The State of Secondary Markets for Tokenized Assets | EBC11

Can you hear me properly? Brilliant. And thank you for joining us during the second afternoon. I'm delighted to be here with this panel to talk about the state of secondary markets for tokenized assets. I am Coco Chan from AFME, the European association that represents financial institutions in wholesale markets.

I lead our coverage of DLT and digital assets, and I work extensively in Brussels and London. So I'm delighted to have Amparo, Dan, and Pedro joining us. A very diverse panel that represents a fairly broad spectrum of the DLT ecosystem. Perhaps I could ask the panel to introduce themselves and tell us a little about what they do at their company, but also what their company tokenizes. Amparo, start with yourself.

I am Amparo García Flores. I am the CEO of Securitize in Europe, brokerage and markets. I have been working at the company for the last 4 years. The company is an American company, an American startup. It was created in 2017 and manages the entire life cycle of digital assets.

In the U.S. we have three licenses and are regulated by FINRA and the SEC. We have a transfer agent license, a stockbroker license, and an ATS license. What we are doing here in Europe is replicating that same model in order to have the complete ecosystem of digital assets within our platform.

We are already a transfer agent because we have an investment company license. We have a transfer agent license and a stockbroker license , so we can do tokenizations and primary offerings, and we are in the final stages of obtaining a TSS license under the EU pilot regime, fingers crossed, before the end of the year. Brilliant. And as for the things we're doing, I think the most relevant thing in terms of the activities we're doing in the US, because in Europe we focus more on the licensing process than the commercial side, is the Biddle product that you probably know. It is a money market fund, the first digitally native fund of more than 4 billion US dollars issued by BlackRock.

Brilliant. There are many activities in the FMM space. And perhaps we'll talk about liquidity in the US versus Europe shortly. Dan? Brilliant.

Yes. Tell us so we can get to know you. Well, my name is Dan Maggs. I am an innovation manager at ABN AMRO. Our job is to find and support our business where there are problems, where there are opportunities to use DLT to tokenize opportunities and use cases.

So we have tokenized bonds. We have previously conducted tokenized issuances on public DLT, Polygon, and Stellar. And we continue to look for more opportunities around money market funds and other products of that nature. Before ABN AMRO, I also worked at Lloyds Bank in the UK. I received advice about microphones.

That's better. I used to work for Lloyds Bank in the UK, where I was the commercial manager of a fintech company we had invested in called Finality, which was the UK's first regulated payments blockchain and I believe the world's first, or a regulated payments scheme based on blockchain technology. So that's me. That's incredible. A wonderful panel That's incredible.

A wonderful panel , as you can see, experts on the subject, without a doubt. My name is Pedro Vidal. I am the CRO of Tokenfi and Floki. Tokenfi is an all-in-one. A little closer to the microphone.

Thank you so much. Tokenfi is an all-in-one launcher and platform where you can create your crypto project, raise funding, connect with market makers, and ultimately use our RWA tokenization module. It was created and managed by Floki DAO, and Floki is the world's first community acquisition on blockchain. And one of the things they wanted to do was one of the things they wanted to do was , you know, leave blockchain better than they found it. And with Tokeny and our RWA tokenization module, we are responding to market demands.

And we hope to shed some light on some of the questions and misconceptions you may have about secondary markets for tokenized assets. Brilliant. Well, I think we have a very interesting topic about secondary markets. Secondary markets have a bit of a bad reputation. Well, I think that's one of the arguments that many traditional players use to argue against the use of blockchain because, in my opinion, there isn't as much liquidity in tokenized assets as there is in traditional assets right now.

But on the other hand, it is probably one of the areas where blockchain can bring the most utility and efficiency. So I just wanted to ask the panel, starting with Dan ask the panel, starting with Dan , who represents a bank here, , who represents a bank here, how would you characterize the development of secondary markets for tokenized assets so far? Yes, I mean, I think you're right . From the way he mentioned that there is liquidity, there are also different blockchains that many want to use and explore; And I suppose, going back to when things like Euroclear or Crest were used, there are common standards, commonalities that people are familiar with, and they like and trust those processes. So, when something new comes along and the jury hasn't yet decided which blockchain to choose, there may be fragmentation, as you say.

And the work we have done to date with tokenized bonds has always consisted of primary issues; there are no secondary market opportunities. We've explored how that could be done using private blockchains like Euroclear, for example, but I guess it all boils down to the initial problem being that there was only one thing to solve, one system, one scheme, one thing to transfer ownership of with the custodians and the CSD. And the whole idea of ​​the blockchain was that it would be a multi-asset place. And I don't think we've reached the point yet where people still believe that's the way forward right now . I think there should be more, I suppose, agreed common standards, perhaps, which takes us back a bit in time to today's problems .

Yes of course. We know that the legal and regulatory structure, at least in Europe, is designed in a way that centralizes functions rather than distributing them. And Paro, I know you have a lot of experience in this. you have a lot of experience in this. Can you tell us a little about how Securitize plans to innovate this market structure and what benefits we can expect it to bring to secondary markets in the future?

Yes. In our case, as I said before, we are applying for the DLT pilot program for the TSS license. The good thing about this is that it combines reconciliation and settlement. That in itself is a great innovation. So we'll skip the T plus two or T plus one for settlement and use a delivery versus payment methodology and forget about any compensation, the many actors involved in the process, and any counterparty risk.

That's one thing. On the other hand, the way the pilot program is structured allows retail customers to access the market directly, which is also an innovation. It is a regulatory innovation because it means that it is not necessary to go to the investment company to be able to operate in the market, but you can access it directly with the wallet and it interacts with the assets you want to buy and sell. So, for me, these are the two main innovations of the pilot program. And, based on that and the use of these smart contracts, etc.

, there are many automations that bring more efficiency, more transparency and many more benefits associated with the innovation of smart contracts. Yes. So, I think, based on what you're both saying, it seems we haven't quite reached that point yet in terms of actually having improved liquidity in the secondary markets for tokenized assets. But there are a number of advantages, such as fractionalization, direct access for retail investors, and also the use of smart contracts to automate certain activities that can bring even more liquidity to the chain. I don't know if Pedro would agree with that, and I'd like to know what you're seeing in relation to what your users really want.

Is the secondary market the first thing on their minds? I completely agree with Dan and Amparo. There's a lot to say about efficiency, isn't there to say about efficiency, isn't there ? That's what we're trying to achieve here, and I think that when we start to consider interoperability, as well as increasing the amount of exposure we get to clarity in terms of the legal framework, things would be a lot easier. That's something that's currently lacking.

But in terms of what we're seeing, you know, from traditional retail customers within our community, it's that they want to see fractional ownership in real estate . They are interested in the secondary market. There is an educational component, but the issue goes beyond that because there are also certain variations that depend strictly on your local jurisdiction. Therefore on your local jurisdiction. Therefore , always seek appropriate legal clarity .

But we're creating the platform for you to use, and within it, there are variables that control the legal framework, so it could be adapted to wherever you are could be adapted to wherever you are . But there is a huge, huge desire, need, and demand for secondary markets for tokenized assets, without a doubt. Yes, definitely. And what do you think, Dan, will unlock the development of secondary markets? Well, I think one of the things we 're working on at ABN AMRO is the infrastructure, the wallets, and giving customers the ability to do that and have a wallet with the bank.

Therefore, we believe we can offer a role not only for businesses, or not necessarily only for businesses, but also for retailers businesses, but also for retailers , where we could provide a wallet infrastructure that allows their tokenized assets to remain there, or perhaps they have a tokenized money market fund, or perhaps in the future we will have cryptocurrencies stored in the bank; And all those things could be stored inside a wallet, and that's where things start, and that's how you can unlock more, I guess, usability, but also interoperability, when you want to trade and open things up to opportunities. Therefore, a major focus we are trying to support our business units in is developing wallet capacity and enabling teams to innovate and explore, and then we can support them in our role within innovation. Therefore, I believe that the creation of wallets is what I would like to highlight as a conclusion to what we are doing at ABN. Yes of course. And I think it really provides that unique source of access for investors where they can access traditional assets, but also tokenized assets and perhaps even crypto assets.

Amparo, is that in any way aligned with the solution and platform you're currently building? And how would you say a company like Securitize could connect with traditional market players? How do you envision that interoperability developing? In our case, we target both traditional and new investors. That's why we've created two ways to perform maintenance and settlement.

We created it with customers who are still very traditional in mind. Depending on the assets, the issuer can define whether they want the asset to be traded in fiat currency or in web3 mode and based on stablecoins, which comply with MiCA. So what we're doing is, depending on the case, they can operate through what we call the traditional trading mode, the classic trading mode, which includes a cash account, a traditional cash account at BBVA in our case, and the use of our wallet, yes, where we do the trading of securities. If we opt for the other option, which is for new customers who are more focused on new ways of holding tokens and owning wallets, they will carry out transactions and settlements from wallet to wallet without needing fiat money, an omnibus account, or anything from us. Therefore, it will be at its extreme, in their wallets, from one wallet to another.

It sounds much more efficient than it is. What we have now. Yes, but I think this is a journey. There are many people who are early adopters, but there are also a large number of people who continue to work with banks, etc. Therefore, we have to make the transition from one to the other, and change management is one of the things we believe we need to work on.

That's why we're presenting both alternatives. Definitely. I think that, if we look at the development of secondary markets, a large part of it is also about bridging different liquidity funds, and also bridging institutional liquidity funds and retail liquidity funds , where you have all these assets that come together in their tokenized formats that can potentially be traded against each other or traded against cash assets. And I believe that, as you have brilliantly pointed out, Amparo, there will actually be a greater liquidation option for investors in a tokenized world compared to the current analog world . And Pedro, I suppose you see a lot of this on your platform.

What you're trying to offer investors is really this continuous journey from beginning to end. Would you like to tell us a little more about how you think you can provide these retail investors with the kind of liquidity that might currently be available to larger players, and how they might interact within that space? Of course. I think one of the key points is to try to eliminate the intermediaries, right? I think that's like the first step.

Obviously, that has inherent advantages. The first is that it's more efficient, the second, in theory, is cheaper, right? Faster, and all of these are things that could be considered successes. Therefore, that is one of the things we seek and try to do. But apart from that, I think interoperability between chains is very important because if liquidity options could be increased, product offerings could be more successful.

And what we need now are many more victories, right? Many more use cases, and people need to understand that, from beginning to end, you can start a project, find the market, have the right liquidity to be able to end one of the big problems we are seeing in cryptocurrencies right now seeing in cryptocurrencies right now , which is the volatility of specific assets. Therefore, if there is more liquidity, depending on those variables liquidity, depending on those variables , things can go better. Well, we focus on the fundamentals, on the basics, but we have to provide the way and the platform to make it easy for retailers and institutions to transact. Yes, definitely.

And I think you're painting a very, very good picture of what we can achieve in the short and medium term. And I think there are probably a number of different tools that can help the sector achieve this kind of interoperability between supply chains that I think you're all referring to. And I just wanted to ask, referring to. And I just wanted to ask, what do you think is the most important thing from a technological point of view in terms of actually achieving this interoperability? Well, I think one of the important things is to think about the use case that is taken into account with blockchain.

For example, you might have a specific use case where the TPS requirement is X, another, a retail CBDC, the Bank of England a few years ago wanted 30,000 transactions per second or something like that. And he was very, very tall. And if you want to add other things on top of that, you're just going to cause problems. That's why I think that's when you really think about choosing a layer one and then a layer two for different use cases. And it makes me think it's similar to how payments work today.

How do you have Target 2 and SEPA? And Target 2 is for your high-volume and low- volume payments. SEPA is for your most frequent type of transactions. You're sending someone an invoice or paying at a restaurant. And that's perhaps more like a layer two use case .

And perhaps we need to think about things with a similar format and form ; you know, there will be certain use cases that work very well and then others where you might sacrifice elements of decentralization to have greater scalability. But finding the right way to bridge those blockchains is imperative. And Chainlink has done things with CCIP. We 've seen it in Ethereum. But I think more research is needed.

Yes, and I suppose in terms of that approach journey, where do you think we are ? Are we at the beginning? Are ? Are we at the beginning? Are we in the middle?

Are we close to the final state? Any thoughts on that? I know that, from the perspective of the institutions I represent, there is still no fixed, defined vision of what the final state might look like . But I think there's an emerging view that all the technological tools and capabilities are available. And it's probably just a matter of us all coalescing, coming together, and figuring out what we can build together, and also agreeing on what our common standards will be.

Oh yes, I totally agree with you. I think if we could choose one point at random, it would be a fundamental difference, right? Between the traditional financial sector and traditional secondary markets with what we are seeing in the blockchain space because, as you know, one pillar is that we are considering transparency versus privacy. And that's just one thing we need to keep in mind because that's what we enjoy in blockchain, right? We like the decentralized nature of conducting transactions, but in the traditional sense it's more centralized, traditional sense it's more centralized, right?

And they don't actually adhere to the transparency part. It's about privacy. So, there are some fundamental and philosophical questions fundamental and philosophical questions , right? That we must resolve outside the technical legal framework. I believe that from a technological point of view , there are many tools we can use and most of them are fully developed.

We have our accounts, we have gaps and we have gateways, we have APIs, we have standards. What we really don't have are two things. On the one hand, regulatory clarity on what the regulator wants us to do in the future. For example, regarding the DLT pilot program, they set some limits and some products, and now they say they will open up the products and the limits. But at the same time, they will reduce the exemptions we seek and, therefore exemptions we seek and, therefore , change the rules of the game regarding the capabilities we use on the platforms.

Therefore, clarity in the regulatory framework is something we lack. And the other is that, once we have that clarity, we need to have harmonized standards, because using a public blockchain and a private one is not the same, not only from a technological point of view, but also in other ways, such as the fact that the cost of capital for institutional clients is completely different if you buy an asset that is on the public network or on a private one. Yes, it's the same asset but with very different risks. Because? Of course.

I doubt I would intervene and say that I believe education is something we always return to. Create a use case, come up with an idea, talk about blockchain at the bank, and the first question they ask you is, " I heard it consumes more energy than Argentina." And you know, that kind of thing existed a while ago and we talked about Bitcoin mining and stuff, but those are the kinds of questions they ask you. Therefore, I believe that education is a necessity I believe that education is a necessity , but it is also sometimes frustrating to go through the process of using private blockchains first because, again, you need to bring the business with you in that process. It won't be very efficient if you're running existing systems with a private blockchain and you have a bunch of banks that are all together in the system because you already trust them.

The goal of this is to decentralize in order to obtain some of the benefits of eliminating costs. So how is it profitable for a bank to do that and then transfer any savings to a customer? Therefore, I think education is really important in this space to continue doing it internally at the bank, and then hopefully that can allow you to start to take advantage of public blockchains and reap some of the benefits. Yes, I think so, and all the different digital asset teams I 've worked with within institutions have the difficult task of bridging two realities. The day-to-day reality of trying to convince internally, but also their clients, to commit to this technology, but also the more promising potential future reality of, you know, having tens of billions in post-trade cost savings and the complete reduction of settlement risk, which I think, as an industry, everyone is trying to achieve.

So, in a way, I think we're constantly caught between these two distinct goals and trying to keep moving forward on this long journey. But I think I'm simply looking forward to the future, and I think some of you have already painted a very beautiful picture of what it might look like. But just thinking about it, I believe I am among you who have already alluded to this in terms of the structural market changes we might see in the future that will bring the greatest benefits from using blockchain. Is there anything you think can be done in terms of, you know, not only having regulatory certainty, but also perhaps an end state that we should all aspire to? Well, for me right now we don't have anything clear in that regard.

Because what regulators are trying to do is replicate what we have in traditional markets. Yes. And if we replicate it, we'll get the same result. Yes. And what we're saying here is that we want to have a more decentralized infrastructure and then have more freedom to do things without having to go through those intermediaries, through those centralized services through those centralized services .

So, the first thing I imagine is a world without so much regulation. Secondly, I envision a world where the DeFi and unregulated worlds come together more with smart contracts and asset usage protocols in the file world to achieve higher profitability and improve those liquidity pools we're talking about. Yes. And finding ways to unite those two worlds. Yes, I think that's really interesting, and I certainly think it's a future we all want to aspire to.

And there are many different technological tools and capabilities that I know are available to us outside of the blockchain world, such as AI and other new technologies. I don't know if you, Pedro, would like to address that point and talk about how Tokenfy incorporates those capabilities and integrates them directly into the platform itself. Yes, no, definitely. Well, I think what you mentioned is absolutely true, Dan, about the educational component. Well, one of the things is that you want to eliminate barriers to entry, eliminate barriers to entry, right?

And there's an information challenge that people think is difficult to do, right? If we could create a platform with a user-friendly interface that was also secure, would that was also secure, would n't that be great? Once audited, and if it could satisfy some of the demands, then it would be a great tool. And that's exactly what the Token Fight platform is. That is, where you could create your own token, launch your own token, but you need to give tools to developers or people who may have an idea, as you see now, with the improvements of AI, you can have the first billion dollar company run by one person, which is crazy to even think about 10 years ago.

Therefore, we wanted to create, essentially, the path for you to create, for example, your own project and tokenize RWA. Within it, there is the AI ​​component for the smart contract auditor , as well as generating any type of NFT or artwork you might need. And this, obviously, is embedded in the roots of fractional ownership in the real estate sector. Therefore, essentially, the platform is all-in- one, where you don't need experience as a developer, you don't need experience in coding; But it has to be easy to use, and you can't control the people who use it. But the idea is: to create a tool that fulfills the purpose, complies with the regulations of the jurisdictions in question, and can offer considerable cost savings to the end user.

And then you can switch to P2P mode. That's the idea, to eliminate intermediaries and learn from the process. That's what Tokenfy is all about, and our mission is to be leaders in the RWA space. And Dan, I suppose something similar is happening in the traditional space too , but obviously it's proceeding at a more institutional level, don't you think? Yes, I think so, but we are also looking to the future, building the foundations for the future world in which we will live.

One can imagine having an AI agent talking about that topic in the future, taking action for you. Do you want to go through payment systems today or simply use a stablecoin for settlement? It will probably be a stable currency when you 're programming it. And I think we need to design our bank with the future in mind, and the first thing is to have wallet capabilities that can store stablecoins. I think it's about preparing for the future, but a long- term strategy is made up of a series of short-term events, and I think that's where we are right now.

We are going through some of those events in the short term. Definitely. And I think we're still moving in that direction. And I think we continue to advance the agenda, as I have also seen in recent years in the traditional sphere, where many cultural attitudes have changed and, in fact, many different innovative capabilities have been unlocked as a result. Well, to conclude, I'd like to ask the panel members if there's anything in particular they'd like from the ecosystem, and what exactly would that be?

Just one word. For me, it would be cooperation. Cooperation. Cooperation. Yes, we need to work together more.

Even though we are competitors, we have to create space for all of us and I think we need to work more together. Yes, cooperation. I mean, I think interoperability is interoperability. It's a very overused word, but I think it's the operational equivalent of cooperation. What I mean is that private blockchains and different networks will eventually become like Universal Studios and Disney World, where you can only spend Disney dollars in one store and credits in the other, and you want to be able to move around and have one currency and acceptance.

So I think it's about being able to interoperate between these systems and recognizing that we can do it. Yes, definitely. Guys, you've stolen what I was going to say, or rather, clarity, right? I believe in operating within a legal framework that could be global, establishing a standard. I think that would definitely be something I'd want on my wish list.

Cooperation, interoperability, and clarity. That's great. And I think, as the public can see, really analyzing tokenization from the perspective of secondary market development really gives you an idea of the challenges ahead, but also of the many solutions that are available. Well, with that, I just wanted to thank the panel for their ideas and also the audience for joining us for this afternoon session. Thank you all.

Thank you.