The Next Steps for Tokenizing Assets

Asia Blockchain Review

October 26, 2019

Security Token Offerings or STOs are the hottest topic of the year, with several firms now providing services related to STOs that are helping drive the industry forward. Asia Blockchain Review recently spoke with Heslin Kim, Head of Business Development APAC at Tokeny, a provider of a secure end-to-end platform for issuing, trading and managing digital securities on the blockchain. This token sale platform allows companies to focus on carrying out STOs without worrying about underlying technical challenges. Kim also discussed tokenizing assets, security laws and regulatory frameworks, as well as the fintech industry, his views on the future of STOs going forward, and what he would like to see for the blockchain media landscape.

Asia Blockchain Review: From our understanding, Tokeny previously provided an ICO platform and now you also provide a tokenization platform. What was the motivation behind this transition in relation to the current ICO market?

Heslin Kim: Tokeny Solutions was incorporated in late 2017 with the vision of tokenizing securities. We created compliant solutions for ICOs and when the market matured, we refocused on STOs. At the time the market was not developed enough and there was a great opportunity to develop the perfect MVP and satisfy the demand for initial coin offerings. The issuance and investor workflows were simple and there was strong market demand. For the last 12 months, we have had the live end-to-end solutions required for the issuance, transfer and post servicing for security tokens. We are now focusing on delivering solutions for financial markets and shortly we will have some exciting announcements to make in this regard.

ABR: We have heard reports of actual cases of tokenizing assets, for example, real assets in the U.S. or Switzerland. As the head of business development at APAC, could you share with us the tokenization landscape in Asia in comparison to Europe where your company is based? 

HK: Europe is really proactive in the space. Several countries have already defined the different types of tokens and they have agreed that security tokens fall under typical securities laws. For example, Lichtenstein recently announced its legislation and is open to recognizing security tokens. The financial market in Europe is well unified, thanks to ESMA and local regulators working closely together. Some financial instruments in the EU can be “passportable,” which means the issuer only needs approval in one member state to be able to distribute the instrument across other European members. This is the case with the Prospectus Regulation, which allows European companies to raise up to EUR 8 million every 12 months from retail investors through the creation of a simplified information document.

Asia did have headway and a strong lead in late 2018 and early 2019, but things seem to have slowed down in Q2 – Q3 of 2019. We saw places like Hong Kong begin their licensing legislation and opening up their sandbox for applicants only to remain without any updates for the rest of the year. Thailand and Taiwan made great leaps forward in drafting legislation that allows retail investors to participate in the investment opportunities that security tokens provide. Korea has finally started a sandbox of their own in Busan, and has been very vocal about exploring the digital securities space. Singapore is probably the furthest ahead in terms of exchanges in Asia and licensing, but we are not seeing much liquidity or issuances here yet. Eventually, the Japanese market will be the dominant force for digital securities as we see a tremendous amount of interest from large banks and corporations here. The legislation will be announced in Q2 of 2020. As you can see, Asia is largely disjointed whereas Europe has moved much quicker because they are able to utilize legislation that spans across the EU.

 

ABR: Property Token S.A. successfully launched the first issuance of a Luxembourg real estate token powered by Tokeny. What are some other projects in the pipeline?

HK: We have over 30 clients ranging across utility, real estate, equity, and funds. The appetite in the market is getting stronger and stronger because there is more of an understanding of tokenization and how it can benefit companies looking to raise capital. We are seeing high interest from real estate firms because the benefits, such as automation, transferability and the optimization of processes, can be realized today. Looking longer-term, the improvement of liquidity in this market that is notorious for the lack of it will completely transform the industry. We are seeing a lot of projects in this space. 

 

ABR: Tokeny was recently awarded the Fintech 2019 Prize by KPMG. In your opinion, what made Tokeny stand out from other fintech companies?

HK: Today, we have the full end to end solutions for businesses wanting to raise capital via blockchain technology. We deliver the technology to enable companies to benefit from improved efficiency, transparency, and a much-improved method for raising capital. Last July, we announced fundraising with Euronext, which is the leading stock exchange in the eurozone. In our space, having the backing of such an organization shows our technology is at the right level to not only help companies looking to raise capital through a shared distributed ledger, but also traditional institutions that are looking to improve their own processes. The combination of the best-in-class in blockchain solutions and financial services is something that sets us apart from the competition.

ABR: Your CEO Luc Falempin has stated, “We see real estate as one of the key asset classes that drive the adoption of tokenization. Tokenization brings the opportunity to a wider group of investors and in the long term will bring liquidity to an asset where it has been non existent.” 

Besides real estate, what other assets are top-of-mind in terms of tokenization?

HK: At the moment, real estate is a key driver but investment funds don’t lag far behind. They currently rely on manual methods that require companies to compile and analyze documentation and the distribution is usually limited geographically which makes it a difficult process for issuers to raise capital. Tokenization allows many processes with regards to KYC and fund administration to be automated, which drastically improves operational efficiency for issuers. The distributed nature of blockchain opens up the investment to a wider pool of investors and makes it easier to raise capital for issuers.   

 

ABR: In many countries, the security token is parked under the traditional security law. While experts have argued that what is needed is not new regulation, but rather an amendment of traditional security law for security token adoption, in practice, what are the most pressing regulatory hurdles?  

HK: Tokeny is the compliant tokenization platform. We enable mid-cap companies, investment banks, funds, asset managers and distributors to dematerialize assets on the blockchain, allowing them to reach a global audience, enforce compliance obligations, enable automation and increase operational efficiency. Our issuance solution includes everything to provide issuers and investors the ability to issue and tokenize securities. Compliance is a big part of this step and is clearly the main obstacle at hand that needs to be tackled. 

Blockchain is global, which is great, but things get complicated when talking about financial securities that are regulated differently across the world. Tokeny adds value for issuers by automating the compliance of security tokens from start to finish. We are in regular touch with regulators, and we have the opportunity to explain what we do at Tokeny and what we can do with this new technology. They are very open to listen and cooperate and there is definitely a level of direct access which has been very helpful for us.

Clearly, identity is key to enforce compliance. Today, these systems work incredibly inefficiently. KYC obligations are duplicated every time an investor wants to participate in an offering and inaccuracies occur when organizations work from their siloed ledgers. Utilizing a distributed ledger, we can alleviate these problems as the information can be shared across permissioned users. The permissioning of this is of utmost importance as the data is sensitive, so we ensure the information is encrypted. Only parties with the required access can view the information. OnchainID empowers data owners with the control they need so they can grant and revoke access as they please.

ABR: Compared to ICOs, IEOs, and IDOs that are in different categories from STOs, which are pegged with underlying assets, how do you see the STO as a fundraising instrument going forward?

HK: STOs are not initial coin offerings and should not be used as such. A security token offering that is successful is going to be from an offering for an existing company or asset that is already generating revenue. STOs do face many problems and challenges, but they are all being addressed. As an industry, we must comply with existing legal frameworks and processes. There is no skirting around the governments of the world. As I like to say, security tokens put the centralization in decentralization. 

As far as direct investment is concerned, for the moment fiat payments are used and we have many ways to do them. And hopefully, soon investors and issuers will start using stablecoins as they would be the best way to make payments during subscriptions and after issuance, such as when paying dividends for example. In the US there are many stablecoin initiatives already though not so many in Europe for the moment, and we are still waiting for the big players to launch their stablecoins.

 

ABR: Your career started as CEO of Blockchain ROK – Crypto media and event promotion. How do you view the current blockchain media landscape? Are there any missing pieces that you would like to see realized?

HK: There are several interesting outlets I use to stay up to date, and I’m happy to see some others like TheBlock, Coindesk and CoinTelegraph gaining traction and having such dominance, though it was a shame to see CCN go down after the interesting alterations to Google’s SEO display. CNBC CryptoTrader is a great example of mass media pushing the narrative of Bitcoin, which only helps for further adoption. I am all for new approaches to educate and inform the general market.


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Asia Blockchain Review is the largest initiative for media and community building in Asia for blockchain technology. We aim to connect all blockchain enthusiasts on a regional scale and facilitate the technological foundation of blockchain through a range of group discussions, technical workshops, conferences, and consulting programs.

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