Tokenize Assets or Build Digital Asset Rails First? | European Blockchain Convention 9

[Music] 3 2 1 go hello thank you very much for joining us my name is Nik escari I am the digital markets correspondent at the financial times and I'm joined by a wonderful panel today where we'll be discussing whether to tokenize assets or build digital asset rails first um I'm joined by Lawrence Arnold from Ax investment managers Anna Santan from fireblocks Martin sbrand from Aban Amro and Andrea sack from Deca bank so thank you all for joining us tokenization is a very hot topic both here in this conference Hall um and Beyond it especially when talking to traditional financial institutions and I'm interested in how each of you are thinking about tokenization and sort of to answer the question really how you think about it whether you are building your own at rails acquiring working in Partnerships just how you think about the infrastructure in this um in this space Lawrence hi uh I'm laen Arnold I'm from Ax investment managers we're managing around 850 billion euros um mainly for the axi insurance group um we look at tokenization from a very um post- trade perspective so for for financial assets only we don't do cryptos cryptocurrencies we work on trying to test and learn so we we will invest directly in assets we will also build tokenized funds but uh for the moment it's very experimental and it's uh it's a test and learn approach so the question of building raise uh is very limited for the moment Anna how about you good good morning uh thank you for being here today so at fire blogs what we are trying to do is to ensure we support financial institutions uh on this learn try uh phase we are running a lot of Pilots we're working with a lot of tokenization Partners as well as providing our own advisory services and we want to ensure that uh everybody can in an easy and secure manner uh use our infrastructure to tokenize financial or non-financial assets and try and learn fast uh leveraging the provider raids Andrea same question Nikos thank you um my name is andrees I'm from deab bank and I'm responsible for the implementation of our crypto custody solution and uh therefore tokenization is a part of the digital assets infrastructure from our point of view um but there are uh some part like the custody solution which is necessary to build it up by our own uh and tokenization from up to down from left to right um is a commodity from our point of view and uh it's not necessary because you do not have an USP due to the tokenization it's not necessar to build it by own uh it depends on the on the assets and uh the client need which will be uh fulfilled uh and that's not the from our perspective it's not the the point of the technique of the tokenization side thank you Martin yes thank you my name is matro um we have do we have done uh some deals so far uh recently green bond with the feda and DEA Bank as investor and um we are not building the reals ourselves we are trying to educate our colleagues that they can handle the reals uh to be capable of talking with our clients about it uh advising doing education internally um and are a lot lot of good uh service providers out there that we can use so um we did in the past with faum cono build ourselves uh but at this moment in time it's for us perfect to uh to connect to the ecosystem can you just tell us and the audience a little bit more about that about how you went from um to from building your own to deciding actually you didn't didn't need to yeah I think uh we we have a DT team around since 2015 something like that uh and around 2008 18 we were involved in the uh founding companies like the F and comgo where we were programming ourselves uh trying to build in a Consortium uh then taking a step to around 201920 I think we were asked to join several consortia around tokenization bond issues ETC um we decided to not join them but to try to to do our own stuff uh also because abro is quite um uh more limited or smaller than we are uh than we were in the past uh so we learned learned our own thing and now we can talk also with other Banks Etc about our learnings so for us it was key to have our own road map uh to see that we work together with our Capital Market Market practice on on Real Deals uh and not only to do it from Innovation perspective uh and that really really works and uh yeah set us now in a in a field that we can talk with our clients about it and yeah trying to to build the uh not is not yet scalable but uh we can serve our clients uh we have solution for it and we are trying to extend the roles in the value chain of the security market and Andreas at De Bank how do you think about this I mean a lot of tokenized issuances they exist but in the big you know for example tokenized bonds they're a really small part of the the bond um industry how do you think about that and and when you think about um issuances to participate in how do you navigate them um I think every Bank who who has an issurance process have a good working process um regarding the traditional assets and uh first of all nobody Waits uh waited for digital assets because the client is not really interested in how is it issued is it a digital issue or the physical issue and um from my point of view uh the the process chain must be developed uh you must focus on the advantages in the process chain uh that you can point out and uh fulfill some some um uh benefits for the client that you point out the advantages uh for example if he's directly invested you reduce intermediaries um but there we have to go and uh that is a a time it is a mid midterm part uh until the client will will learn enough about it because that is uh if you're talking to uh to retail clients or to institutional clients um a lot of them must uh must slowly go on the thing they have to go through new product processes and so on um that is a main um aspect for for changing their mind to for education education education for them and um at the moment there are a lot of proof of concept from my point of view on the investor side on the issu sites too um but it is not not the regular process uh at the moment because the old world not the old world the traditional world is working Lawrence what do you make of that I mean you um touched on the fact that this is a lot of this is sort of experimentation how do you decide what to experiment in and what not to well basically the objective is always to learn so we we did test trade so we concretely invested in the European investment Bond issued through societ General by the EI uh where it was on ethereum and uh basically when you do such Investments it's really different from what we do today so you have to change the Prospectors of the fund you have to really monitor your trading you have to completely stop the post trade processes you have to do things manually uh we have to send the cash manually through um through confirmation through our middle office and and custodian so nothing is STP nothing is automated we did the second trade uh with govern tax on their digital asset platform private blockchain again very different um when you have assets on private blockchains you need to have specific custody agreements with each bank so far from our perspective as an asset manager having several Assets in our portfolios it's not manageable so we need to see what the next step is the next step is to have more and more uh liquidity on those kind of assets but we need to have also uh cash cash which is which can be moved on blockchain and today we cannot move cash on blockchain you cannot do a a financial settlement with a stable coin for for the moment you cannot do a financial uh settlement with cryptocurrencies so we're very limited so basically every time it's a it's a bspoke transaction it's a bepoke contract with the counterparty uh and uh and then there's the fundamental uh question of the custody of the fund itself and when we basically have several tokens in a portfolio the question of having them on the same rails is also very important uh for the moment they are not the same rails somewhere so it's also something we have which we have to build and as it as an asset manager we never by ourselves so we're part of an ecosystem working with banks working with custodians Central custodians etc etc so every move we make or everything we want to do in terms of tokenization needs to be done with our banking partners and each bank has its own agenda its own Investments Etc so that's a Anna from Lawrence touched on the infrastructure and sort of how disperate it is at the moment when you look at that side of things what more needs to be done to of bring the banks the asset managers everyone into place I think that's the the title of the conference right we have a started tokenizing assets but we really haven't built the rails and I think there's two main rails that are missing uh which we've touch uh one of them is uh most certainly the the tokenized Fiat to ensure that you can actually bring about uh the operational efficiencies that we are all looking forward to unlock with tokenization until we have in Europe uh a tokenized currency that can be freely used to settle uh these transactions we are not going to be able to unlock any of those efficien and then the other very important component is is the custodian Banks um because I think when AXA is talking about the problems one of the main problems we face is interoperability many of the issuing banks are going for uh permission blockchains in small gardens that don't have the ability to scale and I think the direction of travel is quite clear I think most of the people agree that we are starting with permission blockchains and we are slowly working towards uh tokenizing on public blockchains uh but this is taking way longer than expected uh and of course regulation has to come uh but it is becoming something that is stopping projects from going from Pilots into small production into really scalable projects and so what we're doing now is working with uh custodian banks in light of new regulation we are going to have a number of European Banks uh coming next year with custodian Services which hopefully will alleviate uh many of these problems that uh asset managers are facing and as a bank or working for a bank Andreas um what do you make of that and that need to for interoperability where do you see yourself in that um I think there are some uh some good initiatives um working on standards but um regarding the old oldness of the digital assets ecosystem I think it is not fair to com uh compare it with a traditional market and the interoperability interoperability uh with Securities for example because it's it's necessary that is it must develop uh it is an EV evolutional process and not a revolution um because um Everybody every Bank every custodian must uh connect it with them and uh I think uh fire blocks got got a C custody system um we got another one and um but the we as com we we are combined in the asset in the standard on the blockchains um and uh this is something what may expect if you look around on the marketplace here you have a lot of uh very good startups fintex and so on and everybody wants to be the standard Setter and uh so this is it the the market must be a little bit more um more smaller or must develop um and that's for what we have to wait and um this we have a long breath uh and uh we are resilient to uh and agile especially to um to go on the the potential changes and I think we have no month um without any impact from from external events um uh so we we have to look on on on another asset and another another token standard on another regulation um and that is is an ongoing process from my point of view we have to wait uh the next two 3 four years and maybe then um my project especially the the digital assets custody for retail and for institutional clients will be in a in a Grade that the automatic um uh process the the sdp process um lawence um mentioned is working or is more working and uh the integration in the complete back end and the Legacy systems so it's not a nightmare but it's a challenge not a nightmare um Martin from your perspective do you agree with those challenges do you face similar challenges um when it comes to yeah tokenizing deciding what to tokenize invest in I think main challenge was first to um convince Senior Management this is a good idea to work on and spend time on uh by having done that um and creating some ambassadors internally you can start to engage also with the clients who would like to uh to work on this uh we had some clients that were very keen to issue something themselves and we're asking also for help so we did also some interviews with with other clients some just say right is it cheaper is it faster can I get more funds than the traditional Market no it's not okay just call me within two or three years uh but if you have some companies that say right if I can have this for now and I can start educating our colleagues uh and we can have a look at uh cash on chain for later or maybe uh some data that we add to the to the Token from from sustainability or ESG so that we can add some angles then it can get interesting but they have to start so for for now we only did issurance and custody and there are multiple other parts in the in the chain as well H and to convince the other clients that we have yeah we need to have certain other uh building blocks uh ready there for the institutional Market if you look at more midc market so smaller companies that would like to raise money they can maybe uh have uh Advan of the solution already if we have also something where we have a marketplace where we can offer uh the token for a secondary Market it's interesting that you mentioned um convincing management I'm interested in what sort of questions both internally and externally you get when embarking on these projects because sort of I guess the skeptic of me is asking like what's the point is it cheaper is it saving you money is it faster what sort of questions are you getting and how do you how do you answer them yeah the question is differ so we do sessions with our executive board supervisory board some say right uh who's then taking out the money that is now made in the value chain so do we have to to look on them uh other will say right why are we doing this the market is quite efficient already uh people can f very cheap so why are we spending time on the on this um but orders with maybe more a longer Vision we can still go to the bookstore and order a book but you can also have it uh directly in your Kel as a eBook uh so we need to serve both at this moment and and uh that's something where we can convince also if if we have our statement that we would like to be a future proof Bank yeah I think that uh still transaction days uh transaction plus 5 days before the settlements take place is is not what most people here in the room are used to if you do something with crypto but it's still there in traditional market and there are multiple of those examples but you need to do first a deal to go through all those steps in the in the bank to see where the advantages could be and to convince then also the Management Lawrence from your perspective what sort of questions do you yeah internally and externally um I would say that uh I would say few years ago they were all very excited and they all saw the benefits and it was great do it they gave the means Etc uh now it has changed a bit I think we all have budget issues we all have uh potentially also directors who are very keen on chat GPT for example which takes a lot of space at the moment uh and which uh has Direct results where blockchain you don't have any return on investment if you do if you don't do cryptos so it's very slow and you have to keep on convincing them that they have to continue that we need to continue uh to test and learn sometimes they even say uh we can just stop for two three years and we'll see what happens but at the same time it's where we need to be uh very strong in what we say to for example it was it was mentioned with the European uh Central Bank there are all these subjects and Banks and asset managers also need to be very involved in in all of that so that's that's a bit and Andreas I guess the same question like how do you navigate the what's the point is it cheaper faster what does this achieve um I think one of our uh advantages we mentioned um was that the process will be faster and cheaper because you can reduce uh potential systems in the middle but um you have the you have the old systems fulfilled with eth and uh they are not out of uh date in the next two five or 3 years and um therefore you need the long breath you have to wait but then you you you have to point it out how the new digital assets World changes the system changes the processes um and therefore there must development especially in tokenization because you can uh fulfill a lot of uh work within smart contracts um especially if you look into the funds uh for example and um that is that is a development process that is uh a change management process in the bank because the the Departments with a lot of people working on it right now um they have to change their mind and uh they have to understand how smart contracts work and uh how they are audited and so on and uh that is something I'm I'm happy that um we are uh that DEA believes um that DT have the potential to change the financial Market infrastructure and therefore we will be prepared we start with the uh with the license uh processes uh regarding this security um register and the copter custody and that's the most relevant at the moment for us and therefore we try to we we issue some products but um I think in the next year there will be uh there will be some questions uh for example regarding the revenue and so on and Anna for you um what sort of questions are clients asking about whether this is the right thing for them I think the questions are the same for everyone is this cheaper am I going to buy a bond with a higher yield because it's issued on the is going to be faster the reality is that at the moment it is not cheaper and I don't think it will be in the foreseeable future it is faster and you do show a reduction in counterparty Risk because some of the processes can be uh can be automated with with a smart contracts um but I think it is an investment in the future uh we are I don't know in the middle towards the end of a of a crypto winter so the focus has changed a lot from um crypto assets into tokenization I think it's part of the normal cycle that we've seen before um but I think the encouraging thing this time is that we see central banks custodial Banks investment Banks large asset managers not dismantling the teams but actually continue because they do think the segment is seeing a huge amount of innovation if you do disconnect for two three years and then try to reconnect it's going to be extremely difficult to get the compliance teams the risk the operation ations up to speed um and so we keep innovating we keep working on Pilots we keep working on um more extensive projects now that uh we are having European regulation in place and something that is positive as well it is great to see Europe leading the way uh in terms of the complexity and the innovation of the projects that are being brought to Market uh miles ahead of the other regions globally it's interesting that you a few of you actually have mentioned sort of future proofing and then the question I guess of of revenues and this sort of further down the line um Andreas I'm interested in when you are deciding now especially when you know these questions about revenues chat GPT for example perhaps taking up some some more time and money how are you now deciding sort of which assets to tokenize which um digital asset rail companies to partner with have those sort of conversations gotten tougher it's not so easy because the crystal ball says nothing and um therefore you need the clients uh and you have to look for the clients and the the client's needs and um we talk with uh institutional clients at the moment uh about potential new um issu inces and then it is the same um process uh as in every company they want to learn uh because they they believe in the adoption or in the new um Financial Market infrastructure too and then are some uh some Milestones yes but uh that is not the scalable market and therefore we have very individual um products in this case and um you do not have a fully automated process regarding these issues is issuances uh and then but but it's uh for all sides for the investors for the issuer for the registers for the custodian and so on um it is a every setup is a new setup and everybody is working very good together and that's um I think why why um the issuance processes um are uh so good in learning because everybody in this in the digital assets world is very open-minded if I compare it to the traditional world it's they're not so open-minded it's uh the same on the fair here um you're more open um regarding another uh fair for example for traditional or asset management and so on you mentioned obviously the demand because the demand needs to be there um Lawrence what will it take and we slowly running out time so for each of you actually what will it take for that demand to increase for tokenized assage which will then you know lead to more infrastructure more investment in the infrastructure will it be regulation is it demand from the likes of yourself at AXA like what will it take to sort of push push the industry forward I think there's there are many elements to answer this question obviously if we can have a delivery versus payment on blockchain that's definitely something which will trigger uh the the processes I think issuers also need to see the benefit of tokenizing their own asset um if uh for example a corporate needs wants to tokenize a bond okay what's in it for them as well so um there's also the question around roles and responsibilities today it's not clear uh everyone says it's the others responsibility so uh currently when we buy digital bonds for example uh it's very difficult to put a name or an institution uh to be responsible if something goes wrong with the blockchain so that's part of the of the answer and Martin for you what will it take to push the industry forward to answer some of those questions um yeah I think some of the points are made uh made already um maybe not the nice one but still regulation and harmonization there is also a thing still uh so the investor would like to have Clarity what what he's going to do and uh uh there's a lot of Education needed uh not only on the side of of clients but also with with the regulators and to share knowledge because uh it's all new uh I think within Europe uh we see here different legislation around countries uh we we try to play a bit around with that but if there's harmonization on that side it will be very hard for investors also to make decisions where are we going to issue from we can do Swiss we can do the Netherlands Germany France uh but yeah and and also from investment perspective those are the questions uh we would like to to answer and also uh like I mentioned earlier we we just did issuance we did custody but we would like to have also the Casual chain secondary market and also asset servicing uh we don't have to have it all in once uh but but we would like to extend work with Partners to grow that and then it becomes more attractive just on your point around regulation especially in Europe with the sort of desperate nature of Regulation I suppose how do you navigate that how do you help the issuers decide yeah so uh for the trades that we have done so far we always uh in contact with our Dutch regulator uh we also applied for the EU sendbox uh where we will work on uh a deposit token or stable coin um with uh with clients uh and here not only the Dutch regulator will have an eye on but also the uh and so they can learn from each other as well so Europe is trying to catch their uh the fact as well um and we are member of certain ecosystem groups to see what we can deliver together because AB itself yeah we we can do it from a technical perspective it's not that that difficult but uh we don't want to have all the cash on our balance sheet we just reducing our balance sheet so the stable coin is not the best option at this moment for for us let's see Andreas you you mentioned um the need for demand and just coming back to that what will it take for that demand to to increase do you you know you said that you think DLT is the underlying infrastructure of the financial markets in the future what does the future look like when are we going to get there um go ahead yeah um from my point of view this uh the the demand uh comes if we uh bring up more efficiency in the internal processes and uh then the clients um got a seamless integration from digital product into the traditional products because there it's not possible that they have a breach or something like this and um then there will be a a cross fade for example that the traditional and uh the the the potential issuance processes will reduce and the digital assets um issuance process Will Rise um but there must be some some uh the the um the uh the cost reductions for example um at the moment blockchain is a very expensive uh project uh the projects around tokenization uh the issurance part the crypto AML and so on it's very expensive and um the client is not willingly to pay any Cent more for the product because has now this a fancy name um and he or she does not see anything about it I think you need the good balance um and you need some uh aspects some advantages for example settlement t plus uh zero um that is some advantages we had with uh with some products at the moment we we tested and that is working but there you have a a concrete client Advantage uh and then the product um will will rise in volume and uh you um you get a new a lot of new potential clients there and Anna from your perspective um that demand that cost reduction are you seeing that at the moment when will it come I think we've touched upon it and this is not a regulatory panel but it really boils down to to regulation and I think a lot of the uh education work that we are doing uh is working with the financial Market regulators and the different countries I think at the moment there is a slightly different level playing Ground in uh in different countries uh and we need something that is more harmonized and more easy uh I think easier uh you mentioned as well the clear definition of roles the same concept can mean different things at the moment in different jurisdictions making things very confusing um and so I do think that we need more regulation more clarity and more education and dialogue in between the regulated counterparties I think that's a great place to finish so thank you all to my panel thank you all for joining us um and enjoy the rest of the day