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Institutional investors: new entrants in the digital asset ecosystem

Wealth Monaco met Laurent Barocas, former specialist in the banking sector and financial services (Global Business Manager at Bloomberg) now (re)-converted to digital assets, who shares with us his vision of the global emergence of institutional players in the world of digital assets.

The Bill n° 1.491 of June 23, 2020relating to digital asset token offers is part of the Extended Monacoprogram by adapting certain aspects of the blockchain project No. 2019-7 of May 20, 2019.

However, the system was built with a redefined scope and a refined ambition: the one of being specifically oriented towards the financing of companies and dedicated to fundraising carried out through the blockchain.

The law provides two types of fundraising: Initial Coin Offerings (ICO) and Security Token Offerings (STO).

In an ICO, the tokens received by the investor are referred to a “utility tokens.” They provide access to products and services. The Binance trading platform has for example developed a utility token which has the function of reducing trading costs and voting for the integration of new products on the exchange. ICOs can be private or public and are reserved to legal persons registered in Monaco.

In the context of an STO, the tokens received by the investor are called “security tokens” and have the characteristics of a financial instrument. They confer one or more rights (right to shares in the capital of the issuing company, right to vote at a general meeting, right to dividends, etc.). STOs must be private and are reserved to joint stock companies registered in Monaco.

The Monegasque strategy differs from the one chosen by France; in fact, the Pacte law, adopted on April 11, 2019, instructs the Autorité des Marchés Financiers (AMF) to certify start-ups wishing to carry out ICOs by means of an optional visa.

While in Monaco, any offer of tokens will be subject to prior administrative authorization, taking the form of a label issued by the Minister of State, after consultation with a dedicated Commission.

Despite the fact that the institutional adoption of digital assets is still in its infancy, the demand from traditional asset managers is already growing rapidly.

According to Laurent Barocas, Head of Indices at Trakx, a French startup supported by ConsenSys which is developing an institutional platform for trading digital assets

« the sector is changing rapidly and institutional investors such as hedge funds, family offices and asset managers are joining this sector very quickly ».

This finding is confirmed by the report entitled “Institutional Adoption of Digital Asset Trading” from the research firm Acuiti which shares the results of a survey carried out with traditional financial institutions and companies specializing in crypto-trading. This report assesses the current state of digital asset adoption across the financial industry and the willingness of industry participants to utilize this emerging asset class.

The report found that current adoption rates are still relatively low, although growing. About a fifth of traditional asset managers (17%) use digital assets such as bitcoin and ether in their investment portfolio.

The APAC region has the highest adoption rate with 57% of service providers surveyed providing execution or custody services for digital assets, compared to around 40% in North America and 30% in Europe.

When asked about the main obstacles preventing them from adopting digital assets, institutional investors cited trade security / fear of piracy, concerns about custody of assets, as well as regulatory uncertaintysurrounding this industry.

For service providers, concerns over anti-money laundering (AML) and customer verification (KYC), and reputation risk, were cited as the main concerns preventing them from adopting digital assets.

However, the report identified a growing demand from traditional institutions, with many of them seeking to join this market in the near future. Out of the traditional companies that decided not to trade digital assets, 97% said they will reconsider the opportunity again in the next two years or less.

A rapidly growing ecosystem

The comapny ecosystem targeting institutional investors has matured considerably in the past two years and now includes a number of companies that span the entire value chain.

These include issuers and tokenization platforms, brokers and transaction executing companies, liquidity providers, stock exchanges, depositaries, investment funds, funds of funds and suppliers of data.

Several incumbents including Fidelity, State Street and Börse Stuttgart, have also entered the landscape of digital asset service providers.

According to Trakx “2020 will be a decisive year” for the development of the sector. Many startups continue to build the technical infrastructure for the arrival of institutional players. At the same time, asset managers are becoming more familiar with cryptocurrencies.

But institutional adoption will also highly depends on the pace at which regulators will create legal certainty around digital assets, including by implementing a transparent definition of what constitutes digital assets and the regulations to which they are subject to.

With its clear regulations on blockchain and tokens, Monaco will certainly attract serious projects, paving the way for institutional adoption in the Principality.

Article : Joana Foglia – Source: interview of Laurent Barocas

Post Author: Wealth Monaco