Tokenization of Digital Assets | European Blockchain Convention

foreign [Music] can you hear me now yeah they are technology works all right so look thank you very much for your time we are diving into tokenization for digital assets so my name is Mariano Girard I'm the Emir head of digital and it is a pleasure to have with me a super panel but before I'm going through you know asking you guys to introduce yourself I want to thank you all we have a full audience right now and I want to thank you all for not being following or following the local habits here in Spain today is Friday is four o'clock almost it is yes the time guys and you are staying here with us I really we really appreciate that you are staying with us and hopefully we are going to share with you great insights and we're gonna keep you awake okay so let me ask my panel members to introduce themselves we start with you start please yeah yeah thanks for having me um I'm very much delighted to be able to participate in this great conference my name is Esther toiban I'm part of I'm a lawyer um and I'm part of the German legal team of ABN Amro Bank NV a Dutch bank and I'm currently mainly working for the strategy and Innovation Department of ABN Amro which is the Innovation Hub and I'm part of the digital assets team of strategy and Innovation and what we mainly do is we are focusing on creating Innovative digital Financial products for our clients very good excellent is there Joe can you introduce yourself please yeah hi everyone my name is Joe long um yeah very pleased to be here I'm from JPMorgan I'm part of Onyx so Onyx is jpmorgan's blockchain section um I specifically am a product manager within Onyx digital assets and so it's essentially the tokenization platform for for financial assets um and that's me very good yo thank you very much please my name is Prashant I think Mike on moved there you are put it on there you are can you hear me there you are hi everyone I am Prashant I am a senior technology lead for digital currencies and assets at HSBC so I look out I look after build out of number of DLT platforms including tokenization and very happy and excited to be here very good thank you very much prasantan as you guys can see we have a very diverse panel because we do have legal mindset we have a product mindset and we have as well a technology mindset so I think it's going to be very interesting to hear your perspective guys from your different uh X areas of expertise on the on the tokenization space okay so the first question I want to to ask you is um tell me about the benefits why why do we want to tokenize things why tokenization on digital assets why are we doing that what are the benefits so we start with us there yeah well I guess um I guess that tokenization and blockchain technology in in general can address some of the barriers that currently hamper Capital markets um and I guess one of the main benefits is definitely that it comes with significant cost reductions um and that is mainly driven by well fewer intermediaries that you have um and of course lower fixed cost and that definitely goes with digitization and automation I assume and um secondly I assume that also um the um transparency that you have with could have with uh with digital assets is also one of the um definitely one of the benefit the advantages of of tokenized assets um so for example you can you can have uh ESG reporting within the digital asset and that's definitely one of the advantages that comes with with tokenization right these are great two points so efficiencies and transparency Joe what do you have a physical any any benefits that you see on tokenization yeah sure so um the way we uh the way I think about it um I certainly agree with the point she raised but definitely the the efficiency side of things providing liquidity where previously if there wasn't liquidity and then also discovering new utility where we haven't had it before and this is where we can be Innovative with the technology in many ways we have an opportunity with tokenization to re-engineer many of the like Financial systems and markets that we have in such a way that we can for example we can um instantaneous transfer of value we can fractionalize assets in ways we haven't done before and we can also provide transparency the benefits are quite broad um what it tends to fall down to is what area you're actually looking at to tokenize and which benefits make sense for a particular use case it's great great points thank you very much Joe I'm prasan from your Tech mindset right what do you see what are the benefits from your perspective so yeah I definitely agree with the great points raised there and I think um I if I could answer it in this fashion so from client perspective of course there is this accessibility point that a certain customer segment is now able to access assets which we were they were not able to before so whether there are new products or new varieties of product which are more efficient and more secure right and then tokenization is a great enabler as well right so you capture the value created the tokens um that in itself is a benefit but it also enables future benefits like the advances in the industry around interconnectivity and interoperability you could then use that asset if eligible posters collateral right so that's on the client side now looking more internally within the organization I think it's a great Catalyst to have great conversations with your business to start those conversations so DLP as a technology and tokenization as a as a as a capability lets those creative juices flowing so you then actually look at a number of ideas given our capabilities what are the new products we want to offer right and given our capabilities whether we need to sort of enhance our capabilities or build new capabilities in order to sort of meet to realize those ideas on back of the trigger that now we have through tokenization great Point yeah if I may um what is also an advantage and that hasn't hasn't been mentioned yet um is of course Atomic settlement so you can also have delivery versus payment within yeah seconds yeah and that's that's definitely also one of the big big advantages of tokenizing Securities that's great guys you thank you very much you guys are sharing a lot of benefits from the tokenization point of view now I want to ask you the difficult question or maybe maybe I'm going to ask you as much as you can share because when we were connecting and we were brainstorming about the projects right as much as you can share in your organization which projects are you working with on the tokenization side right don't share with me nda's staff right on service you know but you know keep push yourself a little bit more and sell a little bit right so what's going on we'll start with you maybe yo uh yeah sure so really I'm gonna I'll um I'm probably only gonna scratch the surface and I'm gonna do a speed run of what we've done within tokenization so um it was around 2018 we simulated a bond uh uh issue in a bond on blockchain it was a simulation it was we did it to learn basically what we learned from that when we issued the one we wanted exactly to what Esther said we we realized we needed cash on chain as well so we were able to carry out um like a DVP so from that we built JPMorgan coin systems which is our cash on chain system and so in 2020 we started working with our markets DLT team within JPMorgan so not Onyx that built it like originally we built it in collaboration with the team um who with the experts in that market space and they built the uh what's called the digital financing app and essentially that is a it's for intraday repo so we were carrying out intraday repos where we weren't previously able to to do so so again it's DVP um you know it it helps you manage intraday liquidity reduces the requirement for uncoateralized loans and we do this like internally but we also do it with our clients and so since um yeah since since the launch in 2020 we've done a roughly 500 billion dollars in in trades um internally and externally so it's like it's no joke we're sort of realizing these benefits um and actually credit to the team that runs the application we run the platform on its last sets as the platform but credit to the team that um yeah runs the application because they're just seeing an uptick and people who are finding use cases and needs for this intraday liquidity so that's great um next we're working on um tokenizing so it's called the TCN so tokenized collateral networks so it's another application on our tokenization platform um essentially the idea there is that we're going to tokenize um MMF so money market funds so that we can use them in title transfer and as to pledge as collateral um for margin for for doing derivative trades so that's sort of the next plan there um so far I think on the on the digital financing app we've tokenized U.S treasuries US Dollars obviously it's of cash we've done CMOS we've done MBS and we plan to continue sort of expanding the set of assets that we accept for collateral um you know to where our clients need um yeah and we want to keep going the other thing I would add so this is outside of Onyx digital assets but still within Onyx we did something pretty cool last year that we're really proud of we um we did the First Institutional defy trade um we carried out a D5 trade on polygon using are they Arc in collaboration with mass so the monetary authority of Singapore and SBI where we totalized US Dollars and Japanese Yen and carried out like a pilot swap trade so we're really proud of like the work that we've achieved in that space and we're trying to sort of push ourselves to to embrace new technologies and figure out new use cases um and yeah I'll stop talking there we're not going to stop going but I'll stop going no very good Joe and it's interesting you know lots going on there right so different different size of projects different activities there right so thank you very much for sharing present any thoughts any projects that you are working with in your organization anything that you want to share as much as you can yeah so so yeah a number of initiatives in the dld space uh particularly in context of tokenization um I would probably talk about two different varieties from platform capabilities so um I think number of you may have already seen in the press that we recently we recently issued a 50 million GBP Bond on our bond tokenization platform that's called Orion so basically we HSBC Luxembourg is the central account keeper there and it basically uses um Lux jurisdiction to allow us to move uh the bond tokens on The Ledger as title transfer so we allow you use that and on the cash side we basically generate settlement tokens and that basically allow us to do DVP uh Esther recently as I just now mentioned about the TVP as a as a benefit so that's a platform where we do Native issuance um and we do coupon payments Redemption uh and secondary trading uh the Second Use case I can talk about is uh commodity tokenization so this is a use case where the platform is actually integrating with uh a very mature ecosystem of uh traditional trade life cycle um basically which we we issue the tokens and then pack it with physical Commodities and thereby we basically allow our clients to take benefit of fractionalized commodities yeah so those two use cases that's great that a couple of good cases thank you very much for sharing present so it's there over to you what do you have what can you share with us yeah well we actually also quite proud that we recently announced um that we issued a tokenized bond on a public blockchain so we use the Stella protocol for it and it was a tokenized bond for a mid cop um and the unique thing about this specific deal was that it was the the entire process so preparing um placing and documenting um was on chain so it was a fully digital uh bond that we issued and um I guess it's one of the first um yeah digital bonds tokenized digital bonds um in the Netherlands it's great that's fantastic another another great example I mean as you guys can see three and and I can add my organization as well beyond why melon we have been doing things as well on on the on the digital side on tokenization right so this is uh you know from traditional Finance this is now real we have been talking for you know a number of years on on activities right this is becoming real and and we do see that the the examples are are becoming becoming real user cases right so thank you for sharing okay so we have been talking about the benefits of tokens we have been talking as well about the projects tell me about the challenges how do you see what which which are the main challenges that you have in mind so maybe we start with your personal technology point of view um maybe I can address this from the platform perspective and then a little bit non-technology if I may so from if you are if you are going to embark on a mission to build a tokenization platform uh I think what you would see is that the build out is uh not quite similar to a traditional um let's say Java based microservices based application so if you work in a large organization you would have some of the kpis around how you incrementally deliver um release Cadence Etc so be mindful to manage those expectations because you're not going to be Amino at least our experience is that it's not going to be it's not going to be you know matching the uh some of the expectations around the traditional side um again on the platform side as I mentioned as one of the use case around Commodities tokenization so we we had to basically uh integrate our DLT layer with 13 different systems internally so interfacing with Legacy uh it's not it's not super easy so that's that's definitely a challenge um sort of going a little bit away from the platform and just looking at generally I think one of the challenges we might see is that um you know if we all are you know running a number of initial and building our digital assets so if everyone goes off and you know creates their digital assets on their own private Ledger what it brings is of course Innovation but also diversity in terms of your digital assets um now this might be challenging from let's say custody point of view because clients want to see a unified view of the traditional assets as well as digital assets and if you have a vast diversity of the digital assets it's going to be challenging how do we how do we bring along and let's say you know got a single npv for the whole client portfolio um so that's that's something which would probably need some sort of standardization that's great and I want to I feel I feel I need to chip in here as a from my my role in BMW known as the global custodian as well right we share your vision and the same challenges of making sure that we have full integration between the job that we do with traditional assets with the job that we are doing and we will do with digital assets right and the and division of integrating the whole thing and having or providing to clients one single view of of the of the custody activities I think it's critical right so but it's a challenge on itself from the technology that you are mentioning right so it's a great Point great point so Ester I want to hear from you I want to hear your legal mindset here right because I know that we have a number of challenges there right so any things to share yeah sure as from from the legal perspective of course I guess what what we see what we still um see in the market is a quite regular fragmented regulatory framework and and I guess that a robust regulatory framework is key for um yeah for the market infrastructure in general so um for example in Germany we already have the electronic Securities act in place which allows for the issuance of bearer bonds um tokenized variables of course um and I think we also see quite dlt-friendly jurisdictions in Luxembourg and in France however we still face quite a fragmented regulatory landscape within the European Union and um well this has also been recognized by the European Union and that's why they came up with these two new regulations that we heard about quite often already on this uh during this conference so it's the market in crypto assets regulation on the one hand so the Mika regulation which is a sound legal framework for crypto assets that do not qualify as financial instruments and on the other hand and I think that's key for us mainly tokenizing Securities is of course a DLT pilot regime which is a regulatory sandbox um for those crypto assets that qualify as financial instruments and which allows for um licensing um for market infrastructures and it gives exemptions from from specific Financial regulations such as csdr mefit and we fear and which will already apply as of March 2023 so quite a quite soon and I'm pretty sure that this will definitely pave the way for for digital Assets in the European Union because it's a it's a great opportunity to for um Financial well for for Market infrastructure to come up with new business models and um I think it will definitely um pave the way for market growth that's great and this is the year of regulations coming in March is over the corner is going to give us more light on the regulatory perspective so the challenges are there but also we do see that gradually regulation is coming in and it's giving a little bit more color uh on on what's going on how are we going to organize ourselves right so and particularly from the from the traditional Finance point of view for us it is critical that we know you know where are we how are we going to operate and what is the regulatory framework okay that's great Point Joe over to you what do you have what what are the challenges that you see from your perspective well I'm really pleased that I'm speaking on this after um Esther the lawyer has because the regulation side of things are covered which is nice um but yeah I mean from our side the challenges that we see um it's it's so in a big organization like JP Morgan you have a bunch of teams working together you've got technology you've got product you've got um sales you've got marketing design legal compliance um your operate teams your you know it's an enormous group of people and there's a saying um you know while I'm saying it takes a village um and so the thing that I think we've found challenging but also um rewarding when we get it right is to bring everyone in on the Journey of what you're trying to do how you're trying to do it explaining the technology explaining the concepts working with people who um you know maybe coming from this from a different angle than myself who just wants to build stuff and and you know um you know maybe a bit gung-ho but it's like you've got to bring everyone along with you on the journey so that is a challenge but it's it's a challenge worth like tackling head-on and it's a challenge worth embracing um I would say outside of that um generally the like inside and outside of blockchain over the past 12 months it has been a busy and noisy time with many many distractions um and so you can see the attention can be divided away from some of the things that we might be wanting to do um we don't know how that will evolve over time um but it's definitely something we've noticed and um regardless we're pushing ahead with people that we um that we find great use cases with and can partner with um yeah and I would leave it there that's great thank you very much yeah I could just add to the earlier point so on the regulatory sites our experience particularly from challenges point of view is that you know probably technology is is relatively the easier part so as you bring more and more parts of your product life cycle onto the chain right we see that technology complexity increases but the legal and Regulatory is probably increases more and rightly so because you're not just you know digitizing the parts of your product life cycle you're moving the business processes and you are shifting risk on the Chain as well so yeah completely the regulatory complexities definitely that's a great that's a great Point coming from a technology personally giving credit to the legal and Regulatory colleagues right so that's that's a great point so guys we are running out of time I have one last question let me tell you having a scan on the on the colleagues here and I have seen only one person having a siesta and he deserves that because I know he had a very wild night yesterday right so I I think he's entitled to that but hopefully we have been sharing good stuff here to the to the rest of the audience so that's great so last question to you 2023 what is going to happen this year how do you see adoption how do you see things evolving where are the growth opportunities let's start with you sir yeah well um I guess that um tokenization in general and market for infrastructure in general requires scare scale and interpret interoperability which resists not an easy word for me um however I assume what what we're still facing in the market is quite some isolated Solutions and I definitely hope that this will change within the next couple of years um so um I guess it's key to to have to have um yeah interoperability in the market and of course from a legal perspective I'm pretty sure that the DLT Market the DLT pilot regime will definitely pave the way for new business models and I guess also for Market Pros that's great great points thank you very much is there Joe over to you 2023 what do you see um so 2023 for us um we're going to focus on use cases we're going to focus on what assets should we be tokenizing what works what are the so we're looking at essentially for Goldilocks zones of people who are ready enough and and have that need we're not just going to tokenize things you know for fun we want to work out what actually is like adding value so searching for those like Goldilocks zones in terms of use cases but also we've had success with our security services team and our like markets DLT team in terms of building out these products the other thing we want to do for 2023 is look at how do we build with other groups not just within JPMorgan but outside as well so um yeah but we're kind of excited for that um yeah that's great the collaboration point right the collaboration with the ecosystem I think is fantastic what you're selling as well and we're taking a lead really from from that public space the public space is about building with people you can you know it's that ethos I think that we're trying to carry through as much as we can we'll do it safely we'll do it completely we'll do it probably slowly because we're we're a large bank but we'll we'll do it with as much sort of vigor as we can very good that's great any thoughts from your side 2023 yeah so um so we've been we've been involved in a number of uh initiatives and I think uh we will continue on furthering our capabilities and developing new capabilities uh but if I could answer that question like externally completely agree how do various participants come together and further that growth so whether it's uh to come together as syndicates and offer new products and then also as coming together and helping with standardization like the point we just agreed on you know how to not fragment an existing ecosystem and if I could actually look at from internally within the organization I think Talent is a is a is a big thing so how do we get the right Talent how do we motivate the set of Highly Innovative people within the organization and retain that and that helps us in execute shooting our ideas that's great Prasad thank you very much so guys we are running out of time but I think it's a very nice way of wrapping up that we here you have four traditional Financial players we all believe that collaboration is the try the right thing to do not not only with the traditional Finance but also with the wider ecosystem with the fintechs and I think if we collaborate we help each other we connect with regulators and we work together we will all win so thank you very much guys I've seen a big round of applause to this audience thank you very good