Digital assets – including regulated security tokens – are poised to become increasingly mainstream in capital markets over the next few years. Not only might these instruments unlock potential return opportunities for investors, but they could also be leveraged by promising companies to raise funds to finance future growth.

Fittingly, “Raising Capital in an increasingly Digital Landscape” was the topic of the first edition of the third round of The Future Of Exchanges, a series of Breakfast Briefings and Webcasts by Financial News and SIX Swiss Exchange that provide a global platform for discussion featuring some of the industry’s leading personalities.

Digital Assets as a Facilitator for Capital Raising

Raising funds in today’s capital markets can be challenging. IPO (initial public offering) numbers, for example, are falling as promising companies choose to stay private for longer, obtaining funding from the private markets – namely private equity and venture capital – is increasingly difficult too, especially as managers become more selective about participating in deals.

While borrowing becomes more expensive, exchange operators can provide efficient ways, platforms and marketplaces to bring issuers and investors together.

As the panelists discussed, some forward-thinking infrastructures are evaluating the merits of tokenisation – namely the issuance of a digital, divisible security representing an underlying asset – as a tool to enable companies to raise money, and grow their businesses.

Not only can tokenisation be applied to actively traded instruments such as equities, bonds and funds, but it can also be used to securitise illiquid assets like art and wine that market participants can offer their clients.

While tokenisation is still in its early days, there is activity happening in some corners of the market. Art galleries and museums, for example, instead of asking their governments for money every year to keep going, could benefit from tokenising assets that they already have in custody, in order to raise funds from investors and patrons.

Tokenisation: Reaching New and Broader Audiences

Furthermore, tokens can be divided or fractionalised into smaller units, meaning they can be acquired at much lower cost than what they would be in conventional markets. This democratisation of the investment process is likely to usher in an era of greater financial inclusion, particularly among younger demographics. Tokenised assets could also help investors obtain new return sources and diversify their portfolios. 

Creating a Safe Environment for Digital Asset Trading

Although tokens are subject to existing securities laws, a number of institutions are expressing concern about the quality of the service providers supporting digital asset trading and custody more generally.

Providers like SIX Digital Exchange – operated by SIX alongside SIX Swiss Exchange and BME exchange, the traditional Swiss and Spanish stock exchanges – create a safe and trusted infrastructure to facilitate digital asset trading.

Equally, the panelists discussed that there will be a need for traditional providers to act as some sort of a bridge between conventional assets which are widely traded today, and digital assets, this is because traditional assets will continue to co-exist alongside digital assets for a number of years to come. 

Preparing for the Future

Irrespective of the fallout from the crypto-winter at the end of 2022, digital assets such as security tokens are expected to play a substantive role in capital markets moving forward. Those established providers with a solid track on innovation will be the ones that thrive in this exciting new ecosystem.