Future Finance – a tokenized ecosystem
One of the key use cases of distributed ledger technology (DLT) is the ability to issue asset tokens representing a tradeable asset – this means that traditional securities can be issued on the blockchain, creating a new tokenized ecosystem. By doing so, the processes involved in the life-cycle management of securities issuance and investment can be improved. Available research projects that tokenized assets could be worth USD 24 trillion by 2027, starting with more standardised securities such as equity and debt and gradually including other currently illiquid assets and potentially even usage rights
Taking equities as an example, there are efficiencies that can be realised at every stage of the life cycle – from issuance, trading, and settlement, custody, credit, and lending to the management of corporate actions. As such, at Sygnum we view our tokenization offering as a holistic and seamless solution that realises the potential benefits of DLT-based financial infrastructure across the entire life cycle of a security.
There are three key benefits to a tokenized ecosystem for both issuers and investors:
1. Immediate settlement and elimination of counterparty risk.
When both securities and fiat can be represented on tokens, DLT-based records and the ability to conduct real-time transfers would mean this process could happen almost instantaneously, resulting in immediate delivery versus payment (T=0) and eliminating counterparty risk, thereby transferring value more efficiently and reducing the associated fees. Alternatively, this has the potential to foster new business models such as negative interest for delayed delivery, as parties have new flexibility to optimise between liquidity management and settlement risk.
2. Automatic execution of corporate actions
Smart contracts with the ownership rights of the token holder can be embedded into asset tokens, with automatic execution of terms including payment structures such as dividend pay-outs and other corporate actions by using a settlement token such as Sygnum’s Digital CHF (DCHF).
3. Increased liquidity and access
Tokenization is possible for all types of assets, even those that are currently less liquid such as private equity, real estate or even fine art. Furthermore, tokens are highly divisible – meaning that investors can purchase a small percentage of the underlying assets – and can be traded on digital exchanges, increasing the liquidity and accessibility for these assets.
An ecosystem approach
The ability to generate asset tokens is only one part of the overall ecosystem. A currency-pegged settlement token is also a key component, to be used together with asset tokens to facilitate immediate settlement and the automatic execution of smart contract payment structures as described above. As such, Sygnum has already launched its own Digital CHF (DCHF), a settlement token pegged to the Swiss Franc.
The long-term success of asset tokens depends not least on available trading or marketplaces. Ideally, the decentralized liquidity of different trading places is aggregated and managed in a system centrally placed in the ecosystem. Sygnum, together with the Swiss exchange, SIX and its developing SIX Digital Exchange (SDX), among others, is optimally placed within the Swiss ecosystem. An important component is also the DCHF, which might be used also by other institutions to facilitate immediate settlement of asset transfers.
At Sygnum, we are convinced that no single start-up, incumbent financial institution, association or technology solution can unilaterally pave the way to mainstream adoption of DLT-powered financial services. We believe in collaboration, not competition and in networks, not barriers – and are shaping the development of a global, scalable and adaptive digital asset ecosystem through strategic joint ventures and partnerships, such as the ones we have with Swisscom and SIX.