Tokenization: What’s Working (and What Isn’t) for Institutions | EBC11

So, good afternoon everyone. Uh, as Mike said, my name is Stefan Dryer. I'm managing director at ANA, which is the Association of National Numbering Agencies, uh, an organization, uh, that is promoting the adoption and implementation of standards within the capital markets. Um, so tokenization is something that we look at very clearly. Kelly ended the last panel with a very optimistic uh comment uh that there is progress being made.

It'll be interesting to see what the panelists think today as we shift we stay on the topic of institutions but focusing more on tokenization. Um are we making progress? Are we not making progress? What is working and what is not? And then what are the things that we can do to help fix that?

So we'll take a a real honest assessment of what's going on. Um I will ask my panelists to please introduce themselves and tell us a little bit about the work that they're doing in the tokenization space but also to share their views on are we making progress is it sufficient are we on track maybe only or are we behind is there a lot more work to do um so starting at the far end do

brilliant um nice to meet you all so uh my name is Don Romani I'm the chief technology officer and chief product officer of acetera We're a regulated uh Miffid broker based in Europe in Vienna and we're focusing on distribution for regulated securities uh within the tokenized arena. So yeah, great great to see you all today.

Hi there. My name is Aaron. I'm head of investments for Van where I look after uh portfolio management and co-head digital assets. Uh for the ones that don't know know us, we are a global asset manager. Uh we manage approximately 175 billion of which 31 in Europe.

We're mainly known for being an ETF issuer. Um, and we got enthusiastic about Bitcoin and blockchain technology back in 2016. And since then, we've launched a lot of strategies uh on that theme. We have uh crypto ETFs, we have crypto ETNs, we have active strategies, liquid token funds. Uh we've been investing with our own money for years now in early stage projects.

We running we're running a VC fund and um last but not least, we've tokenized the money market fund not too long ago. Um and we're looking to do more from that perspective.

Hi, I am Jose Fernandez. Thank you for having me here. I am head of innovation of ProGor and also CEO of ProGor Crypto. Prosecule is a giant company six billion uh is the largest custodian of cash all over the world and prose crypto is a institutional custody solution uh having brokerage and also tokenization for for corporate and institutions. Uh it's very complicated to have an startup inside uh a big corporation very conservative as many others came before to say and uh we are pretty pretty uh happy to to start this year with with new business new contracts uh all over the world.

We are very strong in Latin America and we are also regulated in Europe and in some countries in Latin America.

Hi everyone. Nadia Fideli. I'm chief innovation officer of Keso. Queso, it's a very old public bank in France and we work on blockchain and crypto aspect for 10 years now. We are for example the custodian for the French government as a as a CASP.

uh we work on tokenization on asset of asset with different uh banks even with BNP and uh we uh put the subject of tokenization and stable coin in the in the new digital uh strategy road map that will be announced tomorrow morning as a pillar of our new strategy uh as the at the European And good afternoon everyone. So my name is Julian Close. I'm heading a department called asset fundry which is actually working on all things related to digital assets and tokenization for BNP para CIB. So I'm part of the CIB of BNP pariba and actually working with all the business lines within CB from origination to distribution to custody and now even beyond with you know cash management and asset management. As we know this topic is is fully transverse and multiasset.

Um we are looking at financial instruments and tokenization of financial instruments. So we don't deal with uh crypto but it's really about understanding these new rails. Uh and usually I'm I'm taking a metaphor and I'll do it very quickly here but it's like the rails uh the train metaphor. So you've got rails that have to connect as many train station as as as uh as possible on which you have trains which are the tokens and these tokens can be permissioned like the Euro store for instance or permissionless like uh like the the ground and then you got services on top and the services are the financial services. So we're looking at these three layers.

Uh we've been doing issuances for a few years now. The first issuance uh for security was in 2022 for our project finance and we've done multiple issuances since across multiple asset types. Um we've done deliver versus payment with the central banks as well in the experimentations last year. We've tokenized my fan shares as well. So I'm sure we'll cover all this topic but basically that's really about tokenization of financial assets.

Great. Thank you all and welcome. Um so didn't quite get the last bit there. I just let's do a rapid fire real quick. Um tokenization, are we making progress?

Is it sufficient? Yes. Are we on track? Or is there still a lot more to do? Quickly.

Um yeah, so in my mind, I think we're making progress. Um if we sort of look across the landscape, I think some of the harder problems to solve in tokenization specifically in the security space is really around asset structuring. So how do we ensure that we have the right sort of uh legal structure around these instruments and their fundamental issuance to make them compatible with delivery and propagation and life cycle management on a distributed ledger and I think we we've seen some real strides in that in that respect some of the challenges are you know the variations in sort of legal frameworks variations in jurisdictional rules around these assets across different countries but also I think with respect to that it's thinking about how do we ensure these assets are seamlessly accessible across different geographies and I think we've started to you know, a lot of strides, a lot of progress made in some of these areas. There's a lot of room for growth within that space, but I think I think there's work to do. I think the big challenge I think that what we'll see next is really going to be one of distribution.

How do we get the assets out there? How do we make sure that investors can get get it get them into their hands? And I think there are lots of challenges that we we still need to overcome.

Yeah, I agree. If you look at the the structure, right, that's the thing because we've seen in the past few months a lot of stocks and and funds being tokenized, which I think was fantastic to see. Um, credits to those companies doing that. I mean, they're really pushing for innovation. So, that's great.

But what maybe not everyone realizes, and to your point, is that most of these tokenized stocks and funds are um they're not providing, let's say, the end investor with real ownership of the underlying. There's embedded counterparty risk in these structures. Yeah, these are just depth instruments or certificates and I think that's an issue because today we're talking about institutions I think and whether they adopt to these kinds of products and I think if I take one step back one step back if I look at the ETFs for example uh those are clearly products that institutions trade and why is that because they are cost effective they are liquid uh easy to trade they make the underlying more liquid by the way something tokenization in general can do as well It's all of that, but it's also the fact that they are highly regulated and they are well structured. They provide for proper ownership. And that's something I think that needs to change.

And and maybe I'm going a little bit off track here, but if you can think about making things quicker, making things uh uh uh cheaper, but you also need to have products are that are maybe better aligned with the investor itself. And one example I always like to give and then I'm staying home again with ETFs is that one of the the criticism that we get a lot is that we are being too passive. Yeah. We we do not really vote actively on the underlying companies, their meetings that we have in our portfolios and that criticism is justified. They make it makes sense, right?

We're not doing a good job from that perspective. And we can't we cannot do it any better because the the current reals in threadfi make it completely impossible. It's too difficult to do that better with blockchain technology. However, what we can do is that anyone holding an ETF token in their wallet and whether that's an institution or a a retail person doesn't matter they will be able to vote on all the underlying companies their annual meetings and if we're able to do that then we are really making better products and then institutions have to start buying them. So we need to make better products.

Okay. Uh I agree with you guys. Um just just a story short story. A friend of mine uh uh tell tell me one day uh to to innovate in finance first uh possibly legal second technology feasible and third a good business perhaps in this order. Right?

So we have the technology ready, we have the legal trust ready. Now we have to test the the market. So the commercial traction this is something at least in Europe is not working yet. Uh this is my opinion right. Uh I think we are ready.

So the tokenizator the company that eyes this this uh asset uh this kind of assets has has to be the trust of the market because technology is commodity here. Everybody can tokenize more or less or you you you understand me right? You have a lot of API, you have SDK, a lot of things. Even the custody as as Leor, my my colleague said, it's a it's a commodities. It's just technology.

You have it, you you put more layers. This is all right. But you need to test how long is going to be the the demand and the offer. Right? This is the key point.

Now, we are testing in in Spain. We are we are the first fully licensed company in Spain to offer tokenized uh asset asset class uh this this kind of asset class. So we are very happy to start this during this year or early next year with a with the first prototype of of this kind of products. But to be very honest uh my my my company asked me how it's going to be. I don't know.

Nobody knows right. This is at least in Spain this is my track record. Uh my point of view is that we discuss about this subject for since uh eight years now and uh it was be difficult in the beginning because there is no uh we don't board the the the top management of the banks or of the asset manager because they don't understand why they will change something that it works already And now we move on the technology and the technology is more mature to work on the tokenization. We move a little on regulation and we move on one as aspect that is really important here. It's the cash leg uh with the central bank who are all working on the CBDC and uh some of them and particularly in Europe that began to allow uh the development of uh commercial uh settlement uh stable coin or deposit.

And there is a a pain point here is that the volume is not here. So I think many of us we have done a one or some issuance on the market but it's not um sufficient to have a real market on that and you need to have a second market also and you need to on board all the chain of value on the subject. So for the moment we are like as a reunion of a new cycle on tokenization of assets. Uh I hope it's the good uh new beginning of of this point. U but it's like there is a buzz on tokenization now.

Uh perhaps people are more mature on the subject. there is a better acceptance also on this subject and because we have competition between Azia USA and uh because Mr. Trump using stable coin as a um a budget policy tool. Perhaps we will move faster in Europe and I hope so.

And so are we making progress? Yes, we're making progress as in it's a very long journey and we're moving in the right direction but the journey is still is still long. Uh I'll I'll take a step back. What we're talking about is a is a new business architecture. Okay, that's what it is.

It's not about technology. It's about a network on which everybody can connect to and interact with tokens and provide services on top of these tokens. So, it's like a token economy. So, if you're familiar with the API economy and these kind of things, that's a kind of a this kind of shift, but honestly, it's a new business architecture. So, it's a mental shift.

It's about mental fixiness here and how we move away and along this this new this new business architecture. And usually it's a generation and a generation is 20 years. I start the start well the beginning would be 2015. Okay. So 2015 20 years is 2035.

So we halfway. Um having said that and it's still very early, it's still nent and I'm sure we'll we'll talk about that and it depends of the product. Uh as it's a business architecture which is totally new and it impacts the overall chain, the overall value chain all these years are needed to tackle the understanding of what it means and what the impact is and what is the value we can provide to the market thanks to this technology. So although the it's still nent in many ways we have to move now if not a few years back and that's why we started I think we all started a few years back because we understand it it's it's really a new a new paradigm a new value chain I talked about the uh the rails and the trends and the services and interestingly in terms of progress um in the past year it used to be bundled like all the players in the industry were willing to build the rails build the trains with their own services which obviously you know is very hard to push to the market um because it was fragmented it not interoperable etc. So we saw now the unbundling and the players understand okay we need we need the rails first and I'm not even talking about private or public chains here we need rails that are connecting as many train station as possible and we need to operate on this common rails so there's a first consideration and again one size does not fit all it's I'm usually saying you know the internet has given the businesses like Uber, Amazon and Netflix they're all different businesses and We tend to say that digital assets is all the same.

No, it's not. Started with crypto, then evolved to stable coin, then mmf with settlement, you know, for the stable coin, then I'm pretty sure we'll see the securities. We start to see repo as well with smart contracts. So, it's all about composibility, but it will be built in steps. We all have the end game about the composibility and ideally all happening on chain instant settlement uh with smart contracts available etc etc but it'll take time not from a technical standpoint because I think we're all equipped from a technology standpoint it's there but from an ecosystem standpoint and how we're going to work all together what kind of services are we going to provide and as we are seeing a single ledger across the whole value chain versus what we had before which was loads of different reconciliations among the participants etc.

We saw lots of player willing to move in the value chain say okay actually I should be at the entry gates I should be you know at the tokenization part here so everybody was willing to do tokenization platforms including investors I talked to investors willing to move up front to the uh issuer side and everybody's moved back now say okay no actually it's not because I can do it technically that I can do it and it's my business it's not my business it's not about technology it's about liabilities it's about contract contractual arrangement and all the services you want to provide. So bundling this tokenization with traditional services is key and I'm sure we'll cover that in term of interperability. How you connect this new ledger and these new capabilities to your traditional services because eventually the market doesn't care it's a token. The investors they don't care it's a token. They care it's instant settlement.

They can do intraday. They can be paid at the minute for dividends. They can interact with other, you know, assets on chain. That's great. That's brought by tokenization.

But again, it's it's a security. It's a fun share. And we have to serve them in the same way as before plus the extra features of tokenization. So I think the progress is really about first the mental evolutions around the ecosystem and how we're going to interact all together as well as the technology uh products we've been building for the last few years. We all connected to blockchain now.

We know how to set private keys. We all know how to create smart contracts and depose smart contract. We're equipped. So we're ready for the next wave of interacting all together and bringing value to the market with this composibility aspect.

So it's not a surprise that we've got mixed results there. We are making progress. There's still work to do. I think that's evident in any evolution of uh uh implementation of a technology. But I think it's also important.

So we've we've all touched on some of the things that are working, some of the challenges. Let's try and isolate that a little bit more. what is actually working here? Julian, if you could just elaborate on what you were saying in tokenization. What is one thing that is really driving and making uh institutional tokenization work?

So again, it it depends of the market you're looking at. So I'm sure you've got you've been to many events this these these days, etc. You've all heard about stable coin and you know the cash leg and we mentioned that we need we need a cash leg especially in capital markets. Um but again stable coin yes might work for certain use cases and we've seen it for money market funds and it works. I mean there are many players doing MMFs etc.

I'm still waiting for 1 billion euro bond to be settled in stable coin. I'm not sure it will happen very soon and it's all about counterparty risks. So I think the ecosystem is being built as we speak and it's we heard blockchain is the intermediating. I'm sorry it's not the case. It's not because you say it's a Picasso that it becomes a Picasso on blockchain.

So you'll have to have off-chain players that will be trusted trustable players to put you know the instruments on chain and the blockchain just gives trustability on the transactions that's what it is and we see the intermediaries being built as we speak. So of course we have the traditional players like us. So that's working. We're you know we're building the capabilities we're serving our clients but you've seen you so also new players and for stable coins you've got the likes of circle etc all central banks as well but to me they're all counterparties so the way you're going to interact in this world is about thinking about counterparties it's very unlikely will interact the block with the blockchain directly it's I think it's already being centralized I'm I'm sorry for the very early uh crypto adopters But even if you look at the crypto space, it's already actively centralized. So it's all about setting up the players in this new ecosystem.

And who will be the intermediaries? So very likely the banks because we're trustable players, but there are newcomers. They are new entrance. So we see things that are working with the new entrance and we've seen it on the stable coin front. We've seen it with the MMFs as well and and the black rocks and we're doing MMS on our side the same way that's working and that's working because of composibility because I've got the two legs I want to bring value.

I mean, if it's only about tokenizing and issuing a security on the blockchain, so what, you know, if I have to settle in fiat and it it has to go through my my exact same systems, it's actually cost me more and it's more painful than than um than traditional systems. So this part is and I will cover that maybe and it's not really working yet but the simple instruments the simple use case are starting to build these capabilities and that's working again for very simple use cases and we'll build on top of this along the way.

So I think it does depend you're right on what what your perspective is which asset class you're looking to tokenize. Um and we've heard or we've seen obviously there's been a shift from tokenization of bonds that was kind of a front runner I think we heard in the previous panel um from Zed Kab about uh tokenization of bonds being an early thing and now more recently shifts into things like tokenized money market funds tokenized deposits uh NASDAQ looking to to tokenize shares do where do you see uh tokenized securities gaining traction what's what what asset class Is it going to be?

Yeah,

it's it's a really good question um Stefan. So I mean we we sort of look across the a broader spectrum of of asset classes. So everything from your sort of public public markets listed securities that we're seeing sort of smaller smaller firms brokering tokenizing and then redistributing. We're seeing a lot of uh debt instruments from private credit to corporate debt, sovereign debt. We're seeing funds structured products.

It's a a very broad range and everything from sort of wholesale use cases all the way down to much more sort of professional retail as I would like to sort of describe it. I I think what's sort of interesting for me when I sort of look across the ecosystem and think about sort of where we are at the moment. I think there are two big pillars that need to be solved. I think one is what I like to sort of classify as coopetition. I mean ultimately we're in a world today where there are platforms and service providers that are tokenizing assets.

There are variations in blockchains that are being used to deploy these instruments. There are variations in uh token interfaces and and token standards around these these these instruments. Some provide um the sort of comp embedded compliance and and and uh rules enforcement around eligibility of transfer and and other behaviors on the contracts. Others don't. There are variations as well in um just the sort of structures of these networks and sort of various integrations.

I think that the problem we have here when we think about distribution, we we we forget sometimes that as businesses, you know, we need to think about the proposition and who we're competing against. And in such a nent space, many of us forget that actually we're competing with the status quo. We're competing with a legacy space whereby if you're issuing an asset, you're brokering a deal, there is no technology impediment to be able to be able to conduct that business. And whereas today we have the contrivances of thinking about digital custody. Can your can can you as a business manage these assets?

Can your clients manage these assets? And there's a whole host of considerations that then come into the force. So, we need to be able to solve these challenges. We need to be able to think about, you know, as we're conducting services and bringing these services into a technology space where we're they're interacting with these digital digital assets. That's a technology integration.

And if you scale that up across the entire market, that's an M ofN problem. So, you I like to think about this as sort of a coordination problem. We need coordinate coordination standardization. You see this in in the traditional world with um standards like fix which is really around DX trade execution end to end trade execution coordination. There are other standards like 200 um ISO 20 um 22 we sort of need the same thing but in the context of digital securities in the context of full life cycle management on decentralized and federated infrastructure.

So that's so that's one and then the other piece is is going again going back to that point of differentiation. And you know, we're starting to see the seeds of this with, you know, the Black Rockck money market fund and the VANC money market fund. And it's about taking more traditional instruments, establishing them on new rails, so they're more mobile, so they can be leveraged as collateral essentially for leverage trading in in crypto markets, which is sort of a it's a new use case for a traditional instrument. And so I think these are the types of opportunities that really make these assets much more interesting than where they were before. I mean, even for public um equity today, you know, in the wholesale space, it's not particularly interesting because it again, you know, the rights and obligations don't really confer all the way down to the assets.

And maybe they will when NASDAQ and and nicely get there, but but but but not yet. But if you think about it from the retail investment cont context, it rather than going through a 30-day on boarding um process with a a sort of legacy broker to be able to then subscribe into one of the these instruments and that may settle in the course of several days, I can on on my super convenient crypto app invest in Tesla in minutes. And and that's the benefit, right? You may not get access to coupons. You may not get access to dividends.

We may not get access to voting rights, but it's the convenience of being able to invest in all of the assets that you care about and that you know about all in one place and with no minimum ticket sizes all the way down to a couple of dollars to a couple of hundred dollars. That's that's powerful. That's a powerful proposition. It's narrow. It's narrowly focused, but it does what it needs to do.

And so I think that's where we as an industry we need to think about how are we differentiating these digital incarnations visa v their traditional counterparts and then equally how are we bringing the market together so that we can really scale distribution and then following on from that in the medium to longer term liquidity. you just said we need more traditional funds to be tokenized basically right I agree just to comment on that because we've been looking into this for years we have uh the money mark now tokenized but I can tell from experience it's not that easy it's very hard actually if you want to do it the proper way and I think you already said something right we need cash we need tokenized cash to be available because that's really a missing element if we try to tokenize for example our ETFs and we want to match the the pace of the crypto markets we want to be able to create instantaneously uh fund units. Well, that's not possible because we still need to bring in fiat. I heard something else as well. The secondary market, I believe, also still missing.

That's all regulation. Um but but again, it's not so easy. And there's one other thing that's maybe a little bit counterintuitive actually. Uh and that is that it's I mean blockchains promise that the costs of doing business will go down dramatically. The thing however is from experience we've seen that it actually is way more expensive to set up a tokenized fund for example and that's that's of course something that needs to change of course if there are other benefits to it maybe it's justified and I also believe that it's going these costs will come down in the long run but it's something to to keep in mind

that's right uh you probably know that prog has launched uh couple of weeks ago digital investment gold token organized right is a real world asset and when we talk about the product we say what are the challenges right first is distribution second is differentiation and third is trust this these are the problem well obviously the problem are cultural problems in my company but I'm I'm aware about that u so distribution is the first one is it's very complicated we we want to be uh very sure if We want to distribute this product B2C or B2B T2C through the banks or financial institutions but this is something that we are thinking of still. Second is differentiation. Uh there are a lot of ATF ETFs and uh CDF a lot out there but our product is quite different is really gold is one gram of investment gold tokenized point single point that's it. And the third and this is more important is trust. How do we uh show to our customers no matter they are B2B or B2C that pro is a company that you can trust because you probably don't know but after single euro or single euro or single dollar or single libra pound or whatever there is an insurance policy behind this on the counterparty and prose pays this insurance policy.

So every single gram of gold is double insurance the gold itself and the token. So this is how do you you you build trust in the industry. Anyway, we we have a lot of challenges still uh without solving problems, right? But we are working on that and we expect this kind of products can reach the vast majority of investment um uh customers. So I think it's time to shift a little bit to and you've all touched on already you know what is not working what are the challenges how do we go about fixing them um to be able to actually make more progress um Nadia maybe you can start um if we think about the current regulatory frameworks just one aspect that often gets cited um as being an impediment to progress how do the current regulatory frameworks help or hurt um the tokenization initiative.

Um, sorry because just for for all of us, we don't hear anything when others are talking and I was just uh beginning a joke that French people can understand here. Sorry. uh so about the regulation I think when you are working in a institution institutional space it's something really important uh for two points the first one it's the confidence of uh of the bankers and the asset manager on the the system and the infrastructure and so we are working like this at at in trafi and I think it's really important The second point is that regulation is not here to don't let people works but it's also here to protect the investors the retail investors and the the corporate investors. So today the point is that when we are talking in about regulation in tokenization we are talking in at different aspect on the thread fun on the thread fight regulation because we have regulation already on MIDI and other things or CSD or that is not uh always linked to the technology because We don't regulate a technology but we regulate a usage. So it's something that would be difficult to understand that we try to regulate something that could work on this technology on or this technology is the the first point and there is regulation on crypto assets and in Europe for example Mika and so when we discuss about the cash leg if you are talking about stable coin stable coin will be regulated on Mika um but if you have an issuance on digital assets you are not in this case and you are in the financial traditional financial space so I think we need to be really clear on dopond and first to don't uh mitigate all the regulation or all the frameworks that we talk here because could be complicated to understand it's the one of the point the second point is that I Hope and it's working in the in the good way that uh the regulators with will open the space to innovation because if it's um going um to be really strict or we don't open the the floor to uh innovation we will not be competitive in Europe on that space and I will set an example for example we have the sandbox in Europe that uh named the pilot regime.

I think many of us we took in the beginning that the pilot regime was very good idea. But the point is the the the volume and the amount that you can put in the pilot regime is really small for an institutional and it's a really small small sandbox. So if we want to have some volume and to make people uh wants to have more token asset tokenized here, we need to try to change this sandbox and to open to more volume on uh more more assets also. And another point uh and sorry if there is some in the room but for example we had an we uh do an issuance in case in November uh 2024 uh in the the space of the trial of the European Central Bank and they asked us to have that insurance in a period that was not really um good for the market because the rates was not good and because it was the period of the election of uh of Trump in the US. So when regulator work with us they need to understand that we are in a real market and we need to work in the real condition of the market.

So we we need to to have regulator that open the the room to discussion on this kind of things. and to be really operational in their reflection. I think it's the first point. Um now we c I can see that it's moving a little because we have some experimentation uh and trials uh last uh two years and I think they began to understand that if you want to move they need to hurt us more than they do before and uh the initiative like Pontes Apia for example in Europe it's something that could help um all of us because we will discuss on the technical framework, the the operational framework and the regulatory framework and uh in France for example we have a a working group with the Bong France on that kind of things and they understand very well that we need to push more use cases and uh really um valuable use cases not only the the use cases that we work all on for for some years. So regulation for me it's not something that will stop the innovation and the tokenization but it's something that you need to work uh consciously and make every actors working together there um I don't like it was I think the question that I had before that I don't answer so I will answer a little I don't like the the world where you have a silo and you will make the regulator work together, the institutional working together, the startup working together and I think that you need to work all together because it make you uh help to understand what are the the limits of all the different groups what's the reality of a bank when you are cryptonative company for for example, what's the reality of or the attempts of the the regulator that could be different because when I talk about the regulation to protect the clients and the investor for people in the room they invest theirself and they have some uh level of uh of culture or what is finance it's easy but uh many people don't have this uh this lug gauge and it's little bit different.

So we need to work together and we need to help the regulator to work very well with us.

Thank you. So regulation obviously being one uh potential impediment um others that are cited you know interoperability the the market uh infrastructure. Um, Jose, tell us a little bit about operational and security challenges that you see um hindering tokenization that could be potential hurdles. Yeah, as um I think it's part part of the solution as as I mentioned before uh we have many challenges in in operations as we are as we are not only tokenizers and brokers but also custodians custody is not a matter of having a custodian solution. Custody is taking the risk for your customers, right?

That's why we have the only full coverage insurance in the crypto space. It's the only company that we have that because we take the risk on in in in the in this kind of cryptospace market. There are many many challenges in in this in this operational um uh aspects. Right. The first one the first one is the internal collusion.

is something that is some some sometimes is missing but it's the number one of the big problems that we face here. It's the same in the physical world. In the physical world of the custodian 94 94 of the incidents risk incidents that we have is with internal collusion you know employees involved. So in crypto space we are very concerned about this. We use technology, we use process, we use methodology to avoid that.

But sometimes it's not enough, right? That's why we we work on this kind of insulence policies. Th this is the main problem we face. Second second um uh cyber security incident. cyber security in we we use is public we use jk8 solution that they they we have physical bunkers in Spain in and Pandora in Argentina in San Pablo Brazil we we use physical bunkers and we put the the the logical solution inside but we are not happy with that solution we put some layers of software on top of that to avoid cyber security risks and and how but this is very important because we we have lots of money of third party.

So that's why it's important. We are a public company. You you you may know Pro is a public company. So we're very concerned about this this kind of risk and this is quite important in the especially in the crypto space. We we are very spo exposed to this to this uh kind of attacks as as you may know.

So these are our main um problems that we face. First is is uh internal collusion. Second is cyber security. We we work on this and we we work uh very very close to the regulator to avoid those kind of uh of problems.

So if we want to move forward with uh further institutional progress in tokenization um we've got a few minutes here. just be good to hear what is the one single call for action that you each would have where does the priority need to be in filling um a potential gap um to make the progress move even further. So do

I'm I'm going to be cheeky and I'm going to choose two if that's okay. So um and and some of this actually jumps back into um complement some of Nardia's comments on the regulatory piece. So I think there are two key areas that are really interesting to address. Right? If we look at institutional wholesale um the sort of revisiting the um juristp prudence of existing regulatory regimes that govern policy in capital markets.

Today you have a lot of assumptions baked into how policy is sort of put together and formed that assumes only certain intermediaries can fulfill the mitigation of certain risks. So if you look at the sort of introduction of CSDR off the back of the 2008 um uh um uh global credit uh global global crisis, you you sort of see assumptions baked into how do we solve for the systemic risk of underlying post trade settlement against listed trading on a credit based trading model that brought into into the four the assumption that you'd have to concentrate um that settlement within a CSD. What's interesting however is DT gives us a mechanism to facilitate atomic settlement mitigating counterparty risk but without the need to effectively bring in intermediaries. So I think we need a re we need a revisitation of some of these restrictions. I think when we look at as to to Nadia's comments the pilot regime and the DSS in the UK there is an attempt to sort of go further and embrace the benefits of the technology but there's still a lot that's left on the table in terms of were you to for example take a step back and say hey why don't we revisit the structure of uh uh the or the the classification of dematerialization and consider widening that such that you could effectively um um uh uh uh uh designate any DT as an authorized settlement system that would give us a lot more versat atility in the in the means by which we could leverage these technologies to solve for some of these use cases.

And the and the second point um which again is aligned to regulation is really looking at when we look at where a lot of the opportunities are right now in tokenization we see that there is a broad universe of them within the private market sphere. Part of the challenge we have and speaking to some of Aaron's points is how do we get to natively digitized securities and the way you get there is by trying to mitigate some of the legal challenges we have to be able to natively digitize certain assets. How do we ascertain the record of register for a legal instrument and ensure that title change of title ownership is legally recognized by a move of the token for for equities that that can be hard in certain jurisdictions it may be it may be doable in companies law but there may be restrictions for example in the UK where when you look at tax law that that that that's then eroded um equally if it's real estate you you have sort of central registers that are largely land registries you've seen movements in the Middle East to try to solve for that by bringing in structures that allow for native digitization. You've seen broader, more comprehensive frameworks around the the digital securities act in Germany to try to create frameworks to allow you to natively digitize assets, but that needs to go much wider and support a whole host of a range of different asset classes too. So, I think those are two two of the key areas that really help accelerate tokenization across across the market.

I fully agree and we and we have to do this at European level, right? If you look at fund tokenization at the moment, it's well, we have Luxembourg that's leading the way. We have Germany that's doing a good job. The FCA now this week actually came with a consultation as well on a draft framework but they are not aligned at all and that's what we definitely need. So that will be my take.

Julian, do you have a particular thought? What would be your priority?

Yeah, I think lots of things have been said. We talked about the regulation, the cash lake, etc. But eventually it's an ecosystem play and uh we have to talk about interperability as well. But to me there are five levels of interperability to make it happen because the ecosystem needs to work all together. So the first one we are all aware of interoperity between networks because there's not one blockchain there are multiple blockchains but even on a given blockchain it's interperability between assets.

We can issue tokens on a certain format some others on the same format but they're not compatible. How does that work? Then the third level of interpity is how do we connect these to our traditional systems and we have to make that happen and it's a huge work. That's why it takes so so much time to be honest. And it's alo the question about brownfield versus green field.

Is it something we want to put on top of the existing systems or is it a new rail that we're putting aside on the current systems? That's a that's a key question. The fourth level interoperability is the jurisdiction and we touched base a bit but we're talking about financial asset. They're regulated differently against different jurisdiction and we're talking about a global technology a global network here. So how will that work all together?

And the fifth level of interoperability to me is over time. I mean the the the bond we issued three years ago for project finance was a 15-year bond. What would the blockchain be in 15 year? I don't know. So how do we manage this along the way?

So you can see that five level of interpretability it's a huge problem to tackle but the more we can step up and the more we can work all together at least on the first two like networks and assets the better because it will serve everybody in the ecosystem and the question is not about about having a bigger pie it's about making the pie bigger really in this space

thank you quick call for action

yes uh I I think the first thing um two days ago I was I discussed with the guy who issued do the issuance of Kazoo last year and I asked him what could be different and uh how he wants that we work on that and it's the operation guy that work on that and he said the matter is in our world we need to know how to communicate ate with our control parties and with with the other bankers with the other issuer or see also and we don't have standards. They know how to play with standards. So all of us here we need to help them to have standards. They don't need to have one platform. They need to know where they work with what they work in what language they work.

So we need standards and we need interoperability between the different chain that we will have. I think it's very important. The second point it's really a human point in this room and I'm happy to be there every year. Uh we have only CTOs, chief innovation officer, head of digital assets, cryptonative etc. But the people who works on the operational chain are not in the room.

And it was my first point that we need to bring the operational people in the room because if they don't heard about it, if they don't understand about what we are talking here, what's the advantages to work on that they will never go and they have the power to decide if they want or not to tokenize their assets. I think it's really important and so we need to open the room to the true people who are working on the desk, the true people who are working on the back offices, the true people who are working at the in the asset manager um portfolio.

Okay, thank you. So I see that we're at time now. Um I want to thank all of my panelists. There is uh it's important to acknowledge that progress is made. Um and it's important to also understand where work continues uh or where there's continued work required.

Um I think both of those aspects will always be the case. There's no finish line. Things will continue to evolve and by the time we get to the next milestone, there will be other challenges that need to be solved. Thank you all for joining me today. Um and uh big round of applause, please.