Last Christmas Japan’s Osaka Digital Exchange (ODX) launched its START secondary market for security tokens. During a recent Tokenomy Korea event, ODX CEO Kimio Mikazuki discussed Japan’s current use of private consortium blockchains for security token issuance and the desire to use public blockchains.
ODX was founded by SBI and is backed by Cboe, SMBC, Nomura, Daiwa Securities, Optiver and Virtu Financial.
“For the token securities ecosystem to be healthy, the public chain must be used together” with private blockchains, said Mr Mikazuki according to Korea’s Financial News.
Currently Japan’s security token issuance market is dominated by MUFG-founded Progmat, and Ibet for Fin founded by Nomura-controlled BOOSTRY. Both platforms have multiple outside stockholders. Progmat’s core issuance solution uses R3’s enterprise blockchain Corda and BOOSTRY uses an enterprise version of Ethereum.
Mr Mikazuki explained that the reason for purely using enterprise blockchain is that Japan’s Financial Service Agency is concerned about anti-money laundering (AML) and theft on public blockchains.
Public blockchain concerns
Public blockchains promise a more open and global infrastructure for tokens. Japan certainly has global ambitions in the tokenization sector. However, it might be tricky for foreigners to invest in Japanese security tokens without the prospect of some foreign institutions integrating with local blockchains.
Last week during a U.S. Congressional hearing, it became clear that some do not fully appreciate that there can be safeguards against theft and money laundering on a public blockchain via the security token’s smart contract. The primary aspect that can’t be controlled is the underlying blockchain infrastructure. However, if there are sufficient permissions and control at the token level, then the tokens could be moved to another blockchain in an emergency.
“So far, Japanese regulators have been reluctant to allow public blockchains to directly engage in tokenized securities, so they are moving toward private consortium blockchains,” said Mr Mikazuki. He added, “I am concerned that we may become isolated” if public blockchains continue to be restricted in Japan.
That said, numerous Japanese stablecoin initiatives use public blockchains. MUFG’s Progmat has a Progmat Coin initiative that’s interoperable with multiple public blockchains, but it hasn’t yet launched.
