Fintech investment opportunities may be main gain from Singapore tokenisation trial
Two family offices have told AsianInvestor that new investment opportunities may emerge as a result of schemes such as the framework for digital asset networks proposed last week by the Monetary Authority of Singapore (MAS).
They said these opportunities would arise less as a result of the investment possibilities opened up by the technology involved in the proposed financial infrastructure, and more thanks to the value of the companies rolling it out.
Last week’s extension of Project Guardian, the MAS programme that aims to integrate tokenisation into Singapore’s financial system, reinforces the regulator’s tightly defined focus on the technological aspects of digital assets.
The move showcases the regulator's desire for big, established banks and other heavyweight finance sector businesses to lead developments and emphasising its rejection of the ecosystem that has evolved around cryptocurrencies and other forms of digital finance.
Drafted as a joint effort with the Bank of International Settlements, the plan involves 11 major finance sector players, including HSBC, Standard Chartered, DBS and Citi, testing tokenisation in wealth management, fixed income and foreign exchange.
TOKEN TRANSITION
Tokenisation has arguably suffered something of an image problem, thanks to its association with the high-profile excesses of the cryptocurrency industry, but Henry Chong, the founder and chief executive of digital securities trading platform Fusang, said its moment had arrived following a shift in attitudes after the collapse of crypto exchange FTX.
“A lot of TradFi [traditional finance] institutions see FTX as the point at which they thought, ‘Now there’s something interesting to be done in this market’,” Chong told AsianInvestor.
“Number one because there's room for traditional, licensed financial institutions to play, and number two, we’re seeing a distinct shift in the kinds of assets that people are looking to tokenise – the discussion has moved on from the ‘weird and wonderful’ pool of assets [created on blockchain] to, ‘How do we just take the bog-standard instruments that we see every day and represent them in a tokenised form?’” he added.
Harmen Overdijk, chief investment officer at multi-family office Leo Wealth, shared the view that established, real-world assets were ripe for tokenisation, saying: “Eventually, all securities are going to be tokenised on blockchain, which makes them so much more efficient and secure.”
OVER-HYPED
Tuck Meng Yee, founder and chief investment officer at Singapore based single-family office JRT Partners, also said that asset allocations by family offices and other investors were unlikely to change merely as a result of the availability of tokenisation, although it would contribute to a slightly expanded pool of investment opportunities.
“If you're looking at smaller markets, higher-risk markets, and you’re not willing to write the same tickets to those markets because of the higher risk, [tokenisation] offers a way to write smaller tickets,” he told AsianInvestor.
“But it’s over-hyped … If you look at broader fintech, the point is that [Project Guardian] is research to find a way to improve [financial] infrastructure from where it is now, because the infrastructure right now is crap – it's ‘piping’ that goes back decades. I think MAS is using this as a way to promote fintech knowledge in terms of new technologies amongst a bunch of traditional institutions that are institutionally loth to upgrade because of legacy systems.”
Yee said that tokenisation would add value not only to existing financial institutions, thanks to efficiency gains, but also to enterprises providing the technology for such a systemic overhaul, making them more attractive targets for investors.
“It's a tech-enabled solution,” he said. “If I'm using tech to lower my costs and to give me a better product, I'm going to get some profit out of it. And then the firms building that piping will go up in value, as well.”
Overdijk echoed that view, saying: “The most interesting thing we’ll see is going to be investing in companies that develop the technologies. They could be established players like JP Morgan or UBS … who simply use the technology to make their operations more efficient, but I think you’re going to see huge investment in this space, in the companies that develop this technology for big companies to buy… smart entrepreneurs who find the technological solutions.”