What happened at the European Union Blockchain Observatory & Forum workshop on Digital Assets, which took place in Brussels on 24 May, 2019
Blockchain makes it both possible and relatively easy to “tokenise” physical and intangible assets, to trade them broadly, and to store them in new – often decentralised – ways. This has opened up a new set of possibilities for issuers, investors and individuals in the capital markets and the broader economy.
But digital assets on the blockchain are still a relatively new phenomenon. What can we say about best practices in terms of their issuance and management? What are the most promising use cases? And how can Europe foster innovation in this promising new area? These were among the questions addressed at the tenth workshop of the European Union Blockchain Observatory & Forum, which was held in Brussels on 24 May, 2019.
Below some of the highlights of what transpired.
Digital assets: how to proceed, how to succeed?
The Observatory’s Ludovic Courcelas set the scene for the day’s discussion by pointing out the many potential advantages to digital assets in terms of reducing risk, cost and transaction times. Today in Europe and around the world, he added, we are beginning to see regulators taking decisions about how to classify cryptoassets, generally along three broad categories of utility, security and payment tokens. That said, we are far from unanimity, and many questions remain as to the true nature of such assets.
Against this backdrop, the first two panels of the day looked more closely at the issuance and management of digital assets.
In the first panel, participants began by providing their own views of the potential benefits of digital assets. These included, among others, programmability, transparency & assurance, support for community building, enabling fractional ownership of assets and automation. Yet they were also quick to point out that many of these benefits remain only “promises” today, intriguing possibilities but far from being (fully) realised.
When it comes to issuing digital assets, panelists said that there were many things to consider. Issuers, for example, should be clear about exactly what they want to tokenise and what the benefits and rights are for investors. It is also very important for issuers to ensure their operation is compliant in all jurisdictions where they will be targeting investors (not just the jurisdiction they are based in). Issuers will also want to pay close attention to the technical aspects of issuance, in particular cyber security.
In the second panel participants looked at questions around the custody, exchange, management and usage of digital assets. When it comes to managing digital assets on chain, issuers and investors are likely to see significant cost reduction through reduced depository and custodian fees. In the new world of on-chain custody, however, the entity that holds the digital asset legally will be the one assuming the risk. It will remain to be seen if organisations and individual investors really want to assume this risk, or if it makes sense to have a professional intermediary.
In terms of the legal framework underpinning digital assets, implementing and monitoring the rights given by a digital asset is currently generally handled through off-chain legal contracts. As people become more comfortable with smart contracts, we will see these become increasingly autonomous. It was also pointed out that in various national securities laws there are rules that can make it difficult for the issuance and trading of (decentralised) digital assets (for example, that contracts need to be on paper, or the mandatory use of CSDs). Another hurdle to mass adoption is the fact that, because these assets and platforms are so new, issuance can be more expensive than for traditional assets. This, however, should change over time.
Use cases for digital assets
The second half of the workshop, which consisted of a panel and a workshop-wide discussion, was devoted to looking at use cases for digital assets and where Europe should place its priorities.
In the panel there was general agreement that financial assets are likely to comprise the first wave of tokenisation on a large scale as financial markets are already largely digitised and "dematerialised". While most of the promise of digital assets is in efficiency gains, there are other potential benefits too for financial markets, for example transparency and availability of data.
There are also promising use cases around less liquid financial assets like private equity, venture capital, real estate or employee shares in private companies – areas where there are large amounts of value but smaller numbers of investors, and where processes today tend to still be manual. Over a longer term horizon a very promising use case involves the "digital twins" of physical objects, like luxury goods. In future objects that we wear and use will be connected to an electronic network via a unique digital identity and can be used and traded, for example in virtual reality environments.
The day ended with a working session involving all participants. The focus was on discussing recommendations for European policy makers, to be included in the thematic report to be written on this subject by the Observatory.
Among the points raised was the opinion that the digital assets market today is small mostly because of lack of penetration of the institutional market. What had also been missing from the day’s discussion had been identity as an asset – not one that can be bought and sold but that can be transferred for identification purposes in a GDPR-compliant way. Another use case not mentioned was using tokenisation to measure, value and trade things that today traditionally are not, for example environmental impact or other economic “externalities”. Regulatory harmonisation around blockchain is also important, participants said. In particular, banking continues to be a problem for blockchain startups. Regulators could help facilitate better coordination between banks and the blockchain startup world.
A detailed report on this workshop, including links to the presentations and the video of the day, will be published in the next few weeks on our Reports page. Be sure to check back if you are interested in this topic!
- The Workshop took place in Brussels on 24 May, 2019
- There were 110 people registered for the event
- Speakers and panelists included:
- Peteris Zilgalvis (DG CNECT)
- Ludovic Courcelas (EU Observatory/ConsenSys)
- Brian O’Hagan (Coinhouse)
- Alexandre Barrat (AMF)
- Simon Seiter (Commerzbank)
- Ken Timsit (Consensys)
- Ivan de Lastours (BPI)
- Baptiste Saint-Martin (Mata Capital)
- Gerd Hartung (Deutsche Boerse)
- Guido Stroemer (HQLAx)
- Mathieu Cottin (Tokeny)
- Mike Hoffman (Southampton University)
- Simon Polrot (LGO)