A considerable share of the world’s wealth is stored in illiquid assets, notes a report published on September 12, the result of a partnership between Boston Consulting Group (BCG) and the digital exchange platform for private markets ADDX. These assets include IPO-ready stocks, real estate, private debt, SME income, art, and more.
The report indicates that these assets are illiquid, in particular due to their limited accessibility outside the circles of sophisticated investors, the complex expertise in wealth management and the difficulty of acquiring or trading them. As a reminder, an asset is qualified as illiquid when its holder cannot easily exchange it for money.
Tokenizing these assets via the blockchain could provide a solution to their illiquidity problem, says BCG. If this market is still marginal, with an equivalent of 310 billion dollars estimated for 2022, the forecasts turn out to be exponential. The global market for illiquid tokenized assets could reach a total of $5.2 trillion in 2026 and $16.1 trillion in 2030. BCG even goes so far as to claim that the market for tokenized assets could represent up to 10% of global GDP in 2030.
Beyond its potential, the asset tokenization market must first navigate regulatory uncertainties that vary from jurisdiction to jurisdiction. The ability of legislators to provide a clear regulatory framework to market players is turning into a competitive advantage between the different regions of the world.
The benefits of regulation
On the occasion of the Global Funding and Financing Summit organized by Deutsche Börse Group in Luxembourg from September 13 to 15, a panel of industry representatives returned to this aspect. “From a European perspective, we have the Digital Finance Package which has really moved things forward,” explained Maha Al Saadi, compliance and regulatory affairs director at Bankhaus Scheich/Tradias. Proposed in September 2020, the Digital Finance Package sets out general guidelines on how the European Union can adapt its regulatory framework to support the digital transition of financial services.
The MiCA (Regulation on Markets in Crypto-Assets) regulation, with a view to consumer protection and harmonized access to crypto-asset markets, and DORA (Digital Operational Resilience Act), relating to the management of technological risks by market players, are part of it. On this observation, “Europe is in the lead on this issue (…) and will have a truly harmonized approach for all 27 Member States”, declared Maha Al Saadi.
In turn, Jens Hachmeister, managing director at Deutsche Börse for the Issuer services & New digital markets division, shares the same opinion. However, he has some reservations. “The concern I have though in Europe is that we have probably been good at regulating parts of infrastructure, but it is also necessary to look at securities,” he said, before emphasizing “We don’t have a European securities passport. So what we do at home (Deutsche Börse, editor’s note) we do with a German solution based on German securities law.”
A question of vision
Both the regulatory framework and the technology should therefore allow for the same vision. “We are building networks globally. (…) And the question is what is the advantage of the next digital network. It’s really the idea that we can move towards an instant solution of securities services, which should allow market players to create even more products to distribute directly, in order to really create the interlinkage between the various players in the market,” says Jens Hachmeister.
In this vision, Jens Hachmeister does not see a “disintermediation” of the market. “I believe market players as they are today retain their roles, but have new opportunities by plugging into this infrastructure,” he said.
The claimed objectives of the Digital Finance Package are to “accelerate cross-border operations”, to “improve the integration of financial markets in the banking union and the capital markets union” and ultimately to “strengthen the economic union and European Monetary Policy’, as presented by the European Commission. The application of these objectives should not lead to any other result. As the Brussels executive reminds us, the strategic autonomy of European financial services depends on it.