Transcription
The financial world is constantly changing. With the advancing digitalization in the 21st century, this process has accelerated rapidly, opening up new opportunities to think about finance differently. Digital currencies such as Bitcoin and company shake the world positively and negatively. The concept of tokenization opens a new chapter in the history of capital investment. Decentralized, democratic, controllable, non-stop. These are the promises of tokenization. But what are tokens anyways and how do they work? Moamy takes a look at the complex world of tokens, examines theory versus practice, and talks to experts from the crypto and fine tech scene. Token economic system of the future.
As early as about 5,000 years ago, people traded by exchanging goods or services. Over time, opportunities developed to also trade shares in goods or services and even sell them to the public in order to raise capital. This is how the stock markets came into being where companies offer individuals small company shares to a variety of investors to invest in the future of the company. This need for shareholding has increased more and more and ultimately develop into the global financial market. Tokenization meets this need in an even more extreme way. This is because tokenization is a further segmentation of a unit or a component into other individual components, a kind of fractionalization. For example, shares can also be further fractioned and the resulting units can in turn be traded. However, the special and new thing about tokenization is not the segmentation but it's linking with another process that makes tokenizations interesting in the first place: the digital and decentralized storage of the fractions in the blockchain.
Individual sectors of the market for tokenized assets are currently still in a kind of discovery or experimentation phase. Its value is estimated at less than $20 billion. The value of the total market for digital assets is about $350 billion US. This is where the enormous growth potential becomes clear. Tokenization and blockchain technology could fundamentally change the financial and banking sector. By 2027, this growth will increase dramatically to an estimated $6.89 billion. Fintech is one of the biggest players that will shake up the digital token game. In 2022, the United States held the largest market share. But what is tokenization? How do all these new token-based players operate in the fintech market? What is their agenda and what are their products?
In Europe, Luxembourg-based token solutions is one of the market leaders in providing an institutional and modular end-to-end platform that enables the issuance, transfer, and management of tradable digital assets and security tokens such as tokenized loans, structured debt securities, stock, and funds. This private B2B company provides an end-to-end platform for the unified issuance, management, and trading of service and security tokens. The company valuation for token solutions range from $22 million to $33 million with a revenue estimate of $4.5 million 2025 and a fund of 11.4 million. The company uses Ethereum and Polygon's blockchain technology and works with the ERC3643 token standard.
Another interesting player in the European market is a Berlin-based company Bitbond. They have launched the first security token offering in Europe. This was approved by the German financial regulator BaFin in 2019. Bitbond is a technology provider for the tokenization infrastructure of digital assets. Their web 3 product token tool allows their customers to create, manage, and distribute tokens and NFTs through EVM chains. The Bitbond token or BB1 is a security bond token that can be purchased with BTC, ETH, XLM or EUROS. The value per token is equal to €1. Their global market share is currently less than 0.1% but with a team size of less than 50 people, it is valued at around 7 to 11 million US as a company. Bitbond is a private company with a capital of $13.2 million. Its turnover will be around $1.8 million in 2025.
But how does it work exactly? Bitbond uses the ERC20 token standard. This is the most commonly used security token in the fintech industry. The token stands for tokenized assets that a company with current regulations for securities. There are securities in the form of a token and through a company such as Bitbond or token solutions, the buyer can buy and trade such a security as a token. The acquired token is implemented on a blockchain. The blockchains are called Ethereum or Polygon.
I'm Reuslav Alre, founder and CEO of Bitbond. A token is a term that has been around for a long time. And it basically stands for the fact that an object or digital good stands for something else. For example, if you go to a fun fair and pay admission, you often get a token, a plastic chip, which you then hand in in the carousel, for example. And that's where the term originally come from.
My name is Marcus Kluga. I'm one of the co-founders of token forge. The best known is the standard is this ERC20 standard which is basically just a small register in which anyone who has received a token there is granted access as the only one who can move it into a private key. This is what is meant by tokenization in blockchain. And that's what happens without regulations and without access from any administrator or from any regulated party with a high risk that if you lose your private key, you won't be able to access that token and you won't be able to move it. You won't be able to sell it.
From a technical point of view, a token is basically a database entry and it says which address, which is basically the digital place where the token is stored, how many pieces, how many tokens has, and is implemented by so-called program code which in a context of blockchains is also called smart contracts.
But basically this is a program code that describes what are the technical properties of the token and who owns the token and who holds these tokens.
It is therefore important in tokenization, i.e., in the creation of database entries with which certain rights of the token owners are linked, that there is a register, a database where the entries are readable and stored securely. This register is granted by the ERC 20 standard just mentioned. It sits on the blockchain so it's secure.
The token stands for a value for a service. Tokens as we understand them today in the field have been around since around 2014-2015. That's when the so-called Ethereum blockchain came into being and the blockchain was the first blockchain on which tokens, namely digital values, could be created. And that's how the whole development began that there were digital tokens and since then this term has existed in the context of fintech. And now we have the blockchain technology with the cryptography and the signature which just make a lot more personal responsibility possible because everyone in the game can just see, hey, that's really the one who owns the asset, who transfers it, and that's what this private key takes care of. Public pair that then just makes this thing safe.
Cryptocurrencies are also tokens. They're produced and managed by companies instead of institutions. Strictly speaking, cryptocurrencies are not currencies. They are digital assets that can be exchanged and traded. Their creation is carried out by so-called ICOs, the abbreviation for initial coin offerings.
Initial coin offering. So the first, the first so-called initial coin offering was that of Ethereum itself, and they basically invented the technical concept of the token and started commercializing it. And then many, many more companies came along that took advantage of these technical possibilities and issued more tokens.
My name is Erwin Bader. I am the head of policy for the European Blockchain Association. If you want to buy the argument that crypto is political, I think it is. And I think it's been political since the genesis block. So if you look at actually what's inscribed in the genesis block, so the first block of the Bitcoin blockchain, it's "Chancellor on the brink of second bailout to banks," right? And this was during the height of the 2008 financial crisis. And specifically, you know, you can look at the Genesis block as a picket sign. It was a protest really against what many people viewed as financial injustices that were incurred at the cost of the people for the benefit, at the cost of the majority for the benefit of a minority.
With tokenization and cryptocurrencies, a new chapter in the history of capital investment is being written. The new way of investing is influencing society, politics, and markets. The revolutionary concept makes it possible to divide assets into arbitrarily small parts. The idea is not new. Fractional ownership is a consistent trend among financial instruments. For centuries, companies have been broken down into small parties by shares or funds. What is completely new, however, is to register these fractions as digital tokens on the blockchain.
From a technical point of view, there are about three dominant technological standards. There are many more, but these three technical standards that can be used to map all use cases. The tokens that are then issued by companies that take advantage of the technology. There are thousands. There are probably around 5 million different tokens at the moment, but they are all based on the same technical standards. But where other values are represented with it, for example, there are so-called stable coins which represent fiat currencies such as the euro, the dollar. Then there are tokens that represent, for example, securities such as bonds or stocks.
Technical substrate that enables the removal of a lot of different frictions and these frictions also lead to cost reductions. So instantaneous settlement, fractionalization, it opens up the door for new use cases like pay-per-use models, streaming money, and generally the ability to take real-world assets and represent them in a digitalized form and then offer them to investors in new ways to package financial products. The ability to ease frictions in cross-border payments as well from an institutional perspective. And I think also what's very important is tokenization and tokenization within blockchain has the ability to produce a higher level of financial agency and financial inclusion, which I think is ultimately really important. Otherwise, why are we doing all of this?
All assets can thus be digitalized and standardized. This increases liquidity and transparency. Processes can be automated like never before.
Software developers have been thinking about how to standardize tokens. This has a very, very important background. Namely, the tokens are held in so-called wallets. These are basically digital wallets and not every wallet can hold every type of token. Software developers have been considering ways to standardize tokens and the importance of doing so lies in the fact that tokens are held in digital wallets and not every wallet can store every type of token. Therefore, it has been suggested that a standard should be established to enable wallets to support as many types of token as possible. Developers propose open-source software and the market adapted particular technical standards based on their effectiveness. These standards have become prevalent with two dominant token variations: ERC20 standard for the fungible tokens and the ERC721 standard for non-fungible tokens. These ideas initially suggested by developers have since become indispensable and are widely used throughout the world.
But the true highlight of tokenization lies in affordable entry prices for investors that are associated with the smaller stakes. The one challenge that blockchain, crypto, or I should say that crypto faces, and you see this in decentralized finance, is the end-user or the user experience, right? Using these financial products and services is often times tricky and challenging or requires a certain level of technical literacy that not everyone has. And also at the end of the day, it's generally driven by interest. I don't think you can make the argument and say that everyone will use this all the time everywhere because that isn't the case with anything now. So why would it be any different? Human nature is a fickle thing. So I think that the point should be to make it as easy to use as possible, as frictionless, as seamless as possible.
Issuers can save money through tokenization, which enables them to access funds directly without the need for an intermediary, thus eliminating the high fees associated with working with investment banks or other institutions.
I'm Elizabeth Palasnik. I'm an economist by background and to this day I help basically crypto asset service providers, law firms, consulting firms navigate through this new European regulatory regime that we have in crypto assets, which we call MiCA, Markets in Crypto Assets.
The MiCA is an EU legal framework for cryptocurrencies and tokens that are traded on digital platforms. It replaces individual regulations in the individual countries. So MiCA basically aims to target some specific assets in the crypto industry and certain services linked to those crypto assets. So if we take the parallel to the traditional financial sector, we have MiFID which covers financial instruments. Now we have MiCA that covers some type of crypto assets which are in three big categories: stablecoins and other crypto assets including utility tokens.
With the implementation of the Markets in Crypto Assets Regulation called MiCA, a consistent EU-wide framework has been established. So it will change a lot of things in the regulatory landscape and also in the crypto industry itself because as we know, all the continents have their own approach or sometimes they don't have any approach at all. So I think it will change a lot of things and also within the financial sector as well. Why? Because the traditional financial sector so far, if you go to a bank and you want to buy some Bitcoin, your banker will most likely refuse this request. Some of them, they jump on board, but 99% will say no, we don't do it. After MiCA comes into force, right now, what they can do is actually they can offer those services without even having the MiCA license, which can be quite a bit of a problem because it's not because you're a bank or financial institution that you can actually understand and you have the experience and the knowledge to provide those services.
Cryptocurrencies are traded through crypto exchanges. Utility tokens represent a specific utility or functionality on a platform. There are different types of tokens that can serve as financial instruments. Security tokens act as digital securities. They can have the characteristics of stocks or bonds.
Security token. A security token, you usually certify as a security. It is technically referred to as the ERC20 token and is similar to a fungible token with some additional features. It is crucial to identify the token holders for securities and specific technical settings can be implemented to restrict the transaction of these tokens to a particular whitelist of recipients. By approving which recipients can hold the token, you're indicating their authorization. Security tokens are commonly designed this way as issuers usually need to know and sometimes may be legally mandated to know the owner of the tokens. Utility tokens on the other hand refers to tokens that operate as platforms or specific currencies. Imagine that, for instance, you do not utilize standard currency on social media but a token that has been developed particularly for these platforms and subsequently you can exchange this token for certain features on the platform.
The process of tokenization begins with a collection of information about the assets. This can be, for example, a detailed description of a property or a list of works of art in a collection with all their individual characteristics. This information is then converted into a digital form and stored. Subsequently, a token is generated that represents the ownership rights to the described tangible asset. The token is also stored on the blockchain and contains a unique digital fingerprint of the asset. Thanks to individual information, there is a considerable opposition because it represents a new technology and a paradigm shift in the approach. Previously, when moving a security from A to B, physical transfer was necessary, hence the creation of securities. Now, however, there's only a register that is sufficient to modify access rights to a token and transfer it. In essence, the security is now linked to the asset and no longer a freely transferable security. This change has various consequences for the process involved. Our current objective is to integrate all the available technologies such as digital identities, digital currencies, and tokenization in a manner that achieves genuine democratized access.
Once a token has been created and stored on a blockchain, it can be managed through smart contracts. Smart contracts can be used to transfer rent payments to an investor on a pro-rata basis as soon as the rent has been received, or a smart contract automatically initiates payments as soon as certain milestones are reached in a project. The interesting thing about tokens, you could say it's a smart contract that is registered on a blockchain. But in the end, we talk about programmable values. I don't want to say money here because there might be a difference between money and its regulation and transferable values, but it will be very important, for example, if we think about sustainability, that we not only introduce a new digital asset but that it generates impact. So we need to add meaning to a certain nominal factor. And this will be, I think, the most relevant aspect of tokenization, that we create digital units for whatever underlying asset, but that we can optimize its use. We can incentivize certain behaviors.
Investment in tokenized real estate represents one of the most recent advancements in the property industry. Tokenization enables houses and apartments to be divided and sold in numerous smaller units. Small programs act like a bridge between a property and an online trading platform. Hence, tokens create a digital representation of a property, facilitating its digital transfer.
Many potential investors are either unwilling to enter this market on a large scale or unable to do so due to factors such as lack of equity or difficulties in obtaining debt financing. The concept of tokenization offers a significant advantage by enabling the smallest unit of investment to be acquired at a much lower threshold. For instance, a flat owner could split a property worth €100,000 into 1,000 tokens. Each token would be valued at €100, representing a small portion of the flat. Investors would then hold the rights to a particular percentage of rental income with each token. After deducting costs like property tax, repairs, and insurance, investors stand to profit as the apartment increases in value over time and rental income grows.
Another benefit of tokenization is the ability to convert the individual tokens anytime, 24/7, via apps or trading platforms. Furthermore, the need to visit a notary and have the property or share notarized before purchasing is eliminated. Purchasers can efficiently manage their tokens through a mobile wallet application. The app's features may vary depending on its design, allowing users to track their incoming payments, monitor token value fluctuations via chart displays, and sell tokens through their smartphones.
Real estate tokens follow similar regulations to securities and do not provide physical ownership of the underlying property. Essentially, a real estate token functions as a loan that the provider utilizes for property financing. The loan's interest is covered by their rental income, which poses a risk of loss. The possibility of rent defaults and, in extreme cases, the provider's insolvency increases this risk as compared to investing through a property fund, which is usually diversified across many properties. In Germany, such a scenario isn't yet to be realized due to the absence of a regulatory framework that facilitates the scrutiny of property rights associated with land and real estate. The process of purchasing a property is still associated with significant bureaucracy, lengthy procedures, and subsequent high costs.
Digital art projects were the first to bring tokenization to public attention. With the assistance of non-fungible tokens, digital art pieces are typically secured as a whole in the blockchain. In March 2021, American artist Beeple sold a digital collage comprising 5,000 individual images for an extraordinary $69.35 million US at an auction. A single tweet by Jack Dorsey, founder of Twitter, was purchased by a fan for an impressive sum of $2.9 million US.
My name is Ever Rresh, also known as Sebastian Fifer. So that's my real name. We are not going to see anything like we've seen in 2021. So that ship has sailed. My hope actually is that the market will reach a more mature state where price levels are reasonable and artists can actually live off their art sales in that digital space. It's never going to be everyone, that's clear, but you know, like that's not how it works. So it's always just going to be a few that will be able to make a living out of it. If you look at the sheer numbers, the people collecting crypto art is growing and growing and growing.
My name is Sergio Roberto Schmalt. I'm the founder and CEO of Magal. Magal stands for Meta Art Gallery. There is, of course, the 2021 January bubble where you had a crypto art NFT market explosion with 14,000%. If you have such a high increase, you fall down very, very briefly. So what we are doing right now, we are trying to get a new base level and from that level we can progress together with crypto, together with Bitcoin, together with everything that is behind it.
Our tokens may be obtained from any location worldwide, allowing for international investment in the art industry. Twitter is the main platform to promote your stuff in the NFT world. And you can also use other social media platforms, but Twitter is by far the one with the most impact. I reach my audience mainly through Twitter. Of course, I promote my work on other social media platforms as well, but I've not noticed any correlation directly to sales through other platforms than Twitter. I would say the biggest trend right now is the thing that we are doing, coming from the metaverse and coming into real life. So you can only feel crypto art if you can touch it, if you can see it like here on our screens, and this is the step that a gallerist needs to do.
With the help of non-fungible tokens, digital works of art are usually scrutinized as a whole in the blockchain. Even if an artist generates multiple NFTs of the exact same image, each one has a unique identity on the blockchain. And that means these tokens are essentially unique. We can illustrate this concept by considering a one-coin. When we hold this coin in our hand, we do not distinguish it from any other one coin as they have identical purchasing power. Such coins are referred to as fungible. The same principle applies to securities such as BMW shares. We do not differentiate between individual shares as they are fungible. The BMW share represents identical voting rights and value. Non-fungible tokens (NFTs) can be likened to artworks, such as owning a unique Picasso painting or the Mona Lisa. While forgeries may exist, the genuine Mona Lisa is one of a kind and non-fungible, with no other exact copies. Art also employs the concept of limited edition prints where a photo may have, for instance, only 100 copies, each with a unique number. These numbered prints belong to a specific series, although numerous tokens can be used. The idea is for each token to be exclusively identified. But on the other hand, fungible security tokens are identical and can be exchanged for each other.
You have some gray area, I would say, also regarding NFTs. So we have DeFi NFTs are not covered and non-quantifiable tokens. However, they really, it's not because you call something an NFT that it won't be under MiCA. So they really are mentioning that if something is issued in a large series, it's an indicator of fungibility. So then it doesn't necessarily mean it will be an NFT. But again, what is a large series? We don't know yet. So we hope, hope we'll have some clarification down the road. But so those little things, we can play with words, you don't know, especially that the technology evolves so quickly.
Most NFT sales are actually auctions. They're not auctions in the classical sense, where there's, you know, like a guy with a hammer, but it's just, you usually put your piece on a platform with a reserve, and once the reserve is met, then there's like a, you can define how long the auction goes, but usually it's like a 24-hour auction and then the timer starts and it runs for 24 hours and then it depends if other people put in their bids as well if the price goes up or not. Most platforms take between five and 15%. Some also take 20. Most take between 5 and 15%.
For artists themselves, tokenization could also be an exciting vehicle for the sale of their works. Theoretically, the artists can even offer themselves to investors as an investment. If their value increases, investors will benefit. On the other hand, the artists generate a regular additional income. The art market remains considerably unclear, necessitating a thorough knowledge of the players, the influencing factors, the dynamics of the market in order to be competitive when buying works of art. Our collection of works from the top 100 artists is usually unavailable at local galleries, but is sourced from the leading international galleries. Without access, artworks become either unobtainable or extremely expensive due to multiple trade flows, each resulting in price increases.
Fractional ownership of an asset is represented in the field of art via so-called art security tokens or digital assets that correspond to a part of a work of art. Previously, this market was exclusive to the super-rich due to the exorbitant prices of art. Prices are often in the millions, which few can afford, but our trade is changing that. We possess a meticulous network of art experts who identify appealing works on your behalf. The entire process involves a complex data analysis procedure. We digitally store all the relevant information as each artwork is assigned a single digital security which comes in the form of a security token. The value of one token corresponds to one euro of the artwork's value. In essence, this is a fully regulated digital security as per the new electronic securities act. This allows us to treat the token and the security similarly to other conventional securities, ultimately facilitating their integration into the financial industry's infrastructure. Thanks to their assistance, anyone can now invest in works of art that would typically be excluded from an average investor's portfolio under normal circumstances. You can invest in these works of art indirectly with as little as €1,000 by purchasing these tokens. This ensures that enthusiasts with smaller budgets can engage in magnificent art projects.
Even the old masters can now be found on the blockchain. Just recently, Pablo Picasso's masterpiece "Guernica" was tokenized on the blockchain. A Zurich-based crypto bank is responsible, which dismantled the oil painting into 4,000 art tokens and sold them for 1,000 Swiss Francs each. For this purpose, the tokens were in turn converted into blockchain-based securities which represent an undisputed legal claim to the unique painting from 1964 in Switzerland.
As an investor, you do not acquire a piece of the artwork itself, but rather a scrutinized claim to participate in its performance. We made a conscious choice to avoid fractional ownership and instead offer a security as it aligns with their traditional investment product and can seamlessly integrate into the financial system. When works are traded on a secondary market, often after a prior purchase, the artists or artists typically do not participate further. However, we aim to expand this model in the long term by exploring the potential of structuring tokens in smart contracts. Currently, the concept remains uncertain. This would allow the artist to maintain a permanent stake in a valued development of their artwork to a percentage of ownership.
I see a very bright future when I look at my kids, the things they collect, Fortnite skins or some digital weapons for a game. This kind of collection feeling is parallel to crypto art collection. Yeah. So people will not hang a Picasso oil painting on their wall. My kids will not do it. They will collect other art, and this may be the art that they are collecting.
Funding for major art galleries, museums, collections, and artwork storage facilities could also benefit from tokenization in the near future because they invest huge sums in protection of their artworks. Theft, vandalism. Preventing this costs money. Money that museums don't have. The entrance fees and funding pots are often not enough to expand the collections. Tokenization could help them gain this liquidity. It could make the collection or a selected part of it available to investors who make a profit from an increase in the value of the artworks.
A stock is a security issued by a company. Depending on the type of share, this can be a claim to a portion of the profits, dividends, or a say. Companies issue shares to raise additional funds for their business's development. But despite digitalization, trading in shares remains inefficient in many places. If you want to invest in stocks, you have to buy a whole share. However, the shares of large companies often cost over $1,000. This limits the circle of those who can afford it. And even if you secure a fraction of the large companies, this automatically eliminates the possibility of diversifying your portfolio by investing in multiple stocks.
My name is Philip Piper. I'm the founder of Swarm. We are a tokenization platform that does both primary issuance as well as secondary trading. In the past 2 years, there's been obviously a very high degree of focus on crypto assets. So basically, you know, Bitcoin and derivatives of Bitcoin as well as sort of other native assets that were on the blockchain like Ethereum. But it's been shown obviously that there's a very high degree of correlation amongst all these assets. So if the market goes up, everything goes up. If the market goes down and crashes down, everything goes down. So in that world, there is a need to actually have something called real-world assets replicated onto chain which actually derive the value of what they are from the underlying asset that is connected with that kind of digital asset. A good example of that is basically a stablecoin.
Tokenization makes it possible to buy fractional shares of these large companies. Instead of buying an entire share, you can only buy a portion of a share and thus generate a proportionate return. Tokenization is used to create digital images of securities that have already been issued. This is referred to as token derivatives. These are scrutinized in the blockchain and thus embedded in a more flexible infrastructure. So in principle, you get a normal stock but with the advantage of cryptocurrencies. The price of the tokenized share is always equal to the share price of the issuing company. If the value of the deposited share doubles, the value of the tokenized share also doubles. The price action is analyzed in a similar way to stocks, not like cryptocurrencies.
So a stablecoin is effectively a token that represents maybe a dollar. So one token equals $1. You should actually have the ability to put anything that has value, anything that has some kind of substance onto the blockchain, into these trading environments, into the ability to fractionalize and mobilize these assets. There's a very large realm of different asset qualities that you can gain by putting them as a digital asset onto chain. So if you have one Apple stock that is represented in one token, well, you can buy a cent of an Apple stock if you want to, right? That you cannot do in the traditional market.
Tokenization significantly reduces the barriers to entry into the new financial markets. The vast majority of all companies worldwide are currently private companies.
There are derivative products that probably mimic some of that, but it's not the degree of flexibility. The second thing is that you actually have an immediate settlement. So if I go onto some kind of exchange, some kind of decentralized exchange, some kind of trading venue, and you and I agree on a price, actually by executing on the blockchain immediately the transfer of my ownership to you has been executed. Normally in the financial markets, that takes two to three days to settle.
From a regulatory perspective, you know, the United States is also in a unique position because of the dollar. So, you know, the dollar is famously once said that the dollar is the United States' currency but everyone else's problem. Um, but really, I don't fully buy that argument. I think that the dollar is also the United States's problem now because you have jurisdictions in other parts of the world that are essentially creating regulation for digital US dollars in the future, and none of this is coming from the US yet. So, you know, regulating stablecoins is one of the lower-hanging fruits that they could tackle in terms of reasserting this position of dollar hegemony. And this is not a position that Europe has to the same degree. I mean, you know, the dollar still makes up somewhere around, I think, 60% of global reserves. The United States political system is also by design an invitation to struggle, and it has been since the declaration of independence. So you always have to, when you're looking at the US, you always have to think of this.
The tokenized share thus builds a bridge between traditional stock exchanges such as Xetra or the Frankfurt Stock Exchange and a crypto exchange such as Binance. Depending on the network and crypto exchange, token transactions can be processed in a matter of minutes. If you have the ability to trade on a 24/7 basis without any kind of stoppage of the market, it's a benefit. It actually means real money for people. If you can attach governance processes to these technical things, it is a benefit because you have a much more real-time interaction with the way that the asset down below can actually transact. But even more so if you actually then have the confidence, which means that you have some data that is connected with the token that points to where it actually goes and what it represents, and the live data reporting what it actually has in terms of values. Then suddenly you're not reliant on a quarterly report but you have a real-time view on it.
As smart contracts perform buy and sell orders of tokens on a blockchain, there's no longer need to rely on a broker or banker as an intermediary.
So I would say that, you know, broadly, those would be some of the aspects where tokenization will transform the financial industry. Whether or not you buy that there will be a complete removal of intermediaries, it will certainly limit the role of intermediaries or diminish the frequency of intermediaries in certain financial transactions.
In the world of tokenization, in the end, it all represents something that has some kind of resemblance in real life. So there's a trust element that needs to be created, which also means that if the token gets lost, it really depends on how you set it up. You can actually sort of then make sure that it's either respecting who the real owner is, or basically gets redistributed back to the original owner. It's just an efficiency technology.
The sale of company shares is bureaucratic, takes a long time, and involves many actors. We need to unite the technical possibilities in the traditional world. The latter insists on maintaining the status quo as it has proven stable over the last few decades. There are stakeholders who profit from this. Naturally, and conversely, the DeFi and crypto community advocates for self-determination in every aspect. However, the reality likely lies somewhere between these extremes, and we must construct accordingly.
Investors do not have access to these companies. Investments in these companies are mainly made by financial institutions in the form of expensive loans or equity funds. The market therefore has minimal liquidity.
Yes, I think it will affect more the B2B space because for us as end-users, we are interested in usability and of course in trust. But we're not necessarily interested if a banking or fintech app is using technology A or technology B, especially if we talk about mass adoption. Then this should not play a role. It should be a well-performing app.
When investing, it is almost always for the long term. If the company's management takes a different direction, investors cannot simply get out. They then try to influence the management of the company. The process becomes sluggish.
Just to think of this as well, it's an open system and therefore everyone has access. That's also not entirely true. It means that depending how you set up the system, and that very much depends on what asset it represents, you have restrictions that you artificially have to build into the system that only a certain type of customer can buy into those specific asset tokens, or that there's only a certain behavior that is allowed to be executed with the token. So there's a very much a technology-enforced restriction, but what it gives you is actually a much higher degree of confidence from a regulatory process as well, that because it's code and because it's actually enforcing what the code is being told to do, that you know you cannot really bypass it.
We expect tokenization and blockchain technology to play a role to design more efficient and streamlined processes. So that's step number one. Then we will potentially tokenize and also use blockchain technology to finance in different ways and to tokenize different assets. So that's, let's say, a growth aspect depending on regulation, but also on strategic decisions. Some fully automated neo-blockchain banks or neo-blockchain players are on the market. We can expect that new use cases and a whole new set of process designs will see the day of light. So this means a totally new category targeting new use cases that are not right there available.
Discussions regarding the energy industry's future increasingly center around energy tokenization. Renewable energies have grown increasingly popular in our current era. Wind and solar parks continue to attract a growing number of investors.
My name is Ekko. I am CEO of Realeport. Decentralization of energy is already there and it's only going to accelerate. I think the past years, considering the Ukraine war and considering the drive of governments and our society to become more independent, has shown an incredible boom of rooftop solar and decentralized energy. So as not only the companies and the supply chains grow more mature, it's going to be even easier for tenants of houses and for owners of houses in order to number one, put solar on the roof. And then it's a matter of connecting that amongst the various decentralized hubs, meaning from one roof to another and into the grid in a smart way. And I do think that technology can play a fantastic role.
The energy sector's intricate network is hindered by outdated infrastructure and numerous inefficient processes. Utilizing blockchain can enhance the efficiency of the energy supply. And efficiency means saving costs. Saving costs means that you can bring in smaller projects, and smaller projects also means that you can bring in smaller investors. Biggest advantages for the smaller guys. It's making it more efficient, making access more efficient, and also enabling smaller wind farms in order to participate within the energy economy. Thanks to its decentralized architecture, it can document and supply chains of multiple energy producers simultaneously, which is a much more complex process with centralized systems. In such systems, every producer has to first send their data to a central location for bundling and processing. In a decentralized blockchain network, anyone can feed the data directly by means of tokenization. A digital copy of each physical energy unit can be stored on a blockchain. This automation of administrative processes can significantly reduce the cost of energy.
You know, the way we see it, there are two different forms. One form is sharing the economic performance out of an energy project or out of a renewable energy project. That means a generator wants to set up a wind farm and needs investors, right? And will promise essentially the proceeds of this wind farm to be shared amongst investors. So now we can tokenize essentially the future proceeds of this project with multiple investors. So that's one part. And the much more difficult part is how do we certify renewable energy through national agencies and make it fungible or tradable in a sense.
Blockchain technology allows for the tracing of energy from the source to the end consumer. Certificates can be issued if required for proof of purchase. This can be a crucial factor, particularly considering the stringent regulations for renewable energy. Currently, it is difficult to ascertain whether the energy derives from wind, solar, or another source. A third party is required to certify the origin, and these certificates may be traded. Greenwashing is facilitated.
There are various legislative and also regulatory aspects around that. Number one is the EU taxonomy, which now tells us what is green, what is not green. So that gives guidance to investors and also to the issuers of financial products. And number two, there is also a self-disclosure regulation called SFDR. So every publisher, every issuer of financial products will need to self-assess themselves whether they are highly sustainable (Article 9) or not sustainable (basically Article 6). And that will give consumers tremendous guidance as to what is green, what is not green. So it means the leeway to kind of move around and kind of greenwash has become a whole lot smaller.
Tokenized certificates can be produced by the supplier, providing an indisputable origin of the energy generated. These certificates are securely stored in the blockchain, ensuring that the data cannot be altered.
Governance token. Governance token is a specific type of token issued by certain companies, often tech companies or so-called decentralized autonomous organizations. The governance token basically have certain rights. From a technical point of view, they're often so-called ERC20 tokens, which means that they follow the standard, which is also used by many other types of tokens. But the right that the owner of this governance token has may be different from security tokens. For example, the governance token often scrutinizes voting rights, i.e., you own the governance tokens and they are issued by companies. And if the company wants to change something, if it wants to implement technical changes, for example, then I have the right to vote. If I hold pieces of these governance tokens, this means that not only do I have a monetary incentive to hold this token and maybe hope for a future profit, but I also have a right of co-determination and I can get involved in communities and my voice is heard based on the number of tokens I hold.
Now the big challenge here lies: how do consumers, be it a business consumer or even a regular retail consumer, buy into certificated or just certified renewable energy sources? And that's where blockchain can provide a huge benefit. And the vision is that eventually you'll be able to match certificates at the time of production with consumption at the time when you really need it.
Tokenization makes wind farms or other renewable energy sources much more accessible to investors. Investing in a solar park via token will be an established procedure in the near future. The same applies to the purchase of electricity from various energy sources. In the field of solar energy, the first energy suppliers have already tokenized their systems. In the case of wind turbines too, there are platforms that bring operators of the turbines together with companies and private individuals. Through tokenization, the owners of the tokens become co-owners of a wind turbine. By selling the electricity, they generate a proportionate return. But the operators of the plants also benefit. For them, tokenization is another way to directly collect the capital of the investment. This gives you reach and access to high liquidity. So far, however, energy has mainly been managed centrally. There's still a long way to go before new technology becomes established.
Um, the next step is now connecting neighborhoods. Um, the same way as larger projects of renewable energies are now participating entire communities in exchange for the permission of erecting a solar farm or a wind farm into participating into that right into into the consumption of the energy which is being produced and that will also create communities which will be able to dispatch and to trade energy amongst themselves and amongst multiple communities. So yes, it is underway. Difficult to say really, right? I think, you know, Germany is probably the largest in Europe rooftop solar market in that respect, has the most installations. But you see this trend everywhere. You see France has very, very strong regulation and the UK and Italy as well. I think we must see it as a pan-European move.
The calls for sustainability, human rights, or animal welfare have been audibly louder for years. Society is increasingly demanding products whose origins can be transparently verified. Supply chain tokenization represents a credible future of product transparency. The technology will be exciting in view of the newly passed supply chain due diligence act.
is intended to prove that human rights and environmental due diligence obligations have not been violated.
[music] Companies will be required to document every step of the supply chain for authorities and consumers. Sustainability [music] should thus become comprehensible, verifiable, and visible.
Tokenization makes it possible to track a product along [music] the entire value chain using a commercially available smartphone. All relevant information about a product is collected and stored in a token. Any kind of information can be stored via app. Every production step and every raw material within the supply chain can be reliably retrieved at any time. In this way, global supply chains can be traced seamlessly.
While supply chain based on blockchain technology can ensure complete documentation for this reporting, artificial intelligence can help to carry out corresponding risk analysis. For example, AI can analyze contracts with suppliers for human rights and environmental standards. If necessary, this enables the company to quickly adopt [music] a contractual arrangement with the supplier.
In agriculture, tokenization allows farmers to tokenize their products. This allows international investors to invest in regional agricultural commodities. In the healthcare sector, the tokenization of medical institutions help in the use of sensitive data of patients and healthcare organizations. The logistic industry is also currently working on a concept of tokenization. Here the bill of ladding is to be transferred to the blockchain and thus solve a problem of administration.
[music] >> So that means that we can expect uh that if tokenization is becoming part of let's say the underlying process setup for financial transactions [music] that the total market size will be bigger than today's um financial asset market volume. But of course this will not happen overnight. It will happen in different steps [music] depending on regulation, on innovation and on general acceptance. We need democratic discussions about things. We need governance. So it could take anything between 5 and 20 years and it will happen in steps. But the addressable market size will become bigger.
>> Despite the many benefits and its increasing prevalence, blockchainbased asset tokenization also has its limitations. A disadvantage that still exists with tokens in general today is the scalability of the underlying blockchains. If you wanted to put the entire security businesses that exist worldwide on a blockchain today in order to tokenize all securities, then the blockchains would not be able to map the transaction volume that is processed there. This means that the system would simply be overloaded and overwhelmed. And this is probably one of the main disadvantage of tokens. So they're not included in a technical standard at all, but rather on the underlying platforms, namely the blockchains on which these tokens exist.
There's a risk of hackers accessing and stealing the digital assets. Blockchain technology itself is considered to be very secure. Despite this, there have been cases of successful hacker attacks on crypto exchanges and other blockchainbased systems. As a rule, the attackers did not gain access via the blockchain itself, but via the points where the blockchain is connected. There is therefore a need to develop a comprehensive and reliable cyber crime protection system.
I think Mika is a great first step. So, you know, if you can think of like a global regulatory waterfall that trickles down, you know, I would say that Europe is kind of sitting at at the top at the crest of this waterfall. And a lot of what as a continent other jurisdictions,
>> banks have traditionally acted as asset managers. They aim to broaden their range of service and provide customers with the most extensive possible choice. As a result, they have begun to investigate the tokenization of assets. It's possible that in the future, banks may oversee the issuance and trading of tokenized assets.
Fintech has become one of the fastest growing industries in recent times. So one area where there is currently a lot of innovation in tokens is the so-called payment processing. You can also take the security tokens as an example. A bond for example pays a regular coupon perhaps a certain interest rate once a year to those who hold that bond. You can equip the token with so much information that it knows the amount of the interest coupon and automatically collects the interest amount from the issuer and then automatically distribute it to investors. In a traditional world, in a banking world, there is the so-called paying agent. So when a company issues a bond, there is a bank that is designated as the paying agent and then ensures that the issuer pays its interest on time and distributed to the investors and this can be automated by program code also by so-called smart contracts and this information can be given to the token.
Midgame >> talking about the ecological impact of blockchains I think is [music] a big deal but we as an industry have to ask ourselves what's right and wrong right a lot of people from looking at it from the outside then think that that all that energy is the same energy mix as the energy that goes into our daily consumption and as much as that was the case [music] it's changed dramatically so there's a lot of um regenerative energies that have have been started to be used hydro energy wind energy but also solar energy that basically go into these [music] uh node computations and this is energy that never has been used in a consumer's perspective. So it's not competing against the energy that you and I use in our daily lives. More than [music] 60% right now is already regenerative energy that the Bitcoin network actually uses and the rest is still something to work on.
In particular, financing via tokens has the chance to drastically change the global economy in the future. Companies will be able to map real assets online and finance them in a decentralized manner. Existing financial services are being replaced by decentralized solutions.
Uh, and I [music] think that in the future, what we're likely going to see is on the on [music] the side of payments and crypto and, you know, we'll have different digital currency areas. So you could have stable coins and uh commercial bank money tokens and [music] different kinds of CBDCs and these will all exist in some and cash will all exist in some in [music] some you know as German say mushroom right in some mix together. Uh and I don't think that one will necessarily crowd out the other.
On the other hand, I I also believe that a lot of [music] why we see an interest in crypto and I think globally it's about like 23% of of of people globally hold crypto. In Europe, I think the average is around [music] 17. So, we're still on the lower side compared to the global average, but it's growing. And I think it's it's confidence, right? So, like if people don't have confidence in a [music] system, they they look for alternatives. And I think that the challenge from a political perspective for the for the for [music] the for the governments for the nation states is how do we instill confidence in our systems in an age of digital transformation? And there's no easy answer to that question. [music] Um and I think that at the same time it might be a little naive to assume that crypto can solve all of the world's problems. So I would say that um we need uh some sort of tempered [music] optimism, right? Or or or tailored optimism.
There is currently still a lack of standardization of the networks. In addition, legal standards must be developed to provide [music] companies, investors alike with clarity and thus security. We can already see the effects on our society today. The technology has already arrived in the here and now. [music]