Tokenization: Private Markets vs Public Markets | European Blockchain Convention

[Music] well first of all thank you very much for everyone being here we absolutely understand that we're keeping you from all the fun side events and all the drinks so thank you for joining us today so we're we're going to Rapid Fire some questions and we'll we'll keep it a little informal so that way we enjoy our evening today okay so we'll start off with some introductions and my name is sufian on I'm with iron light so in my career I've worked at uh I've worked on the t0o placement and that was my first uh opportunity to to get into blockchain and understand what what the what what the market was was putting out all on top of that I worked at securitize and now with iron Light Group we we tokenize uh we tokenize uh excuse me we tokenize funds and with that our ATS uh the trading aspect of the of the ATS so I'll ahead and pass this over to do some in quick introductions gentlemen yes so I'm Solomon tusi I'm head of capital markets at Aptos Labs um aptops Labs if you're less familiar with it is a highly scalable blockchain um layer one blockchain um also it's developer friendly as well as it's built on move and then in terms of my my background just put that in context my background is primarily Investment Banking venture capital and operations it's a pleasure to be speaking with you all right thanks guys um Harold donfeld I represent arxs arxs um RX was built on the vision that all assets will have a token or have a onchain representation at some stage 2018 we did our series a in 2022 uh Aberdine Asset Management LED that series a and we are the vision was also that we needed to do institutional uh we needed to do an insti Edge so we had to do had to do regulation from day one so that was our angle so the best thing is that we are uniquely positioned when we have the traditional security permissions plus the digital asset permissions so that that sort of we try and bridge the gap between traditional and and um and digital markets yeah and why I got involved it's because I really believe that DT and blockchain Technology will just changed the face of Finance um radically um we're all like stuck to these like incumbent weekly closings and exchange opening hours I mean one thing we've we can all be a bit like skeptic on maybe BTC and E on what it is but it trades 24/7 it never broke down um it's there it settles on uh immediately also in the weekend so that's that's the next step I think for tokenization and financial markets and products I think absolutely great introduction gentlemen okay jumping straight into the panel where are you guys seeing more of the tokenization activity today in the private markets or the public markets and what are the trends that are causing it so most of the activity currently I'm seeing in the private markets and that's for a number number of different reasons um one just because there's incumbents that are much more prevalent much more embedded in the in the public markets uh on the private markets we're seeing very specific use cases whether it's on the fund tokenization side whether you've seen a lot of the high-profile money market funds um on the serial issuance side whether it be asset managers looking to onboard and out actually distribute a wide range of products and types whether it's on the fixed income side Equity side um or something a little bit more esoteric um the public markets specifically we've seen more bespoke opportunities where they're looking to actually create a block chain offering that complements their public offering that they already have in the market um there is active work more so that's been incubated within different exchanges where they are looking to leverage a technology in a much more robust manner but right now private markets have been leading the way in terms of the applications at least from what we're seeing from an apos perspective um and then there's a lot of opportunities to drive efficiency within the private markets because right now a lot of the efforts are very very fragmented nature um whether it be from a liquidity perspective which is of course one of the many promises of blockchain where there's oftentimes more of a fragmented approach around liquidity pools there's not the smart order routing that is basically taken for granted within the public markets um and then also you're seeing different applications within the fund side of things where the fund managers are viewing this as an elegant solution to potentially reduce the need for Redemption opportunities or Redemption offerings because they view this as a way where they can allow for basically reducing the friction between different investors ran transferability of their positions um on and on the the private side setting aside funds for minut on the private Equity side you're viewing it as is quite attractive and potentially capturing a liquidity premium investors that are more inclined to invest in private assets for in more fragmented amounts if they're also able to get the benefit of some type of liquidity Dynamics by leveraging some type of trading environment or um similar infrastructure good point um I think we see uh and I guess you R depress that most activity at at this point in tokenization we see in uh tokenized Cash Cash products like whether it's a USD or tokenized treasuries or tokenized money market funds that's I think where where the where the activity will still flow um and I'll get to another good use case because we tokenize money market funds we have distribution agreements on on our website you can see that we tokenize or we have distribution agreements with abine uh black grck State Street Fidelity in a few more in a in a couple of months um the process for our clients into these money market funds is still quite archaic so to say because if you want to subscribe into the fund we'll do that for you we'll get we'll get the subscription back ring fence it in our custody and tokenize from that point uh redemptionist vice versa so it's not ideal it's very far from ideal it's not a market you you can't click on it it's not a real clickable Market we still thought we had to do this because it works uh especially now there's uh I mean Euro trades around 37 uh Dollars around five right so it's it's a good yield product to have also against some of the stable coins that don't give you anything right so um and and that's one of the next use cases that we see for money market funds we're talking to banks in in London on uh on maybe doing a collateral Network so that you can actually go risk off on a Saturday afternoon and flip into a money market fund instead of instead of your uh stable coin that that is a really a thing that's happening it's going to happen yeah no phenomenal phenomenal how would you say your teams are addressing the needs of the private market right now as you guys are both talking about more private Market transactions so so we really take a basically a four-pronged approach one there's asset connectivity so you need to of course build relationships with issuers that are issuing this product whether it's asset managers whether it's individual counterparties are actually putting product into the market um and then we may do this directly depending on the scale of the opportunity or we may do this through partners that already have that connectivity within a particular region then there's also forming relationships with Native blockchain companies that have their appropriate licenses that are typically jurisdiction specific like rxs for example where they need to have Broker dealer licenses secondary trading licenses custodial licenses fund admin licenses depends on of course the nature of the transaction so that's typically very jurisdiction perspective or specific rather and so we need to basically get coverage from that perspective then there's distribution which is often times not emphasized in this environment where someone will just tokenize product and think it's going to sell out out and that's just not the reality and so what we also are working with is working with different uh placement agents investment Banks rather in the particular regions that already have proven distribution um so that we can kind of match product or back into the right products for those dist distribution networks um so that's a huge effort and some of these are just traditional players that distribute product others are prod individuals that have or counterparties that have connectivity that need to leverage a broker dealer through like a broker dealer record type of relationship and then the last last piece is advisers there's an education piece whether you're talking to council whether you're talking to accountants that tokenization brings into fold so rather than having to amend a lot of this documentation like the offering material and so forth after the fact so it is conducive for tokenization um and let alone secondary trading we really like to get early on in the process we like to get involved in those issuers to kind of educate them and educate their advisers on exactly what are the advantages of even pursuing this in the first place yeah great points um just just rolling back still a bit on why these asset managers are working with through distribution agreements with us and others in the market um like four years ago and this was one of our shareholders had told us this they still had a lot of internal convincing to do because everybody thought that DT and blockchain was in the same Corner as Bitcoin which was why they didn't do anything slowly and slowly I mean there's been a realization that dot and blockchain is something very different and all it's a business opportunity really for them also and when we speak to the asset managers they see that there's one more distribution for them because they feel they can be opposite they can find other customers that they wouldn't have been been able to find before two is just the operational efficiency that's that's humongous for these people so um that is the driver for them to to engage with us I mean if we speak with the the asset manager they don't talk about cryptocurrency it's about how can we how can we use you to sell more and I spoke to a family office just the other day very very I mean um risk averse and they now also embracing DLT and blockchain Technology just to be able to try and sell more at cost so for them it's a real business driver and and just to piggyback on that really at least in my experience there's three areas that cause anybody to pursue tokenization of anything really it's either operational efficiency where there're saving um so there's some cost savings involved um but primarily it's greater distribution or they can distribute more unique product right aside from that I haven't seen too many other scenarios where people are pursuing tokenization the first part so in absence of actually addressing the distribution piece um of course you can have cost savings and keep everything status quo but just incorporate the technology and there should be some cost savings from that standpoint right now you see sometimes the way that's it's being implemented there's actually often times there may be actually an increase in costs because it's not being implemented all the way through the whole value chain but setting that aside really a lot of the the value is in distribution so just tokenizing a product in absence of having a solid distribution strategy really is not going to do anyone any good um so that's something I want to overemphasize and that's why at least at abas any product that or any counterparty we're looking to engage with um and let alone fund or provide a grant to we need to really understand what the distribution strategy is of that product so that it doesn't hit hit a wall once it hits the market and just one more point and this is why you'll see when when when you and I go into money market front you we call our Black Rock there's a 500 million hurdle right in the distribution agreement that we have with them there's no world there's it's zero um so it's also a democratization and inclusiveness of finance and it's not that they're arrogant and want to have that 500 million there it's just that they can't cope with the wave of people that could potentially hit them and to do the kyc and the customer due diligence so we have a wh relationship with them our customers we do the kyc on then we subscribe into the fund so we take away all the burden for them so all of a sudden boom hurdles are gone and we can we can take clips of $5,000 Euros or Pounds so that's that's incredible that's an exess that's an excess thing then yeah no absolutely and iron light we're working through the distribution and the liquidity piece of it through the ATS so I completely understand those pain points from you gentlemen okay so now that we're seeing the given that the the transaction are happening more on the private markets what are your perspectives of adoptation in the public markets for tokenization I'll let you go first yeah thank you um I I always go back to the to the to the example of um of who who who doesn't want to trade Nvidia on a Sunday afternoon right from his phone and how far away are we from that point I'd say pretty far because I mean on the one hand you have the crypto changes that could do this 24/7 token liquidity organize the liquidity organize the markets on the other hand it's a regulated product on a on a sec whatever regulated product where the connectivity and and the and the and all the and all the uh uh where the connectivity is still owned by like the likes of ice nework Stock Exchange whatever you want to call it with their weekend closings uh exchange opening hours so um it is it it will happen and this can be solved because we've seen it in BTC and E I mean it happens it can be done in the weekends so and viia on a Sunday afternoon it's going to happen but it's also a chain an industry that's slow to change really slow to change and when I think of public markets I kind of split into the two there's public companies that trade on an exchange and there's public companies that gone through the filing and they provide public disclosure um so you don't necessarily need to be on an exchange to be a public company right so like you have you know non-traded public REITs for example they don't trade on an exchange yet they're public and so I think there's going to be a lot of counterparties that want to leverage blockchain and they want to have broad access um and availability of the product to Harold's earlier point of around democratization where they're going to provide public disclosure so then they can unable retail investors to participate yet they may not be on an exchange if you're on an exchange you're definitely going to need to be plugged into the right incumbents for example you know whether it's dtcc or you mentioned ice and some of these other different counterparties where you're going to have to have that connectivity also I think there's going to be some public companies where they may just have a blockchain strategy for example I may be going off into a tangent here but essentially there may be some companies where they're like well I want to give my investors Pure Play exposure to a certain aspect of my business one of my subsidiaries and they may actually do a private placement for that particular subsidiary tokenize that private placement and enable direct exposure of that particular underlying subsidiary for their investors because you may not want to invest at the parent company level because it's a very Diversified company so there may be at least not black and white public versus private there may be a hybrid approach where you may have a private actual offering that's trading potentially or it could just be a private offering that's tokenized where you're giving people Pure Play exposure to a specific aspect of your business but you still have your public company that's either trading on a formal exchange and so forth um but I do think over time in inevitably just based on the value that we know blockchain brings to the equation I do think that blockchain will penetrate into the traditional Financial system within the exchange environment as well and and that just takes on on onchain settlement uh onchain issuance and that's not going to happen tomorrow yeah yeah completely agree with you gentlemen and I think both of you alluded to some different types of assets that you see going to tokenization in the public markets first what are your thoughts on that what type of what type of assets do you see tokenizing in the public markets at least from from my perspective right now it's been primarily funds and uh private credit and other cash flowing related products at this point in time some where there's some level of uniformity globally around the product type um so you see a lot of activity like fixed income and so forth I think that's going to the foreseeable future and then I think people get more exotic over time into more esoteric products of course everyone loves the thought of you know art being tokenized music being tokenized but I thing the the thing is distribution becomes a factor already in the traditional sense when you do anything within art film any of these esoteric players um or assets rather there's very few partners that you could partner with from an investment bank or placement agent perspective that can actually distribute those type of products so let alone when it's in tokenized form and so I think it's going to be very very simple products funds private credit fixed income in general um that are going to dominate real estate if you think about like non-traded reats as I mentioned earlier um that are going to be kind of the the for at the Forefront and then um I know we haven't touched upon in this conversation but obviously stable coin and all these other like basically money movement is also going to be very important to really basically ensure that you get the full instant settlement um kind of benefits that blockchain brings to the equation because Financial products is one leg of the equation but then of course money movement is the other leg of the equation so these are all related topics But to answer your question those those products I think are going to be the foreseeable future and then it seems to be the trend when you think of whether it be Black Rock with um Biddle you know uh Franklin templon with Benji money market fund or any of these other particular products agreed yeah exactly I mean when you when you when you say you're in tokenization suddenly you get the weirdest questions because we've been approach for like collectible cars or tokenizing collectible watches or the the weirdest stuff I mean we we try and keep the finance and financial products so any anything with an i code that's what we that we that's what we go for and and when we speak to with our asset managers and the asset managers that we tokenize for now I mean it's not going to stop they feel with money market funds so so private credit private uh uh private Equity they have funds listed somewhere a private Equity Fund which we could toize in the same way right I mean tokenizing the the asset itself the the private Equity Fund itself is is is is a is still a stretch so creating liquidity at at sort of um at at at a level where it's not the fund itself but that we're doing right now so um that should be working and well real estate and again we were talking about this when we when we moved over here uh we also have to realize that putting something in a token doesn't suddenly make it liquid or or like clickable um 100% so so you'll have your maybe your real estate Tuesday or like organizing auctions where you could do this in instead of having 247 open markets that are lit uh so we're going to have to organize liquidity and and markets in a way that is proper for the liquidity that's needed for that assets clause and and to piggy back on that whenever you think of tokenized assets everyone thinks of continuous trading there's so many different flavors of secondary trading continuous is one of them then there's block trades request for quote different types of liquidity is appropriate for different types of assets you don't need to have everything necessarily trade on a day-to-day basis and sometime some cases you actually want to concentrate the liquidity in a particular day or specific lot allotment of time um and then also setting aside liquidity for a minute when you think of like secondary liquidity you can also think of aside from that basically adding utilization to any private position so think of like I have it an investment in the fund I want to not necessarily trade out of the fund but I want to get margin on my position and so adding other utility like features onto your private positions that are more novel in nature also adds a lot of value so setting aside just you know the distribution initially and the secondary trading there's so many other flavors of utility you could bring to these private positions that historically were just not even option so I think that's kind of there's so many different layers that we should also unpack when it comes to kind of private positions overall great answers gentlemen okay so as we're coming up to time I want to leave off with one last question so when we all get together 5 years from now at EBC 15 where do you see the public markets for tokenization uh in five years um here okay well I'm going to be retired amen uh and and and don't take this the wrong way but half of you are not going to be in this industry anymore I think because uh and that's that's not meant to be mean but I think there's a wave of consolidation coming and that's not just on tokenization but just on U because we're so dispersed and we're so like fragmented that there's about to be a wave of consolidation also because people need to refinance and look for look look for still look for money um again I think and coming back to the uh Sunday evening Nvidia trading if you can do this through your Robin Hood or whatever app you have you will not see it's a token it's just your provider providing you Nvidia in the weekend so we shouldn't I mean it's also about Al it's all about user experience and how that how that comes down the line so you will not see it behind there's a lot of work because you'll need to trade the and settle that token in the weekend um and it and the market maker needs to have his leg into the traditional markets also to be to be able to offset the trade so um it'll all feel smooth going down the line I think and I I'll keep it paraphrased because I know we're at time uh essentially I to piggy back on your last point I think it's going to start to be uh tokenization is not going to be necessarily a topic that we call out it's like no one talks about electronic trading right when Nas NASDAQ introduced that how long ago at this point just synonymous with trading um so I think the the closer we get to the point where it's basically abstracted out um and then everyone views it as just intuitive of course we're using tokenization um in this capacity I think that's when we know that the the industry is really you know made strides um where people know that the whole user experience is intuitive um if I open up my Charles Schwab account I don't know whether a specific stock has trades on NASDAQ or New York Stock Exchange unless I double click and expand and look into it um I think if once token Iz products are also distributed in a similar manner through your retail brokerage account I think that's when true distribution will be achieved and also that's when the industry will start to really gain some meaningful momentum incredible Harold Solomon thank you very much thank you all for joining us today have a good one thanks cheers [Applause]