When it comes to tokenisation, traditional stock exchanges might be mistaking the future for the past
- Future of Finance
- Sep 3, 2024
- 21 min read
Updated: Sep 8
The lack of interest of traditional stock exchanges in tokenisation is counter-intuitive. After all, most people think stock exchanges exist to help issuers raise capital in the primary market and price capital in secondary market trading. Yet both the biggest global exchanges in major markets and emergent stock exchanges in developing markets have, for different reasons, passed up the token opportunity. For mature exchanges in particular, the omission appears to make sense. As businesses, they are increasingly uninterested in revenues from issuance and trading, making tokenisation look like a return to their past rather than their future. For similar reasons, selling operational support services to managers of privately managed assets looks the best token bet to place, but it might prove a catastrophic strategic mistake. Tokenisation, like any innovation, poses an awkward dilemma: doing the right thing in the short term might turn out to be the wrong thing in the long term. Traditional stock exchanges might just be impaling themselves on the horns of this dilemma.
Future of Finance recently researched 87 traditional stock exchanges around the world to find out what they were doing about tokenisation. The study found that about 20 per cent were active in cryptocurrency futures and funds, and another 20 per cent were investing in digital securities or the infrastructure needed to support digital securities. But 60 per cent were doing nothing at all. (1)
Meanwhile, specialist token exchanges are proliferating. Thetokenizer.io currently lists 64 token exchanges around the world, of which 19 offer a platform that issuers can use to tokenise securities and funds. (2) The list is certainly not comprehensive. STOMarket, another organisation that tracks the security token markets, monitors 612 tokens worth more than US$40 billion listed on 34 separate exchanges. (3)
Most traditional stock exchanges are doing nothing about tokenisation
Some jurisdictions have proved more prolific than others in generating token exchanges. Singapore is the global market leader, having spawned a dozen (1x Exchange, ADDX, Altax, AsiaNext, BondBlox, DBS Digital Exchange, DigiFT, InvestAX, Kasa, AgoraX, SDAX and SGX Bond Trading), while second-placed Switzerland hosts half a dozen (Aktionariat, though they are now changing strategy, BKBE/BCBE, BX Digital, SDX, Sygnex and TDX).
What is curious about all such lists is the absence of traditional stock exchanges. Deutsche Börse, the Singapore Exchange (SGX), the Swiss Stock Exchange (SIX), the Luxembourg Stock Exchange, Börse Stuttgart and the Canadian Securities Exchange (which is itself only 20 years old) are the only established exchanges to have invested enough in tokenised assets to be noticeable.
In Japan, it is the junior arm of the Japan Exchange Group, the Osaka Stock Exchange, that has taken the lead in establishing the Osaka Digital Exchange (ODX) with the go-ahead SBI Holdings Group. (4) The venerable Tokyo Stock Exchange (TSE), also owned by the Japan Exchange Group, has by contrast confined itself to a minority interest in a tokenisation platform (BOOSTRY) and has kept issuers and investors waiting for more than two years for its proposed security token market to open in April 2025.
It is mainly challengers, rather than incumbents, which have invested. This is partly because they have much to gain and little to lose from betting on the growth of tokenised markets. But entrepreneurial vision and energy is also a factor.
Stock exchanges face different incentives in emerging and mature markets
In the case of emerging markets, the answer is obvious: they do not need to do anything. Their core business, of introducing companies to capital through listings, is healthy. World Bank data shows that since the late 1980s the number of listings of domestic companies has increased by 258 per cent (see Chart 1). Their market capitalisations, and listing and trading revenues, reflect the foundational role of stock exchanges in developing economies – and the fact that corporate issuance and investor engagement still have ample room left for further growth.
In mature, high-income economies, on the other hand, listings are in secular decline. This is especially true of two leading Anglo-Saxon economies: the United States and the United Kingdom. World Bank data shows that in the United States the number of domestic companies listed on stock exchanges had by 2022 fallen by 43 per cent since the peak in 1996. In the United Kingdom, the number of domestic companies listed on the London Stock Exchange had by 2022 fallen by 50 per cent since the peak in 2006 (see Chart 2).
However, listings are diminishing in other advanced economies too. The World Bank data shows that domestic listings in high-income economies and member-states of the Organisation of Economic Cooperation and Development (OECD) other than the United States and the United Kingdom are down 14 per cent and 21 per cent since their peaks in 2014 (see Chart 3).
Why is this happening? One explanation is that developed economies have reached saturation point. In other words, the positive relationship between the stock market and economic growth that is observable in middle income countries has ceased to apply to developed economies. An International Monetary Fund paper of 2012 argued that finance actually starts to inhibit economic growth once the financial sector is equivalent in size to 80 per cent or more of GDP. (5)
The private equity industry has hurt stock exchanges in mature markets
Another factor is the growth of the private equity industry. At end-June 2023, assets under management by the global private equity industry were worth US$8.2 trillion. (6) True, this is a fraction of the US$115 trillion capitalisation of the global equity markets, (7) but such a straightforward comparison under-estimates the extent to which private funds co-invest alongside institutional investors and further enlarge their impact through leverage. In short, the private equity industry has more than enough equity and debt capital to compete with public markets to own public companies and to keep private companies private for longer.
Private ownership is also more congenial for management. They escape the quarterly pressure to enhance earnings, the cost of maintaining a public listing, the need to comply with public information disclosure rules and the constant threat of being taken over (indeed, mergers and acquisitions have played a large part in reducing the numbers of listed companies). Though they rarely use the time well, managers do get the space to plan, invest and build.
In addition, private equity owners tend increasingly to devour most of the shareholder value private ownership creates, leaving less for institutional investors in the public markets. That makes it harder for private companies to achieve higher valuations at an initial public offering (IPOs), so most privately owned companies get sold to another private equity fund or a trade buyer and never touch the stock exchange at all.
Demography, passive investing and fragmentation of liquidity do not help
Other factors are at work. Maturing pension funds serving ageing populations that need income more than capital growth are shifting institutional money into the bond markets. But it is the rising popularity of passive investment funds – which, by definition, do not take part in new issues – which is the more formidable enemy of the old-fashioned IPO.
According to BCG, passive investment strategies accounted for 20 per cent of global assets under management (US$24 trillion) in 2023, double the share they took in 2005 (10 per cent) and six times the value (US$4 trillion). In 2023 passive products attracted 70 per cent of net flows into mutual funds and exchange-traded funds (ETFs). (8) (Ironically, ETFs have provide one of the few sources of additional listing fees for exchanges, and have encouraged them to manufacture bespoke market indices.)
Equity trading has also moved away from the traditional stock exchanges. Since the passage of measures designed to reduce fragmentation and achieve better prices for investors by increasing competition for their business – namely, Regulation National Market System (Reg NMS) in the United States in 2005 and the first iteration of the Markets in Financial Instruments Directive (MiFID 1) in 2007 – the reverse of the intended effects has occurred: equity trading has shifted to a variety of often less visible price formation venues.
The greater fragmentation of trading is the greatest (and most ironic) of the consequences of Reg NMS and MFID. But the measures also prompted an increase in short-term activity by professional traders (so-called High Frequency Trading), a shrinkage of average transaction sizes and reduced price transparency through the proliferation of “dark pools.” But however unintended the consequences, the net result was that traditional stock exchanges lost trading revenues.
Traditional stock exchanges are diversifying away from their original mission
The loss of transactional and listing revenues has forced stock exchanges in developed markets to diversify their sources of income away from the fees they traditionally earned from operating capital markets. No established exchange illustrates this more vividly than the London Stock Exchange Group (LSEG). As Chart 4 shows, LSEG has transformed itself – notably by the acquisition of Refinitiv for US$27 billion in 2021 – into a company that earns two thirds of its revenues from selling data. Capital markets now account for less than one seventh of revenues at LSEG.
The shift away from listing and transaction revenues is less noticeable at Deutsche Börse, but the German exchange group is nevertheless emphasising post-trade rather than trading services and building a data business for asset managers (it purchased asset management technology vendor SimCorp for €3.9 billion in September 2023 and in November 2023 launched an investment management division).
Euronext is following the same path, management boasting consistently in analyst presentations about their diversification away from “volume-related businesses.” Likewise, at ICE the apparently high level of reliance on transactional activity is exaggerated by the inclusion of clearing in its capital markets revenues. ICE is even developing a mortgage data business by buying home loan companies.
Nasdaq, the principal domestic rival to the ICE-owned New York Stock Exchange (NYSE), is also shifting its focus away from equity issuance and trading. In November 2023, Nasdaq purchased the financial software company Adenza for US$10.5 billion. For Nasdaq, Adenza adds risk and compliance management services as well as data.
To traditional stock exchanges, tokenisation looks like their past rather than their future
This tilt away from issuance and trading activity helps to explain the widespread lack of enthusiasm in the stock exchange industry for tokenisation. After all, considered superficially, tokenisation is all about cutting the costs of issuance and trading. In their estimation, equity trading in particular is already so efficient, thanks to Reg NMS and MiFID, than they want to reduce their exposure rather than increase it.
The World Federation of Exchanges (WFE) boasted in a recent paper that not one of its members had yet launched a tokenised equity market “because these markets are already very efficient.” (9) Indeed, equity trading is now so efficient that traditional exchanges no longer see it as something which will reward their shareholders with the profit margins they expect.
Nor, gauging by recent share price performance, is this judgment wrong. As Chart 5 shows, the strategic shift away from transactional revenues is generating value for shareholders of leading stock exchange groups. A rising share price limits the appetite for investing in innovative ideas.
Traditional exchanges are also observing the conspicuous lack of success of peers that have invested in tokenisation (a fate shared by the various start-up token exchanges). Accordingly, the senior management of traditional stock exchanges could be forgiven for thinking that tokenisation represents nothing but a threat to their current performance: hefty up-front investment costs plus no proven path to profitability.
Blockchain technology furnishes exchanges with plenty of arguments for inertia
Traditional stock exchanges can also argue that the investment costs are not purely in-house. Transitioning an entire domestic securities industry to a tokenised model entails forcing sell-side market participants to build interfaces and systems to support tokens as well, and to insulate their buy-side clients from the impact. If the users of exchange services are unwilling to make the investment, stock exchanges cannot drag them along.
That lack of incentive to invest is exacerbated by the lack of interoperability between blockchain networks, let alone between blockchain networks and traditional markets of the kind stock exchanges operate. Until present work-arounds, and efforts to standardise exchanges of data between blockchains, achieve greater success, the cost of building separate connections to each platform erects another barrier to adopting tokenisation.
Lack of inter-operability obviously inhibits activity, since it makes it harder to move liquidity between markets and asset classes. But nor have concerns about the speed, scalability and storage capacity of blockchain technology itself disappeared. Between 2021 and 2023 the daily trading volume in US equities alone averaged more than 11.4 billion trades a day worth an average of US$550 billion. (10) Bitcoin, the most heavily traded asset on blockchain technology, has cleared 4 million trades a day once in the last five years. (11)
Though Bitcoin trades generally settle within 5 to 20 minutes (12) - rather faster than the trade date plus one day (T+1) timetable North American markets adopted in May 2024 - congestion can precipitate delays that continue for days. Traditional stock exchanges have reasonable grounds for believing that blockchain technology is not fast enough to execute and settle all the trades they currently host.
This further undermines the case for investing in tokenisation. Indeed, exchanges also argue that unpredictable settlement timetables damage activity (and so liquidity) because there is no trusted intermediary, such as a CSD or custodian bank, to make investors whole when a trade fails. Indeed, in blockchain transactions, trades do not merely fail until they are repaired, but actually die.
This is a consequence of “atomic” settlement: the instant exchange of two assets that are linked, so that the transfer of one occurs only upon transfer of the other, with transactions that fail to match ceasing to exist rather than being treated as exceptions for later repair.
Although “atomic” settlement is hard to achieve as long as fiat currency is not available in digital form on blockchain networks, the mere idea of it is sufficiently different from the way securities markets work today for exchanges to insist without much fear of contradiction that their users do not want it.
Whatever the merits and demerits of securities markets based on credit, sell-side firms have always traded without having all the funds and securities available up-front. They have long since built the cost of posting collateral to cover the risk of trade failure into their calculations, and anyway economise on these costs through multi-lateral netting, usually via a counterparty clearing house (CCP).
Lack of clearing, inadequate custody and “regulatory uncertainty” further militate against tokenisation
Clearing is not incompatible with blockchain – ClearToken is building a CCP which will provide cross-token netting for the tokenised asset markets – but its continuing absence does increase the cost of cash (and the capital that cash demands) that has to be committed to tokenised trading by sell-side firms. This gives exchanges yet another reason to be sceptical that tokenised markets are about to scale.
Similarly, exchanges note that buy-side institutions want independent custody services provided by banks that will make them whole in the event of loss, rather than running their own wallets (self-custody) or relying on a service provided by a cryptocurrency exchange or working with a digital asset custody start-up.
Some global custodian banks are prepared to provide these services but find themselves in a chicken-and-egg predicament, where they need scale – which cryptocurrency holdings alone cannot provide - to invest. In the United States, moves by the Securities and Exchange Commission (SEC) to put assets in custody on bank balance sheets and extend the range of assets for which they are responsible have provided a further disincentive. The proposed changes were sufficient to prompt State Street to abandon its plans to provide a digital asset custody service altogether. (13)
This is an instance where the stock exchange claim that neither law nor regulation is sufficiently clear about tokenisation for issuers and investors - let alone exchanges - to embrace it, has some force.
But this excuse is increasingly threadbare in the major markets of western Europe, North America and Asia. (14) Germany, for example, has even defined token custody in law. Across many ambitious but less developed markets, legislators and regulators are busy re-writing laws and rules to help the local securities industry attract token business. “Regulatory uncertainty” is an excuse rather than a fact.
Stock exchange investment in cryptocurrency services is a stop-gap
But on balance traditional exchanges are probably right to be confident that, until global custodians provide a service and reassure them that the regulatory framework is sound, institutional investors will not engage with tokens. Though some exchanges are themselves providing post-trade services, including custody as well as clearing, their efforts are also constrained by the lack of scale in token markets and limited largely to cryptocurrencies.
This of course reflects the failure of security and fund and asset-backed tokens to take off. Cryptocurrencies can provide exchanges with revenues and profits while they continue to invest in security and fund tokens. The cryptocurrency pitch by exchanges that offer services is, understandably, a conservative one. After all, they compete for cryptocurrency business in a fragmented marketplace that is scarcely regulated at all.
Though the top ten exchanges account for probably half the trading volume on the average day, Coinmarketcap records 250 cryptocurrency exchanges (of which 95 also trade cryptocurrency derivatives) and 454 decentralised exchanges (DEXEs) (of which 13 trade cryptocurrency derivatives). (15) In this environment, institutional money, insofar as it is interested in cryptocurrencies at all, is bound to welcome the assistance of familiar and long-established traditional stock exchanges.
The stock exchange bias to institutional money might be a strategic mistake
However, this bias to institutional participants in the cryptocurrency markets might turn out to be a strategic error. All the reasons traditional stock exchanges have identified for abjuring investment in tokenisation – the existing efficiency of equity markets, heavy investment costs, lack of interoperability, limited speed and scalability, the absence of clearing and independent custody and regulatory uncertainty - rest on the belief that tokenisation cannot scale without institutional money. The few exchanges that have committed to tokenisation believe this more ardently than most.
Yet the only blockchain-based markets to have attained any scale at all – namely, cryptocurrencies - have relied largely on retail money. True, retail investors in cryptocurrencies are having an even worse experience than retail investors in the conventional financial markets. If retail traders lose 75-80 per cent of the time in traditional markets, they lose 95-100 per cent of the time in cryptocurrency markets. In both traditional and cryptocurrency markets trading, the retail side supplies the money and the professional side takes the profits.
This is ironic. One reason why retail investors have abandoned direct participation in conventional financial markets is that they sense the game is rigged against them. They have invested in cryptocurrencies partly because it is much easier to do so but mainly because the chance of making significant gains – even life-changing amounts of money – is greater in a zero-sum investment such as cryptocurrencies than in a positive-sum investment such as equities.
Traditional stock exchanges, like asset managers, abandoned retail investors a long time ago. According to the Office for National Statistics, retail investors in the United Kingdom owned just 10.8 per cent of shares in domestic listed companies at the end of 2022. (16) In the United States, the most recent survey by the Federal Reserve estimates that 21 per cent of Americans own shares directly. (17) In 1950, retail investors owned 90 per cent of the common stock of American public corporations directly. Today, most American retail investors own shares, if they own them at all, through mutual funds invested via retirement plans.
Tokenisation take-off probably depends on retail rather than institutional money
Which prompts a question: could blockchain do for equities what blockchain has done for cryptocurrencies? Cryptocurrency exchanges have certainly thought so, on grounds their customers would welcome the opportunity to trade tokenised stocks alongside cryptocurrency assets on a single market infrastructure.
Both Binance and FTX (before it failed in November 2022) have offered tokenised versions of popular common stocks such as Amazon, Apple, BioNTech, Facebook, Google, Netflix, Nvidia and Tesla, in which the tokens represent holdings of the underlying shares in a fashion akin to a depositary receipt. Bittrex Global – unlike Binance and FTX, a cryptocurrency exchange that actively sought regulatory approvals - also offered tokenised versions of high-profile stocks before it closed in 2023. (18)
Regulators have discouraged the trading of tokenised shares on cryptocurrency exchanges, but a retail appetite for trading them clearly exists. The difficulty even specialist, regulatorily compliant token exchanges have faced is that issuers of the sort of high profile, highly liquid technology stocks retail investors want to trade lack the incentive to issue shares in tokenised form.
That said, there are benefits for issuers in tokenising equity. Blockchain ensures the register of shareholders is always up to date. Automation of dividend payments and other corporate actions through smart contracts can reduce paying agency costs. But most of the benefits, such as the elimination of brokerage fees, the ability to own fractions of shares and collect fractions of dividends and the option to trade the tokens around-the-clock, accrue to investors rather than issuers.
Even so, the benefits of tokenisation for investors are not completely immaterial for issuers. If tokenisation enables issuers to tap a wider range of potential shareholders, it could reduce their cost of equity capital. And in the long run the principal way in which tokenisation can achieve that is not ease of access, though that matters to retail investors, but through personalisation of investment portfolios.
Stock exchanges can help asset managers realise the potential of tokenisation
This is the point at which the choices that asset managers make ought to govern what traditional stock exchanges (and indeed specialist token exchanges) do in terms of making tokenisation happen.
Tokens are not just efficient substitutes for securities. They are something completely different. As executable objects in computers, they can simulate literally any object or idea. In other words, in financial services tokens can express and make investable any source of value or stream of income, including those that have yet to be conceived.
The opportunity this presents to asset managers is to stop selling crude bundles of cash and securities - ultimately, risk-adjusted market returns - and start selling flows of value calibrated precisely to the needs of individual investors as combinations of flows of tokens between issuers and investors on blockchain networks. (19)
The opportunity for traditional stock exchanges is to provide the open market infrastructure that enables issuers, asset managers and entrepreneurial intermediaries to manufacture the products and provide the services to deliver discrete, individualised portfolios to retail investors.
Providing such an infrastructure would represent a return by stock exchanges to their true personality: the provision of a neutral infrastructure which does not compete with their customers but on which existing and new customers can pursue an infinite variety of ends.
This idea is not completely alien to traditional stock exchanges. For example, at the R3 Cordacon conference in London in 2021, Dr Robert Barnes, then CEO of the Turquoise international securities trading platform at LSEG, outlined a vision of a future in which a traditional stock exchange becomes a “business service operator” that “orchestrates” a “regulated digital ecosystem.” (20)
He meant that LSEG would operate a secure, regulated and above all neutral market infrastructure on which its customers – issuers and investors - could meet, co-operate, partner with and transact with a variety of existing and innovative service providers across tokenised securities and funds markets. It was a network vision, from which network effects could be expected to flow, and it is a valid one.
Unfortunately, traditional stock exchanges are dependent on what asset managers decide to do
Yet the opportunity will be hard for traditional stock exchanges to seize. One reason is that they work not with the individual investors that are most likely to drive tokenisation but with institutionalised asset managers and brokers. Exchanges have lost touch with retail investors and will find rebuilding those relationships akin – as Wittgenstein said of another task – to repairing “a torn spider’s web with our fingers.” (21)
Worse, the asset managers with which exchanges do transact have also abandoned retail business to another class of intermediary - wealth managers, serviced by fund platforms - they treat as distributors of their products. So Exchanges are not one step removed from retail investors but two, and arguably even three. Their ability to profit from tokenisation of securities and funds is dependent on what asset managers decide to do.
Another obstacle is the strategic shift of the traditional exchanges away from what Euronext calls “volume-related businesses,” or hosting the transactional activities of others, as opposed to clearing and settling transactions and aggregating and selling data about transactions.
Enthusiasm for tokenising privately managed assets might be a distraction
Interestingly, these strategic constraints help to explain the one tokenisation opportunity where (some) traditional stock exchanges demonstrably share the enthusiasm of almost all the new token exchanges: privately managed assets. These assets – private equity, private debt, real estate and infrastructure – offer traditional stock exchanges a number of temptations.
The first is to embrace their nemesis. Private capital is denying stock exchanges income from IPOs, listings and trading. It is also a growth industry with a notoriously backward infrastructure. Exchanges see opportunities to help private equity firms communicate more efficiently with investors, automate investor servicing, enhance the management of capitalisation tables and, by tokenising funds and securities, increase the range of investors the private equity industry is able to reach.
SDX in Switzerland has worked with Daura (a blockchain-based equity platform for financing and running shareholder registers for small and medium-sized Swiss companies) and Aequitec (a shareholder register and corporate actions automation platform for privately owned companies).
Technology vendor GlobaCap, which is using blockchain to help companies cut the cost of issuing and administering private market securities and settling private market transactions, is working with the Johannesburg Stock Exchange (JSE), Nomura-owned global trading platform Instinet and DXA Invest, the Brazil-based platform for funding privately owned companies.
Importantly, these services are operational rather than transactional. Unlike public markets, where assets trade on centralised exchanges between digitally connected buyers and sellers, transactions in private markets still rely heavily on manual processes, substantially increasing the investment of time and money needed to settle trades.
Stock exchanges aim not to increase the ease and volume of trades and settlements, but to automate them. This disdain for transactional activity as a source of revenue in its own right fits with the strategic shift of stock exchanges towards post-trade activities, data management and the support of asset managers. If the role of exchanges in the tokenisation of privately managed assets was largely transactional, there would be a lot less interest in the sector.
Providing operational support for privately managed assets also fits with moves traditional exchanges are making already. For example, the Johannesburg Stock Exchange – still a top 20 global stock exchange – has introduced a private placements platform called JSE Private Placements. The aim is to compete with banks to fund private companies.
The advantage the exchange has is its network of investors, which are finding less and less to buy on the main market. The number of domestic listings on the JSE has fallen by 70 per cent since the peak in 1988 (see Chart 6). If JSE Private Placements can re-direct capital to privately managed companies sufficiently well to lower the transaction and servicing costs of raising equity or debt capital relative to bank loans, it will attract more issuers.
The Nasdaq Private Market – which was founded as long ago as 2013 in response to the Obama-era Jumpstart Our Business Startups Act (JOBS Act), a law intended to encourage funding of small businesses in the United States by easing national securities regulations – aims to achieve similar effects to JSE Private Placements, by providing a trading venue for private companies, banks, brokers, employees, shareholders, and investors to buy and sell private company shares.
In 2024 Nasdaq Private Market raised US$62.4 million in a series B Financing led by Nasdaq, with fresh investment coming from BNP Paribas, DRW Venture Capital, UBS, and Wells Fargo. It claims to have identified 170,000 private companies, of which it has analysed more than 25,500 and is now tracking more than 15,000. So it is easy to see why Nasdaq Private Market fits into classic modern exchange narratives about data and asset management rather than transactional activity.
Other exchanges that are developing similar ideas include LSEG (which is pondering PISCES, an “Intermittent Trading Venue” for less liquid shares to be bought and sold occasionally) and the International Stock Exchange in Guernsey, whose TISE Private Markets section enables private companies to auction shares without the initial and running costs of a formal listing and (importantly) without intermediaries.
Privately managed assets are not the critical path but a case of path dependency
In other words, for traditional stock exchanges, the tokenisation of privately managed assets is the path of least resistance: they are working with privately owned and managed companies anyway.
But it is also a case of path dependence. The shift by traditional exchanges from transactional activity to earning fees from data, operational and asset management means the critical path - getting from securities markets to token markets as expeditiously as possible – is closed to them.
It will be interesting to see if the dependent path leads to success, but the signs are not encouraging. Three years have elapsed since the American CSD, the Depository Trust and Clearing Corporation (DTCC), announced it was building a Digital Securities Management service as a post-trade infrastructure to reduce manual processing in private securities markets of all kinds. The service has yet to go live. (22)
In July 2024, Aktionariat, probably the most successful blockchain-based platform on the planet for funding small companies – it has tokenised more than 50 companies on public blockchains – and looking after token portfolios for investors, announced a major strategic shift to selling its token infrastructure technology to blockchain-friendly companies rather than tokenisation services to any type of company.
“The current business model would require hundreds if not thousands of issuers to catapult Aktionariat towards the ambitious goal of one day becoming a unicorn,” explained the CEO. “This demand has not materialised despite our strong marketing and sales efforts ... many of our clients primarily used our tools to raise funds after other fundraising attempts failed. This is not a solid foundation for delivering value to investors and shareholders.” (23)
Traditional stock exchanges will be tempted to read this as confirmation of the wisdom of their decision to avoid a serious commitment to tokenised markets. After all, it fits with news of similar economies at other token platforms, including SDX. But what it actually shows is that the opportunity – and the threat - of tokenisation lie somewhere other than where both incumbent stock exchanges and token market challengers are looking for it.
(4) See “The unexpected reason behind the unexpected rise of tokenisation in Japan” in Future of Finance Digital Asset Tokenisation Guide, pages 1-86.
(5) Jean-Louis Arcand, Enrico Berkes and Ugo Panizza, “Too much finance?” IMF Working Paper 12/161, June 2012.
(6) McKinsey & Company, Private markets: A slower era, McKinsey Global Private Markets Review 2024, page 23.
(7) SIFMA Research Capital Markets Fact Book, July 2024, page 12.
(8) BCG, Global Asset Management Report 2024, 22nd Edition, May 2024, AI and the Next Wave of Transformation, page 5 and Appendix 2, page 26.
(9) World Federation of Exchanges, Demystifying Tokenisation: Embracing the Future, 11 June 2024, page 8.
(10) SIFMA Research Capital Markets Fact Book, July 2024, pages 59-60.
(13) See Future of Finance Digital Asset Custody Guide, Regulation Matters, pages 44-61.
(14) See Future of Finance Digital Asset Tokenisation Guide, “Securities Token Laws and Regulations in Seven Jurisdictions,” pages 31-34.
(16) Office for National Statistics, Ownership of UK quoted shares: 2022, 4 December 2023.
(17) The Federal Reserve, Changes in U.S. Family Finances from 2019 to 2022: Evidence from the Survey of Consumer Finances, October 2023, page 16.
(18) Bittrex ran cryptocurrency exchanges in Liechtenstein and Bermuda. It announced in November 2023 that it was winding down its operations after reaching a US$24 million settlement with the Securities and Exchange Commission (SEC), which had alleged Bittrex operated a national securities exchange without the right approvals.
(19) See Future of Finance Digital Asset Tokenisation Guide, pages 22-24.
(21) Ludwig Wittgenstein, Philosophical Investigations, Paragraph 106, page 46.
(22) DTCC, Digital Securities Management: Bringing Private Markets Infrastructure Into The 21st Century, November 2021. supporting pre-IPO equity, DSM is designed to expand to a broad range of private-market instruments, including funds, real estate, debt, and others.
(23) Aktionariat, Inflection Point, 12 July 2024.