They can be applied to any asset-from private equity to real estate to artwork. A rapidly evolving sector.
Digital, secure and accessible. The latest frontier of blockchain -based innovation goes by the name of security tokens and promises to revolutionize the financial industry. Indeed, any type of asset, from stocks to real estate, from private market funds to works of art, once tokenized would gain a number of indisputable advantages. Investors are beginning to realize this, so much so that the market is experiencing geometric growth. By 2025, Kpmg and Wef predict that the sector will grow to $8 trillion. The German digital asset platform for institutional investors, Finoa, has gone further by speculating that by that date assets under management will touch $9500 billion. Raiffeisen Bank Inter-national, in an exclusive interview for Cointelegraph Research, is of the opinion that the way securities are currently traded will disappear within 10 years, with most securities being
will be tokenized.
The context from which this innovation moves is Defi, the (decentralized) finance of the future that has replaced intermediaries with smart contracts at blockchain and is also experiencing exponential growth. "In 2020 when it started, Defi had a total value locked of about $1.4 billion. Today, despite the collapse of cryptocurrencies in recent weeks, it has reached a value of $105 billion. At the same time, the number of users within the Defi on Ethereum-which accounts for about 57 percent of all Defi projects in the world-has increased since April 2020 from about 181,000 to 4.8 million users. These are impressive numbers that testify to the fact that this is a phenomenon with exponential growth, which in our view offers institutions an important positioning opportunity and accelerates, at the same time the need for regulation to protect investors and the market itself. It is in order to take advantage of this very special conjuncture that on June 15, we presented the Institutional Defi ecosystem project, which saw a very wide participation of the banking and financial community," comments Imanuel Baharier, General Manager of Cetif Advisory , who points out that the growth potential is also enormous: the $105 billion worth of Defi is only 0.015% of what traditional finance is estimated to be worth ($900 trillion).
What makes security tokens such interes-se tools? The advantages are many. First, there is an issue of time and cost. "These are instruments that greatly simplify the investment process, with time gains of 90 percent. In terms of issuance and placement costs, on the other hand, there is a saving of 80 percent for sub-threshold issues and between 50 percent and 60 percent for above-threshold issues, due to the absent or at least reduced role of the custodian bank and the absence of a whole range of intermediaries," comments Lorenzo Rigatti, founder and ceo of BlockInvest, a platform that offers solutions to financial institutions to create security tokens. For Rigatti, there are two other obvious advantages to these instruments: liquidity, especially in relation to the alternative universe, and transparency. "Tokenizing real assets makes an illiquid market much more liquid. Exchanging a tokenized asset is indeed easier, also as a matter of transparency. The security token more than a security is in-fact an access key to a rich set of up-to-date and immutable documentation in real time," continues the BlockInvest ceo, who points out that there are also critical aspects, which make them, at least for the moment, not suitable instruments for everyone: "First, there is the issue of irreversibility: once a transaction is made that transaction is final. Secondly, they are assets that are not freely exchangeable like other tokens, and therefore will never be as liquid as, say, cryptocurrencies." Baharier also sees several points of interest, which became evident at the conclusion of the Security Token & Alternative Investment Sandbox that Cetif Advisory , Reply and Fondazione Cariverona worked on in 2021. "The concluding survey showed how the adoption of security tokens substantially improves the user experience, which was appreciated by almost all participants: the average rating was an impressive 4.48 on a scale of 1 to 5. A second critical aspect is that these are tools that enable near-total digitization of processes, significantly increasing the transparency, security, safety, and certainty of data and operations. Tokenization also involves a total paradigm shift due to delivery versus payment, which allows overcoming the classical model whereby the moment of exchange does not coincide with the moment of payment. Last but not least, there is the issue of the possibility of product atomization, which allows many investors to access a range of financial products with which they otherwise would not have been able to trade," explains the director of Cetif Advisory . Of all the benefits brought by these tools, however, the one for the system is perhaps the most interesting. "With the spread of this technology, there is no longer any geographic discrimination; it is as if the same language is spoken all over the world. In other words, blockchain could soon become for value what the Internet has been for information," explains Rigatti, who concludes by pointing out that according to a World Economic Forum Report, by 2027 10 percent of the world's GDP will be recorded and transacted on blockchain. This is a figure around $22 trillion.