From crypto to new capital markets

The evolution of the financial world is well underway. For years, blockchain has been touted as one of the biggest technology trends of our time. As an open, shared database, it should be able to bring about major changes, particularly in the financial world, which is characterised by closed systems.

So far, however, it is mainly cryptoassets such as bitcoin or ether that have been favoured by speculative traders and investors due to their potential and volatility. In third world and emerging markets, stablecoins in the form of tokenised US dollars have also gained popularity.

The transformation of the traditional financial value chain promised by blockchain is still in its infancy. It should become more transparent, more efficient and faster. But the overarching vision is to connect the digital investment world with the real world. Real assets, which are currently almost impossible to trade, will be made bankable using blockchain technology.

Regulation as a basic building block

To make this vision a reality, various players have been working for years to make the necessary adjustments. A first prerequisite: progressive, favourable regulation.

The first major step in this direction was taken in Switzerland. After Swiss Financial Market Supervisory Authority (FIMNA) published a set of rules for the classification of token types in 2018, a blockchain-friendly regulatory framework was finally created as part of the DLT law passed in 2021. DLT stands for “distributed ledger technology” and includes distributed systems such as blockchain.

With regard to the tokenisation of real assets, the Swiss DLT regulation brought two significant changes. First, a new category of uncertificated securities was created in the Swiss Code of Obligations (CO) under the name “registered securities”. This makes it possible to create digital uncertificated securities (such as shares) that can be entered in a “register of uncertificated securities” and transferred through this register. The term “register of uncertificated securities” is formulated in a technology-neutral way, but specifically refers to DLT systems such as public blockchains. The second relevant amendment was made to the Financial Market Infrastructure Act (FMIA). The so-called “DLT trading system licence” was created as a tailor-made authorisation category for digital assets.

Tokenised assets are born

The adoption of this regulation paved the way for the creation of tokenised assets. These are real assets such as shares, bonds, real estate, commodities or art that are issued as digital tokens via a blockchain. Tokenisation thus creates a digital counterpart for these assets, enabling the digital representation of these real assets.
The next logical step was for token issuers to enter the market. While some of these new platforms focus on creation and tokenisation, others offer placement support to investors. Still others combine both.

In early projects, these players have demonstrated the benefits of tokenisation: It increases efficiency through real-time settlement, reducing delays and frictional losses. The transparency of public blockchains also minimises counterparty risks and enables better assessment of potential risks. Tradability and access to illiquid markets can also be improved. In turn, the traceability of transactions promotes compliance (see video below for more on the benefits).

Digital shares also benefit from these advantages and are one of the first use cases to enjoy a certain popularity. Start-ups such as Daura and Aktionariat have emerged as issuers and platforms. In different ways, these young companies have set themselves the goal of advancing the field of tokenised shares. Daura, for example, focuses on specific token types and asset classes (e.g. equity-based security tokens). Aktionariat, on the other hand, focuses on Ethereum and seeks to scale the trading of digital shares through the infrastructure of decentralised exchanges.

The banks are here

These and other start-ups have been in business for several years. One thing is clear: it won’t work without banks and brokers. The first two digital asset banks, Sygnum and Amina, received a banking licence in Switzerland in 2019 – a global first. Today, a few years later, more and more traditional banks are entering the world of blockchain-based assets.

The gateway here is also the cryptoassets around bitcoin and co. Banks such as Hypothekarbank Lenzburg, InCore Bank, Maerki Baumann and Swissquote are among the pioneers. The cantonal banks (Zug, Lucerne and St. Gallen) are now also involved. Driven by the launch of bitcoin spot ETFs in the US, more banks are likely to follow. More and more banks want to (have to) offer cryptoassets to their clients.

But this is not the end of the story. As the CEO of BlackRock, the world’s largest asset manager, has said: “Cryptoassets like bitcoin are just the transitional step on the road to tokenisation. It is only a matter of time before banks have their infrastructure in place to handle tokenised assets.

The missing link: Regulated secondary markets

The main reason why tokenisation has not yet taken off – and here we come to the final evolutionary step – is the lack of regulated secondary markets. This refers to a regulated marketplace for digital assets based on an open DLT ecosystem (such as Ethereum). This is where BX Digital comes in. The exchange aims to become one of the leading Swiss trading venues for tokenised assets with a decentralised settlement infrastructure.

BX Digital has applied to FINMA for a DLT trading system licence. Contrary to its name, this licence covers not only trading but also post-trading activities such as settlement and custody of digital assets, in contrast to the traditional Swiss stock exchange licence. In the future, it would even be conceivable to offer end customers direct access to the trading venue under this licence.

With the BX Digital, Switzerland should finally have its long-awaited regulated secondary market for tokenised assets. In another article, we will look at some of the exciting use cases for digital assets that already exist and those that are yet to come. We will also explain why BX Digital’s approach is predestined to finally solve the problem of secondary market liquidity.

In keeping with the theme, Claudio Tognella (responsible for sales and business development at BX Digital) conducted the following interview with Pascal Hügli. The interview covers the following topics Digital scarcity, the halving of bitcoin and the development potential of tokenisation: