What is driving institutional adoption of DLT, blockchain and digital assets and where do the final hurdles to institutional adoption lie?
A recent study published by Fidelity Digital Assets that surveyed institutional investors showed 52% of respondents were currently invested in digital assets, with nine out of 10 indicating they were actively exploring opportunities. Themes driving institutional adoption include growing interest by clients, increased regulatory clarity, institutional-grade infrastructure and a growing decentralised finance (DeFi) ecosystem.
In terms of final hurdles to institutional adoption, integrating traditional trading systems and operational processes with the crypto ecosystem is a major challenge. Traditional platforms using protocols such as Swift are not widely supported in the crypto space. Should digital assets providers integrate into Swift or should new platforms be built?
Where do you see DLT and blockchain, and digital assets evolving to in the next few years?
We believe that institutional adoption will continue to grow. There are obviously big challenges and major costs involved. The massive investment opportunities and trading revenues attached to this new ecosystem will incentivise major institutional players to offer a fully-fledged offering across cryptocurrencies, staking, non-fungible tokens (NFTs), DeFi products, and security token offering (STOs) etc. to their clients throughout the different level of services they provide.
Where are DLT and blockchain currently disrupting the traditional financial markets and how do you expect this to change?
Blockchain technology provides a way for untrusted parties to come to an agreement on the state of a database without using a middleman. By providing a ledger that nobody administers, a blockchain could provide specific financial services — like payments or securitisation — without the need for a bank.
Further, blockchain allows for the use of tools like smart contracts – self-executing contracts based on the blockchain – which could potentially automate manual processes from compliance and claims processing to distributing the contents of a will.
For use cases that don’t need a high degree of decentralisation but could benefit from better coordination, blockchain’s cousin distributed ledger technology (DLT) could help corporates establish better governance and standards around data sharing and collaboration.
How can DLT, blockchain and digital assets innovate current technology and trading infrastructure?
A major opportunity for blockchain and digital assets is the tokenisation of assets with tremendous implications for trading revenues and opportunities. A major financial disruption took place in April 2012 through the signing of the JOBS ACT. This new legislation enables companies to raise money directly from main street investors cost effectively, meaning that companies no longer need to look at banks, venture capitalists (VCs) and accredited investor communities for capital. They can go directly to the crowd.
There is massive opportunity for equity crowdfunding to move “on-chain”. Indeed, by using blockchain and digital assets and one of the JOBS Act exemptions, shares can be issued by companies, and by using the blockchain those shares can be tokenised. The thousands of cryptocurrencies out there have proven how valuable liquidity is, and that investors are willing to buy a digital asset that they can trade at will. If companies tokenise their securities, investors will be able to trade those tokens immediately or after a one-year lock, depending on the exemption used. Even one year is far better than the five to seven years average for private equity investments.
With the JOBS Act and cryptocurrencies, a new class of shares can be traded cost-effectively through small broker-dealers using an alternative trading systems (ATS) and registered exchanges. This new market bypasses the very expensive exchanges and investment banks that are constantly raising the entry bar for businesses. Thanks to company share tokenisation, the future for raising capital is brightening for small companies and startups.
In addition to the tokenisation of company shares, real goods and assets can stand behind the tokens. In the future, the widespread tokenisation of real assets could become a new trend – and one of the most promising markets for tokenisation is real estate.
Security tokens actually make it possible to tokenise an infinite number of alternative assets, which means that we could soon move from equity and bonds exchanges to asset exchanges. The opportunities for trading platforms are massive and will require the use of blockchain to upgrade trading infrastructure and systems.
Where does Syz Group fit into this evolving landscape?
Syz Group is going through the same steps as other institutional players who do see DeFi, the blockchain and digital assets as the future of finance and an area of opportunities. We are implementing best-of-breed digital infrastructure while abiding to Swiss regulatory requirements. This will allow us to provide our clients with access to the fast-growing digital space.