If you're short on time, here’s what investors and institutions need to know:
Sygnum is a global digital asset banking group that acts as a regulated, trusted bridge between traditional and decentralized finance, empowering everyone to own digital assets with complete trust.
A key aspect of this mission is tokenization, where Sygnum has led the charge, partnering with industry giants like Hamilton Lane and Fidelity to develop innovative business cases across various asset classes.
Since July 2021, these efforts have been spearheaded by Fatmire Bekiri, Sygnum's Head of Tokenization which is why I'm thrilled to announce that she will bring her insights to TOKENFUTURE. She will join a Fireside Chat with Prasad Chandrasheker from Fidelity to explore the impact of tokenization on private markets and fixed income.
On top of that, I was fortunate enough to sit down with her to discuss a wide range of topics:
So, without further ado, please enjoy my interview with Fatmire Bekiri.
The Cancun upgrade, which went live on Ethereum on Mar 13, 2024, introduced transient storage opcodes via EIP-1153. These new opcodes (“TSTORE” and “TLOAD”) function similarly to the existing storage opcodes, (“SSTORE” and “SLOAD”). However, the key difference is that the storage values are discarded at the end of the transaction, rather than being retained permanently. As a result of this temporary nature, the transient storage opcodes are considerably cheaper to use compared to their persistent storage equivalents.
In your point of view: What is tokenization and how does it impact the P&L of banks?
A lot of people limit their idea of tokenization to securitization. In my opinion, it is more than that.
Firstly, for banks, tokenization represents a new revenue opportunity - because a lot of different asset classes suddenly become investable for a broader set of investors.
Secondly, and more importantly, tokenization is a backend innovation that allows the programming of any logic into digital assets via smart contracts.
This capability enables us to automate processes such as dividend distribution and interest payments, thereby significantly reducing costs.
For example, in our secondary market, we use our own settlement token, a digital CHF, which can be transferred peer-to-peer and operates 24/7. This means that when a token exchange between two parties is initiated, the token's smart contract checks the respective token balances and only executes the transaction if all pre-programmed conditions are met. Ultimately, this approach almost completely eliminates counterparty risk.
Take us on your own tokenization journey at Sygnum. How did you start out and evolve your initiatives over time?
Tokenization was one of Sygnum’s strategic pillar from day one. We started to build our tech-stack back in 2018/2019. Our goal was to provide our clients with an end-to-end tokenization solution. Beside supporting our clients with the structuring of the token and the issuance on our primary market, we also wanted to have the opportunity to trading the tokens on our secondary market and leverage our banking license at the maximum.
At the end of 2020 our vision became reality with the launch of our regulatory compliant tokenization solution on the Ethereum blockchain made up of Desygnate, a primary market issuance platform, and SygnEx, a secondary market trading venue.
In February 2021, we partnered with Fine Wine Capital AG and utilized this technology to tokenize a selection of premium investable wines, marking the first issuance of asset tokens under the Swiss DLT law.
In the summer of the same year, we tokenized Picasso’s ‘Fillette au béret’.
Almost exactly a year ago, an offer for the painting was proposed to the token holders, who then took a vote to decide if to sell the iconic artwork.
Over two-thirds voted in favor, after which our partner in this initiative, Artemundi, executed the sale. Following the distribution of the sale proceeds to the token holders’ wallets, the ownership of the painting was transferred to the new buyer, and the previous owner’s Art Security Tokens (ASTs) were burned.
More exciting projects followed, including the 2023 issuance of private debt tokens on the Polygon blockchain in collaboration with Fasanara and Float. This enabled our clients to invest in a diverse portfolio of private SME loans, particularly targeting the European SaaS and tech sectors.
In 2024, we've already launched two major new initiatives. In February, we partnered with Hamilton Lane and Apex Group to launch DLT shares of Hamilton Lane's $3.8 billion Global Private Assets Fund. This move significantly lowered the entry threshold, opening up global private markets to a broader array of investors.
Most recently, we tokenized $50 million of Matter Lab’s treasury reserves investment in a Fidelity Money market fund on the zkSync layer 2 blockchain.
Overall, we're really proud to be among the first banks to facilitate such initiatives, thereby making the benefits of tokenization more accessible for traditional finance players.
From an external perspective, I often wonder how many tokenization projects are merely proofs of concept versus those intended for full-scale production. What’s your take on that?
If we take a look at the broader industry, there are still many proofs of concept (PoCs) being done. I think this is because, for many, tokenization remains a relatively new and unfamiliar concept. I see this as a sign that there is real interest into engaging with the technology, which I appreciate and welcome.
Because Sygnum invested in its tokenization solution at a very early market stage, we have been able to deliver a broad range unique investment opportunities on chain since 2020.
Could you please elaborate the challenges you faced when tokenizing your first art piece?
Sure. One challenge is creating a framework for storing and insuring the underlying assets, as well as implementing the voting rights represented by the respective tokens, and so forth. With our Picasso tokenization, we partnered with a professional art manager and an administrator who managed the underlying asset. They ensured that the asset was always properly insured and custodied in a free port, for example.
When creating this type of investment, you must also consider the associated costs — such as custody and insurance — which do not generate any cash flows. Managing these costs and answering these complex questions is crucial to developing a framework that is both investable and trusted.
What unique benefits did tokenizing this artwork provide for the investors?
Suppose you have a net worth of $10 million and are interested in getting exposure to art. Typically, investing in the works of an artist like Picasso would require several million dollars. Tying up a substantial portion of your net worth in a single artwork may not be desirable.
However, through the process of fractionalization, investors have the flexibility to invest only few thousand Swiss Francs instead of millions. This approach allows them to incorporate a niche investment into their portfolios without taking on excessive risk. Importantly, it offers smaller investors an opportunity to access an entirely new asset class.
What does your decision-making process look like when you think about which asset classes to tokenize next?
A very interesting question!
There are many aspects to consider. For us, this decision mainly revolves around market demand and feasibility. It's important to listen to the market and understand where the demand lies before proceeding.
A good example concerning feasibility is the tokenization of real estate in Switzerland — a concept we considered some time ago. Unfortunately, we quickly realised that direct tokenization of real estate isn't possible without a Special Purpose Vehicle (SPV) setup as the land register is the definitive source of truth for real estate ownership in Switzerland. This led us to focus on other verticals.
Another important factor for us at Sygnum is to work with partners who have in-depth expertise in their respective domains, such as art and private markets.
This might be a good time to transition into discussing your partnership with Hamilton Lane. Could you walk us through this project? How did it begin, what were the objectives, and how did you proceed?
When we started the project, our objective was crystal-clear: to create an onchain investment opportunity in a secure and regulated manner. Then, we addressed the product question: what product would be appealing to our client base?
We decided to go with the GPA fund — a Hamilton Lane evergreen product, that is very diversified and has a proven track record.
Next, we needed to decide how we were going to implement it, as we wanted to allow clients to invest directly into the fund without adding additional layers of complexity. We put a lot of brainpower into this and ultimately devised the current structure. In this setup, Hamilton Lane issued new DLT-registered shares, so that the blockchain ultimately acts as the source of truth regarding share ownership.
However, along the way, we realised that the setup required more than just Sygnum and Hamilton Lane; it also needed a Fund Transfer Agent. We partnered with Apex Group since the activity is required regulatory approval. So we created a structure involving three companies, where Sygnum acts as a distributor for Hamilton Lane, and Apex administers the DLT shares through our infrastructure.
Another significant partnership involved tokenizing Matter Lab’s treasury reserves with Fidelity. What did you achieve here?
As the foundations behind large crypto protocols also want to invest a part of their onchain treasuries into traditional investment products, which naturally live offchain, they often wish to represent those investments onchain to maintain transparency.
Initially, MatterLabs decided which product they wanted to invest in, ultimately choosing Fidelity’s International Institutional Liquidity Fund.
After that, we issued a token to Matter Labs that represented a legal claim towards this asset. This enabled Matter Labs to diversify their treasury holdings offchain while simultaneously providing their community with legitimate Proof-of-Reserves. Looking forward, I think we will see more of such setups.
Currently, Temporary Approve cannot be used by externally owned accounts (EOAs), as EOAs cannot currently make multiple calls within a single transaction.
Temporary Approve can be utilized now by smart contract accounts (SCAs) and eventually by EOAs with the inclusion of EIP-7702. EIP-7702 introduces a new transaction type that sets the code for an EOA account for a single transaction with the goal of augmenting the capabilities of an EOA.
In fact, in the “motivation” section of EIP-7702, one use case that is mentioned explicitly is:
“allowing multiple operations from the same user in one atomic transaction. One common example is an ERC-20 approval followed by spending that approval.”
EIP-7702 will allow an EOA to set a temporary approval and then initiate a DeFi action (such as swapping tokens) within the same transaction like so:
What's next for Sygnum? Are you planning to scale the use cases you've already developed, or will you focus on adding new functionalities to your infrastructure?
I would do it all at once!
Of course, we definitely need to keep pace with our product's traction and scale up accordingly. It's also important that we introduce innovative follow-up use cases for some of our already launched products.
And luckily, we already have several in the pipeline.
Our long term vision is to build a platform that’s multichain and multi-asset where our clients can tokenize different types of securities on the blockchain of their choice.
And what about an own Sygnum Layer-2?
I think we should rather leverage what is already out there, as many talented developers have built out great infrastructure over recent years.
Interesting. Then the question is, which blockchain network do you find is currently most favored by your clients?
I think the industry is at a very early stage, which makes answering this question very difficult. I would argue that many issuers still need some time to educate themselves regarding their choice of infrastructure, before they're able to make an informed decision.
Also, most of the discussions we have with traditional issuers are less about the specific networks, but rather about the choice between public and private infrastructure. We do our best to provide the necessary assistance.
And if tokenization should turn out to be just a sweet idea and ultimately fail, what would be the reasons?
Regulation that just makes it impossible to build viable business cases or benefit from the decentralized and open nature of blockchain networks.
Or perhaps a better technology emerges.
Furthermore, I think - and I know this is a bold statement - that if tokenization isn’t a success, blockchain probably won’t be either.
Why is that?
Because for me personally, tokenization is really about finding productive use cases for this technology - where it helps to solve real world problems, making our lives easier.
An alternative pattern that would be to set a permanent approval, initiate a DeFi action, and then set the permanent approval to 0. While the end result would be similar, temporary approvals reduce complexity and gas cost to nearly a tenth of the traditional cost. Note that you could in theory set the approval at the beginning of the transaction with the exact amount of tokens needing to be spent, but not all DeFi actions spend a predetermined amount of tokens (for instance, buying a specific amount of another token on Uniswap).
