Digital assets are not homogenous but diverse in nature, spanning across a number of different financial instrument types, a point made by Tim Grant, Head of SIX Digital Exchange (SDX). “To me, a digital asset is a regulated security whose value is derived from a real asset, be it an equity, derivative, fund structure, commercial real estate or even a piece of art,” said Grant. So how do they work? In the case of tokenisation, an asset is converted into a digital token, which can be divided into many smaller units. As tokens are divisible, they are cheaper and easier to trade, helping to shore up liquidity, particularly in illiquid markets. “With tokenisation, all kinds of assets can be digitally represented on the blockchain, making them more widely accessible, affordable by fractional ownership, easily tradeable and more efficiently serviced. Investors can now profit from unique investment opportunities across different verticals including Venture Capital, Mid Cap, Real Estate, and Art & Collectibles, which were previously seen as hard-to-access and illiquid,” said Fabian Dori, acting Group CEO and Head of Asset Management at Sygnum.
Not only does tokenisation make it simpler for investors to purchase securities, it can also help SME businesses access the capital markets. “70% of Swiss SMEs do not participate in the capital markets. The process of raising equity can be very complex and expensive. Tokenisation could open up new opportunities for these SMEs to raise funding,” said Johannes Höhener,Head of FinTech at Swisscom. Dori concurred. “Issuers can profit from reduced costs, increased automation, in particular in the area of asset servicing, as well as new ways to access potential investors,” he explained.
Beyond tokenised assets, there are also crypto-currencies. “Crypto-currencies are typically un-regulated, traded on a public Blockchain network and are not underpinned by a hard asset,” said Grant. Bitcoin, Ripple and Ethereum are perhaps the most well documented of the crypto-currencies. However, crypto-currencies also include StableCoins. StableCoins are effectively crypto-currencies whose market value is pegged to a fiat or several fiat currencies, or even a specific commodity. Central banks are increasingly taking a firm interest in crypto-currencies with a handful even launching CBDCs (central bank digital currencies), namely digital versions of their own fiat currencies. In fact, the Swiss National Bank (SNB) is currently developing its own proof of concept aimed at supporting the issuance of CBDCs. Binding all of these digital assets together is that their issuance, trading, custody and settlement is made possible by distributed ledger technology (DLT).