Issuance Is the Easy Part: What Actually Happens Before and After a Security Token Goes Live | EBC12

Hello everyone. Actually, I like that name, so Yes. I can also work in the countries of Northern Europe, that's why . Hello everyone. Actually, it's great to be here.

Thanks for the recording. I mean, this name sounds strange for a company like ours that deals with blockchain and smart blockchain and smart contracts. But I actually heard a lot of interesting panel discussions where everyone agreed that we need to go down the path of tokenization, market convergence, and everyone is talking about issuing tokens. I mean, I heard a lot. But honestly , I've been in this field since the word " since the word " compliance" was even mentioned in the Web3 world.

It was 2016 , 10 years ago. Hmm, I mean, token issuance is no longer something interesting, okay? It was interesting, it really was, but it's not anymore. What might really be interesting is whether this token can be approved by a compliance officer or risk manager? Or a custodian.

I met many interesting custodians here. And a regulator, because we are now moving towards a regulatory environment. So, I'll try to walk you through the real life cycle of what's happening at Block Invest today—from the concept of issuing a financial instrument to what happens next. We'll also go over the mistakes we've made over the last five years and what we're doing better. So, a few words better.

So, a few words to explain who Block Invest is, most of you may not know anything about us. Hmm, Block Invest is an institutional-grade infrastructure for tokenized financial instruments. We like to define ourselves as a bridge between traditional finance and blockchain. Say " blockchain. Say " traditional" or you'll be offended, but that's exactly how it is .

In the beginning, when we started the company with my co-founder my co-founder , coming from the cryptosphere, we tried to say that we want to disrupt the market, we want to do what startups do. Then we realized that we had to change, okay? Tokenization is not a product business, it is an infrastructure business. I think everyone can agree with that. So we focused on very specific things.

The capital market will not be destroyed by blockchain and tokenization. It will eventually be modernized. That's all. By taking this more institutional approach, we have received strategic support from two of the largest European banks: Credit Agricole and Unicredit. We also collaborate with other very important Italian financial institutions on quite specific asset classes.

We were lucky enough to be selected for the first ACB trial in 2024. We helped Cassa Depositi e Prestiti with the first tokenized financial instrument in Italy, not in Europe, because our German friends were two days ahead of us, so it's still a work in progress. So, the real numbers: in the last 2 years, our infrastructure has enabled 100% of has enabled 100% of token issuances in Italy, over 160 million, where we help the client not just issue a token, but structure, issue and manage the entire value chain of a digital financial instrument. So, let's go back to my thesis, which is that it's the power of the 10%, okay? These are real numbers, they are correct numbers, they are correct , because I took them from the ECB.

The market has grown 5 times in the last year, okay? We can confirm this because our platform has grown 6.5 times, okay? So we are seeing an increase in the volume of financial instruments issued on-chain. But we noticed that when we move from cryptocurrencies, which are quite attractive and, I would say, interesting, to classic, strictly regulated financial instruments, they need to be managed for 5, 10 need to be managed for 5, 10 , and sometimes 30 years.

This has never happened to us, but the important thing is to us, but the important thing is that you need to work on all the stages to really manage what is on the network, not just a token that is issued on the network, and everything else is done through the so- called web 2, because in that case you are wasting your marketing budget marketing budget . You don't do real things. This is something we only realized a few years later. So, let's move on to structuring. Ahem.

This is obvious to financiers , but not to technical specialists. Everyone talks about standard tokens, but we can't tokenize a bond the same way we can tokenize a fund, you know? If you want to do everything right. So we learned a lot from our customers and investors to put a lot of financial sense into the logic of smart logic of smart contracts. We currently work with several asset classes.

We started with bonds, structured products, and also ABS products, and also ABS notes, for which I have a real example, and I apologize in advance to German speakers, also in the Schuldschein market also in the Schuldschein market , okay? Um, but honestly , today we see that when you want to add value to a tokenization project, you need to start with a very complex, inefficient financial instrument. I know that in the US everyone is tokenizing stocks, but they are already liquid and placed on a huge market infrastructure. Yes, maybe you can trade 24/7 trade 24/7 , but I don't see much added value in that. So when you tokenize a very complex financial instrument like ABS instrument like ABS notes—like in this example that was very recently, a portfolio of distressed loans worth almost a billion—it's really complicated to process.

This requires high costs from the issuer, and thanks to tokenization, much can be simplified. This is a real-world use case. And one more thing you are required to adhere to is compliance with the requirements by design. So, the client doesn't care So, the client doesn't care what token standard you use. He wants to know that everything is working and that you are complying with applicable laws.

So, to give an example, we created an account for a lawyer in the system. So, why a lawyer? Because lawyers are important participants in these kinds of events. The goal is to bring everyone online, not just have something like a digital twin or a wrapper that you can just distribute. If you structure everything properly, you will get benefits that I will show you shortly.

Then we have the second phase, okay? I'll keep this short because these are things that everyone knows. This is minting, that is, issuance. You can issue a token. In our model, you can't deploy the token until you complete other steps in the blockchain, but that's another story.

Whenever you do something in this new registry, in our case, I disagree with most of the previous panelists. I don't see an alternative to a public chain, so anything a private chain can do, an Oracle database can do better, cheaper, and faster, so I'll choose the database. But everyone is only focused on the financial instrument, and when you want to scale, you know? Not a marketing budget marketing budget , not a pilot project, but scaling. We have to ask ourselves: what is happening on the other side?

Who is the buyer, okay? So, together with several financial institutions, we developed something called Block ID—it's the tokenization of identity, you know? I mean, we used to have the concept of a "white list." An investor, like any human being, is more complex than a Boolean “yes” or “no “yes” or “no ”, which is why we have built a more comprehensive infrastructure around identification, KYC and AML as a continuous process. Together with this smart smart contract factory that helps all stakeholders deploy assets on the network tied to your identity, you can sign and deploy tokens, okay?

This is the 10% okay? This is the 10% we are talking about. This is very important, but it is only 10%. And what happens to cash, that is, money? Because everyone talks about assets, but what happens to money?

We are quite neutral on this issue. I don't see a confrontation between things that are actually very different in terms of technological infrastructure and use cases. And the target market, I would say, because most transactions are very complex now, because you have to work with commercial bank money. Stablecoins are emerging in Europe . We already have important players have important players like Circle, but Qivalis is also coming.

But I mean, there's one more thing that we Europeans should consider, and it's quite surprising. Central banks in Europe are innovating, okay? We cannot take this for granted. This is incredible, you know? We started working on similar projects 2 years ago, and the progress they have made is simply amazing.

And we will see something very interesting in the last quarter of this year. In short, for retail use cases like retail use cases like fund shares, I think a stablecoin think a stablecoin is the best settlement system, but honestly, even though I'm a DeFi advocate and a big Bitcoin fan, when institutions need to transact in central bank money, the lack of counterparty risk is of great importance. Therefore , it is difficult to assess the risk of even a huge issuer. Therefore, I will choose central bank money. The interesting thing is, I don't know how many of you know about evolution, but we are very close to the second phase of CBDC, it's called Pontus, okay?

It's like a bridge. And before that, we will have the Appia, which, as far as I know, is the longest street in Europe. That's why it was called Appia. Um, and this, I mean, will accelerate the implementation of tokenized financial instruments with the participation of many financial institutions, because, frankly, under the umbrella of the digital euro, everyone feels safer, and usually banks have more budget for it. So, let's get to the complexity, okay?

When you structure everything properly and your smart contract contains all the important parameters, you can act more gracefully and help your customers save a lot of money. We spent about 6-8 months developing the settlement mechanism and implementing it into a smart contract. So, a real case: for the first time, mini-bonds organized by UniCredit for their client were fully calculated through the platform, all triggers worked automatically, and you actually save basis points. So at scale, that's potentially big money. Um, someone has to keep a record, okay?

Many, I mean , many cases. This is a more classic example of a refinancing solution that we implemented online, but I have another interesting story. One of our clients tokenized their shares, there were 115 investors, and among them it so happened that someone got into trouble with the law, okay? So this situation, I mean, needs to be managed mean, needs to be managed . In DeFi, you can't do that.

That's great, but now you need an account that manages the transfer of rights for the registry in the regulated wallet, okay? You have to confirm that the token is okay, but the same goes for collateral and other restrictions you have to apply. And if it's not a digital twin, just a wrapper, but you want to do everything on the network, the native token should be processed 100% on the blockchain. Otherwise you are using partial solutions, and again, let's go back. It is better to use a database.

Another case that's really interesting, because the level, I mean, the complexity increases significantly, is when you want to securitize something, okay? This, I mean , is really exciting. Every day I learn something new from my lawyer about what is important to consider: securitization most often does not have a single token. She has at least two tokens, okay? You have senior, mezzanine, and junior notes, which are now tokens.

So, also manage the relationships between different financial instruments defined by a pre-existing contract. So, with all these rules, this is something that can really save time, money, and most importantly—add transparency to a system that isn't transparent, you know? And, in fact, we in Europe are quite lucky that we can securitize almost everything. So, the so-called RWA, which also means everything also means everything from gold to fund tokens. I mean fund tokens.

I mean , we cover everything, but I'm not a big fan of the term RWA, but you can tokenize different assets with a very solid structure . The good thing is that with this structure you get an ISIN. So a token with an ISIN can be purchased by an institutional investor, and it is much better for a private investor as well. So, it's a kind of tokenization where you're more open, and when by law the regulator is hypothetically connected to the platform 24/7 and sees everything in real time, believe me, they're watching what you're doing, okay? They are now more prepared than before, they are also asking us about the types of transactions they see on the blockchain.

So there's only one way to do things right, when the regulators see the right way, you know? So, let's move on to another very important topic— very important topic— circulation, because I heard correctly that everyone is using the CSD database now. I mean, everything you see as centralized—that, in my personal opinion in my personal opinion , has nothing to do with the ideas of blockchain. So, probably one day we will come to a common ground, but for now we have to be honest enough to say: Europe in theory is a huge market. In practice, it is a very fragmented market fragmented market , and we have a very specific problem, such as 31 central securities depositories (CSDs).

And even in one group, it's very difficult to get CSDs to interact with each other, you know? Because they were built that way. So what you can do in the blockchain do in the blockchain is apply all the compliance constraints that you defined in the first stage and start the calculations in the third stage to also manage the circulation. We still have some regulatory gaps in Europe that give a slight advantage to classic CSDs advantage to classic CSDs , but I think that will pass. But what you can already do you can already do —operate an over-the-counter secondary market on the blockchain—is very effective.

Um, and what we see is, let's say we see is, let's say , a project on repo and collateral mobility, well, I mean, it's going to skyrocket, okay? To, to, to, to, to borrow the words of the previous speaker previous speaker . But, um, here's what we did wrong, okay? So, we worked hard to structure all the steps and do everything as best as possible, and it was good to do one, two, five, 10 issues. But what happens when your customer asks, "What if we produce 5,000 products a year?"

Good? So, um, even if you structure everything as best you can, if you, well, I mean, I saw a person yesterday who said, "We don't need to create islands, okay?" " Islands of liquidity" was the theme. But, in general, we don't need to create islands. So, precisely in order to not work on one deal at a time, we invested a lot, including with the help of our sponsors, in what, I mean, is theoretically even more important than the tokenization platform itself—is the connectivity layer, the BlockInvest connectivity layer, which we, I mean, are jointly designing and building with a tier-one partner, okay?

In the IT and payments space, because in order not to create an isolated system, you need to understand not only how to structure the financial instrument in the best way, but also ask yourself, "What happens if I create a tokenized bond?" Not the tokenized bonds themselves, ideal, but what happens to Murex, okay? What will happen to my traditional system? "Or, if I want to create a proper secondary market without a central securities depository , I need to connect the trading infrastructure. Okay, blockchain is improving, that's great, but I mean, the performance of the trading system, well, it's unlikely to catch up with blockchain in the next 5 years.

For two reasons: one, throughput, and two, most importantly, legal finality, okay? So the concept of finality is something that we can't overcome. So we're putting a lot of effort into creating something that essentially does the translation, okay? From a bridge to a translator from each system, actually, to one system. So take the data from the blockchain and, theoretically, you can even talk through APIs, you can even talk to mainframes if you want, okay?

I hope not, but you know, that's how we think things should be done . Connecting the system is not about creating an island, but about using the blockchain for its intended purpose—like a unique ledger that is the same for the whole world. Let me conclude with Mr. Cipollone's words: " The future of capital markets is not about creating isolated digital tokens." So I agree with him.

It's about creating a programmable operating system that manages financial assets transparently, efficiently and continuously. I would add: one block at a time, okay? So thank you all. I hope you've enjoyed this journey. If you have any questions or curiosity, please come by our booth.