New whitepaper: Strong arguments in favor of tokenized assets
Blockchain technology and financial products based on it, such as Security Tokens, are opening up new potential for the financial industry. A wide variety of assets are able to be issued in purely digital form via Security Token Offerings (STO). What makes Security Tokens so interesting for institutional investors? A new whitepaper by fintech 21finance, provider of digital marketplaces for banking institutions and asset managers, explores this question with renowned companies such as management consultants Ernst&Young and the media portal BTC-ECHO.
Frankfurt (DE), June 22, 2022 – Studies and market analyses show that the interest of institutional investors in digital assets is higher than ever. In this context, demand is not limited to cryptocurrencies such as Bitcoin, but also other digital assets. For example, what about tokenizing assets such as stocks, bonds, and art objects and selling them directly digitally without intermediaries? What does it take to attract the interest of institutional investors?
Tokenization means simplification – and a bundle of benefits at once
Among others, the renowned auditing firm Ernst&Young highlights the opportunities and risks of tokenization, especially for institutional investments, in the latest whitepaper from 21finance. From the point of view of Steffen Hönig, Director in the Asset Management division at Ernst&Young in Frankfurt, institutional investors in particular benefit from the development of tokenization and Security Token Offerings (STOs).
“STOs simplify the processing of the entire asset lifecycle. Tokens offer benefits to issuers, brokers, and investors alike through access to more capital, portfolio diversification, improved liquidity, faster onboarding, efficient processes, and settlement,” Hönig summarizes, highlighting the potential of the global tokenization market. This could grow to $4.8 billion by 2025 with an average annual growth of 19.5 percent, he adds.
Sven Wagenknecht, the co-founder of the media portal BTC-Echo, which specializes in blockchain and cryptocurrencies, emphasizes the increased awareness of digital tangibles among investors. “The fact that value and value creation are moving into the purely digital space is enabling a new understanding of investments. Purely digital securities settlement, custody as well as issuance promise significant cost advantages.”
Expanded investment universe through fractionalization of diverse assets
In addition, according to Max J. Heinzle, founder and CEO of Liechtenstein-based FinTech 21finance, investing in digital assets for institutional investors enables special return opportunities, which plays a major role, especially in the current low-interest environment. Security Tokens open up access to previously untapped asset classes, such as art, real estate, or intellectual property. Even exotic assets, such as classic cars, could be placed on the market to any desired degree of fractionalization through tokenization. This fragmentation makes tokens easily tradable and brings the desired high liquidity, he said.
“Tokenization enables faster onboarding, efficient processes, simple settlement, and round-the-clock global availability, which significantly increases transaction speed,” clarifies Heinzle, who with his team at 21finance develops legally compliant online stores for banks and financial intermediaries for the distribution of classic and digital assets.
Reputation and regulation are also important decision criteria for STO
A key criterion for the investment decision of a large institutional investor is also the reputation of a project, which should be audited by a Big 4 or meet triple-A standards. As with traditional products, institutional investors take a close look at both the people behind the project and the trustworthiness of the jurisdiction. The Electronic Securities Introduction Act (eWpG), which recently came into force in Germany, aims to promote investor confidence by clarifying the law.
“One obstacle for institutional investors is the currently still limited tradability of tokens, as there is not yet a fully comprehensive secondary market structure,” explains Nils von Schoenaich-Carolath, Managing Director Digital Assets Bankhaus Scheich. Unlike cryptocurrencies, Security Tokens as regulated financial products are de facto not yet tradable on exchanges, or only to a limited extent. However, a functioning and liquid secondary market should significantly increase demand from institutional investors in the future.
“Large institutions in particular avoid risks and tend to invest in projects that already have a track record. For them, security tokens are currently still too risky. From the perspective of the experts surveyed, however, the chances are good that this will change,” Heinzle sums up.
The white paper is available for download HERE. In addition to Ernst & Young, experts from BTC-ECHO, Bankhaus Scheich, Bankhaus von der Heydt, and LHD Associates were authors of the whitepaper.
About 21.finance AG
Founded in 2017, 21.finance AG’s “Marketplace as a Service” (MaaS) software solution enables banks, financial intermediaries, and non-financials to create their own marketplace and distribute their products through it. With their own digital and legally compliant online shop for financial products, the fintech’s customers can optimize their sales channels to increase assets under management, reduce operating costs, acquire new customers and ultimately open up new revenue channels. The white label solution gives them access to software and support services to provide a fully digital and regulated investment experience for their investors. Learn more about 21finance at www.21.finance.
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