NCFA Blockchain Fintech CONFIDENTIAL (Vol 1, Issue 1)

asset class is curious in that while securitized
corporate debt is highly structured, rated
and regulated, nothing stops any company
from taking a loan from almost anyone in
many jurisdictions around the world. This is
indeed an area of buyer/investor beware. It
remains to be seen to what degree regulators
choose to treat tokenized corporate debt
as equivalent to a regulated bond, versus a
simple loan documented on a blockchain.
The degree and nature of future regulation
hangs in the balance. Regulators around
the world have often retroactively applied
future rulings to past investments, which can
cause both issuers and investors significant
heartburn. That said, corporate lending has
a long history of standardization in structure
and information flow, that makes tokenization
of this asset class attractive for both issuers
and investors.
Futures & Commodities - This asset class
includes the securitization of both current
hard-assets such as oil & gas, mineral claims,
mining production etc., as well as synthetic/
derivative instruments such as futures
for resources yet to be produced such as
unharvested or even un-sown agricultural
commodities. As a result this asset class
is both highly structured and regulated
especially in the area of derivatives and
futures. There is also a tradition of highfrequency
secondary trading of many
of these assets. This last characteristic
makes issuance and documentation via
blockchain particularly attractive for both
the owners of the underlying assets and
the investors they attract. The higher the
volume or frequency of trading, the higher
the potential reduction in administrative
costs promised by a robust blockchain
implementation.
Corporate Equity - No area of tokenization
causes asset issuers, investors and
regulators more pain and uncertainty than
the area of corporate equity issuance via
blockchain. No area of asset securitization
has been more rife with scams and hustles
than the issuance of stock in companies,
attracting the justifiable attention of
regulators as a result. While technically
extremely well suited to blockchain-based
tokenization, corporate equity issuance
laws, categorization and restrictions vary
incredibly across international jurisdictions.
Who can invest in what, when and where
is in no way standardized. Reporting and
registration requirements such as KYC/
AML as well as investor accreditation rules
add another layer of complexity. While
certainly possible in-jurisdiction now, true
international equity issuance and investment
via efficient technology enabled tokenization
seems a more distant goal. The ability of
regulators to truly cooperate internationally
beyond superficial letters of understanding
will deeply influence the pace at which
international corporate equity tokenization
becomes practical.
Obviously this is a limited and high-level
survey of some characteristic asset classes
only. Although the challenges to practical,
economical and regulation-compliant token
issuance are significant, the benefits in the
form of increases asset values, investor
flexibility and reduced fees for all actors are
compelling.
Where there is a financial benefit a way is
usually found. It will be profoundly interesting
to see the concept of asset tokenization go
from a rarity to the norm, very possibly faster
than we could have imagined. At Northmark
Ventures we fully expect to see examples
of successful tokenization projects in all the
asset classes discussed here in 2019.
Routine tokenization of these issues with
multiple credible platform options for
asset owners is likely to take longer. Asset
issuers are unlikely to say no to higher asset
valuations, lower fees and a broader investor
base. The key wildcards remain on one
hand regulator behaviour, and on the other
acceptance of tokenized securities by the
ultimate driver of blockchain token adoption,
the retail investor.
Bernd Petak
Investment Partner
Northmark Ventures
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