Since the release of the Bitcoin protocol in 2009, the blockchain has ignited a lasting transformation in the financial industry. Alongside cryptocurrencies, DeFi and NFTs, fully regulated tokenised securities have been gaining relevance in recent years. The potential of this asset class also has implications for the work of banks, asset managers and family offices. Engaging with it now means gaining an important competitive advantage.
Portfolio diversification through tokenisation
Currently, investments in fungible and liquid markets are mostly limited to the purchase of shares in listed companies or bonds. At the same time, the opportunities for diversification are constantly shrinking. In 2007, there were still 761 listed companies in Germany. In 2020, there were only 438, meaning that fungible investments are only possible in around 0.013% of German companies. This downward trend is being reversed by tokenisation. German SMEs can issue a wide variety of fungible vehicles via this innovative financing option. These include bonds, convertible bonds, registered shares or profit and exit participations. Single-asset securitisations in, for example, a single property, ship or classic car, can also be realised via tokenisation. Through tokenised assets, financial institutions and asset managers can offer their clients new investment opportunities for portfolio diversification – including investing in fungible assets that are not suitable for trading on traditional exchanges.
Tokenised securities issues on the way to becoming established
The multiple advantages of tokenisation mean that by 2030, around 27.4% of global issuance volume is expected to be transacted via tokenised securities. By then, the annual tokenised issuance volume will increase to about 4.1 trillion US dollars.
Nevertheless, few banks are yet in a position to offer tokenised capital market issues to their customers. The reasons for this include the complex set-up of the corresponding infrastructure and the lack of specialised knowledge in the area of blockchain. Kai Jordan is the CEO of mwb fairtrade Wertpapierhandelsbank. His institute has held an issuing licence since 2006 and has supported numerous IPOs since then. Jordan explains: “Our IPO advisory services focus on medium-sized companies. A classic IPO is not the right way for every company to enter the capital market. For us, digital securities issues are a contemporary alternative that also saves issuers money.” To achieve this, Jordan relies on collaborations: In the area of tokenised capital market issues, mwb works together with neoFIN Hamburg GmbH.
Oliver Pohl, board member of Volksbank Haselünne eG, has also decided to bring neoFIN expertise in-house. “We have been offering alternative forms of financing as an alternative to classic loans for a long time. That is why there is no way around tokenised capital market issues for us,” he says. Tokenisation as a financing vehicle will not stop there: “Our investors will also benefit from digital assets, both in issues by our customers and via co-investments in our Volksbank-owned investments.”
This article was published as a guest article by Patrick Schütze, CEO of neoFIN, in Private Banker Magazine.