Discussions about the recent boom in digital assets and its growth, even as the market for tokenized securities remains in its early stages, began at Sibos 2022 in Amsterdam. During a panel discussion, Yuval Rooz, CEO and co-founder of Digital Asset, expressed his skepticism about fractionalization, stating that he believes “fractionalisation is a red herring.”
Fractional digital assets can be secured in a smart contract and divided into fungible ERC-20 tokens of equal value. This allows individuals to purchase multiple shares of a digital asset, granting complete ownership of a unique item. However, for some assets, this has resulted in significantly inflated prices and associated costs.
Rooz elaborated that fractionalization allows for the transaction of high-value assets by breaking them into smaller components, making it accessible for individuals with limited funds to own a piece of the asset. However, he pointed out that the transaction fees and legal costs involved make this process complex. He noted the efficiency of Robinhood’s fractionalized trading of US equities, highlighting its cost-effectiveness and speed.
Rosie Hampson, executive director at Goldman Sachs, emphasized that fractionalization encompasses both mobility and market access. She discussed the importance of digitizing new asset types while also considering the implications for traditional services and how to enhance liquidity for these products. Hampson pointed out that utilizing blockchain for asset tokenization can enable atomic swaps, improving intraday liquidity and mobilizing typically illiquid assets, ultimately leading to risk reduction due to the instantaneity of transactions.
The panel further explored how blockchain’s fundamental benefits, such as immutability and transparency, can enhance the movement, structuring, and trading of both traditional and new assets.
David Durouchoux, deputy CEO at Société Générale, highlighted the disruptive nature of blockchain technology. Jens Hachmeister, head of issuer services and new digital markets at Clearstream, stressed the importance of understanding both the private and public permissions required for this technology. He emphasized the need to evaluate the changes occurring in market infrastructure and the integration of distributed tools with current systems, advocating for a next-generation digital market infrastructure that combines legacy structures with decentralized components.
While there is a noticeable demand from the retail market, there is a need for that interest to transition into the institutional sector. Hachmeister noted that the complexities present in this space usually increase in the short term before eventually simplifying.