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The goal is to lay the foundation for the industrialization of a new financial instrument: security tokens for the alternative investment market
The Italian real estate market is worth 5,580 billion euros, plus 3,140 billion in domestic loans. The trial aims to make it more liquid, transparent and accessible.
The model is that of sandbox: product and process innovation is created in an ecosystem developed with all market players and the authorities that regulate the market.
Take a property in the center of Milan, put up for income. Suppose that, during the pandemic, the rent has fallen short and you need to make cash, but you are unwilling to divest right away, with the risk of selling off, or selling poorly. How do you get out of it? Through technology.
"Through tokenization, one can fractionalize this asset into several parts (tokens), digitize the individual fractions and uniquely associate them with a smart contract (digital contract), placing it on a blockchain (an accounting ledger, distributed over several nodes, i.e., computers, connected to each other, in which digital transactions are stored securely and unalterably ed).
In this way, the owner could, for example, liquidate only a minority part of the property, effectively financing himself through an alternative instrument offered to him by his bank," explains Imanuel Baharier, managing director of Cetif Advisory, a spin-off of Cetif, a research center on technology, innovation and financial services atUniversità Cattolica in Milan, focused on "grounding" platforms that bring research-generated frontier innovation into the financial system.
This is just one example of the possible applications of a new experimental project that Cetif Advisory has just launched and formally took off on March 18. The goal is to lay the foundation for the industrialization of a new financial instrument: security tokens for the alternative investment market.
A solution that, Baharier explains, would help make a huge market made up of illiquid assets with high market capitalization, such as real estate and credit, more liquid, transparent and accessible. "This is a rapidly expanding market worldwide, with a projected annual growth of 9.8 percent by 2025, which represents an important business opportunity, for the whole Italian financial system," the manager reminds.
An analysis carried out by Cetif to examine the actual value of these two asset classes showed that the capitalization of the Italian real estate market was 5.580 billion euros in 2018, plus 3.140 billion in domestic loans.
At present, factors limiting greater uptake of this type of investment include difficulty of access, high investment thresholds, and lack of transparency. One possible solution could be the use of Dlt technology (distributed ledger technology, i.e., a database distributed over several nodes, which participate in the network by replicating a copy of the ledger or ledger), or blockchain (a "public" blockchain) for tokenization of the underlying assets.
The model, already successfully tested for other initiatives, is that of the sandbox, that is, of an "experimental, innovative, protected and controlled environment," Baharier explains, in which to test product and process innovation, in an ecosystem developed with all the market players and authorities that regulate it." Among the institutional partners of Cetif, already involved in similar initiatives, are the Bank of Italy, Ivass and Consob.
"The process of tokenization of underlying asset classes, such as real estate and credit, with Dlt/blockchain technology," the general manager argues, "will enable the issuance and placement of Security tokens of even minimal value, which will facilitate access to investment to new and broader types of institutional and retail investors, while simultaneously increasing transparency and streamlining and simplifying processes.
The working table, which will be attended by a number of supervisors, technology(Reply) and project(Cariverona) partners, alongside some of Italy's largest banking and financial groups, will have the task of unraveling some of the knots: for example, Baharier notes, it is unclear whether the object of the smart contract through which the exchange of security tokens will take place is the ownership of a fraction of the underlying asset or only the cash flow generated by that asset.
The most interesting aspect of this approach is the nature of the co-design process, which cuts across all aspects, not only technological, but also regulatory-normative. In this way, Baharier concludes, the platforms developed are born "compliant by design."