Martijn Siebrand of ABN AMRO made the case for using public blockchain for tokenization. He was talking as part of a Tokeny webinar, where Tokeny provides a solution that layers permissions and compliance for public blockchain tokens using smart contracts. One of the most eye opening comments was that the first ABN AMRO digital bond experience required interacting with 180 colleagues, much of it involving education. By the third project, the figure was down to 20 people. The need for education and to work closely with regulators was mentioned several times.
ABN AMRO has run various trials on private and public blockchain networks, and chose the latter. It started with a project involving a secondary trade of the European Investment Bank’s first digital bond on Ethereum. The second initiative was a €450,000 bond issuance for APOC Aviation using the Stellar blockchain. Late last year it worked with real estate firm Vesteda on a €5 million green bond issuance on the Polygon blockchain.
For digital bond issuance, one of the key advantages is automation and removing several manual processes, including the back and forth of book building. There’s also the potential for speedy and atomic settlement and a reduction in reconciliations. Additionally, it’s possible to provide new functionality for investors.
The public blockchain appeal
Meanwhile, Tokeny’s Greg Cignarella described the appeal of public blockchains as a shared infrastructure. “As institutions look at their blockchains, they look at it less of a … distributed database but more as an ecosystem,” he said. Hence, both kinds of blockchains bring efficiency benefits, but public blockchains hold the promise of side stepping the silos created with numerous private blockchains. That said, interoperability solutions are evolving.
Mr Siebrand noted there are misconceptions about public blockchains. “Working with public permissioned (blockchains), the risks are not that different than traditional risks,” he said. He sees risks, but not around compliance or losing client money. ABN AMRO imposed a safeguard so it approves transactions to protect against the loss of client assets. He sees the biggest risk as a reputational one because of some of the negative perceptions around public blockchains.
“The CFO of the future, maybe within 10 years, will be used to working with ebooks, used to working with crypto, used to working digitally native. As ABN AMRO, we would like to prepare for that CFO. And to see what we need to bring to the table to still be (a) relevant party,” said Mr Siebrand. That requires a change of mindset and education.
In a nod to JP Morgan’s Onyx division he observed, “We don’t believe that we are going to build the ABN AMRO Onyx platform and get all the clients and all the banks on our platform. So what we believe is, if you look at the value chain for securities, that we can add value at certain parts where we are at our best.”
Specifically, he described the recent green bond issuance and how the investor can review the ESG data supporting the issuance directly from their wallet without the need to check a separate system.
Key learning points
Mr Siebrand shared some things he learned. The first step is to find the right internal business sponsor to get support and the right resources for the tokenization work. A related point is finding clients willing to put in the effort involved with new technologies.
“We of course can pitch to our clients that there will be more liquidity, faster settlement, all kinds of nice things,” said Mr Siebrand. “But in practice, if we are totally honest, they need to spend some more time to get this right.”
Some clients will even act as ambassadors for the transaction because they recognize that it’s novel.
On the point of quantifying the cost savings, Mr Siebrand acknowledged there’s a need for more data to fully assess that. We assume he means more data for transactions which are repeatable, because these initial ones will be expensive based on the number of people involved in the learning curve. Germany’s Cashlink published a report on quantifying the cost savings.
Which comes back to the fact that this sector is still nascent.
“I think also that we are still at (an) early stage, so it’s just a phone book on the internet more or less,” said Mr Siebrand. “The advanced solutions are coming to the market.”
