or a Beyoncé ticket, it’s all just one of these cryp-
tographic tokens.”
New investment opportunities
This is uncharted territory for a financial in-
dustry where new products have been few and
far between over the best part of a century. The
emergence of exchange-traded funds and crypto-
currencies have been eye-openers, but exposure to
movies, museums and diamonds will be something
else entirely.
“Everything that was not in the reach of the finan-
cial industry now becomes something you can start
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Global Custodian
Winter 2018
looking at,” says Valerio Roncone, head of prod-
uct management and development at SIX, which
announced a new initiative to create an integrated
infrastructure for the digital asset value chain back
in July. “Take an art gallery or museum, today the
museum has to go to the government to ask for
money, tomorrow the museum can tokenise a part
of its collection and the public can buy it. You can
have a token against it and that token can be traded
and integrated in your portfolio, you own a share in
something you would not have been able to have to
this extent in the past.”
While this may sound similar to the way shares
are traditionally bought and sold, it’s the underlying
technology which sets it apart. Ledger technology
allows any form of value to be transferred at low
cost, in real-time and in a trustless environment,
with KYC/AML issues taken care of through smart
contracts. It also removes many of the intermedi-
aries and complexities in the process, opening up
these asset classes to new customers and blurring
the lines between public and the more traditionally
bilateral private markets. Ownership information,
rules and enforceable rights are coded into the
distributed ledger in the form of smart contracts.
Through DLT, movements and authenticity can be
reliably and securely tracked and verified.
“We can build compliance into these smart
contracts, so that you don’t need a headcount of
hundreds or thousands and financial institutions
and you can specify how different instruments can
trade and then there will be no reason why I can’t
buy Apple stocks with my Beyoncé ticket at some
point in the future,” adds Lubin, known as one of
the founders of Ethereum.
Custodians take their stance
Matthew Pollard, co-founder and CFO of Archax,
an institutional digital asset exchange, writes that
through tokenisation “the act of transferring an
asset from seller to buyer is simplified.”
“Transactions on a distributed ledger lessen or
remove the roles of the intermediaries historical-
ly used to facilitate the transaction,” he adds. “It
reduces costs, increases transactional velocity and
helps price discovery on assets that may have his-
torically suffered from liquidity discounts. Put sim-
ply, as an issuer, this technology should drive down
the cost of capital and reduce liquidity discount.”
Custodians are already backing tokenisation as
the future with support for the notion already
voiced by the likes of Standard Chartered, State
Street and SIX Securities Services.