Helping Asian wealth and asset managers embrace digital assets

Video transcript

1. Who is Chintai and what do you do?

Chintai is a digital asset service provider that's aiming to disrupt capital markets globally by providing a really comprehensive suite of products that enable anybody from the largest financial institutions right down to entrepreneurs, to be able to carry out different forms of dynamic issuance, launching of liquid secondary markets, and all with an overarching compliance control framework that enables them to operate those types of assets in any jurisdiction.

2. How does the blockchain create a fair, efficient and transparent financial system?

Blockchain is fundamentally at its heart designed to be highly transparent across whatever it operates within. In terms of the potential for this across the financial system, there are numerous opportunities to democratise and make the overall system fairer. One of the core things related to this is that everybody who participates in a blockchain-based financial system is able to understand their own positions and understand as well how the underlying transactions across a given marketplace are actually taking place. They have that level of transparency, which is powerful in its own right because we don't have that. If you think about how you interact, for example, with your average broker-dealer and marketplace, you don't really have a true view of what's taking place on markets. But outside of that, the efficiency gains from actually putting such designs in place across the existing system are numerous. They will have the potential to dramatically reduce the underlying costs of taking place in those types of trade life cycles. And what that's going to translate into is that a much wider range of issuers are going to be able to actually take place and carry out issuances. More people will be able to, in theory, be market operators as well, and actually deploy a secondary market for a range of assets. And indeed, what we define as an asset can actually in itself fundamentally change too. We will no longer be limited to specific, very rigid asset classes. And instead, if you're a company deploying an ecosystem that has some ways of transferring value, you'll be able to actually issue that into some form that is tradeable and exchange value. And so really the way this is therefore going to disrupt industries is by adding massive efficiencies that are really fundamentally make the existing system uncompetitive, but also broaden out access to how we exchange value.

3. How is the digital asset marketplace evolving?

The digital asset marketplace globally has been evolving at a very rapid pace. If we think back to 2016, we really were just understanding the nuances and differences between tokens that have very securities-like properties, and people were starting to realise ought to be classified as a security because they have things like dividend-like properties and voting rights, and other types of tokens that clearly were very different and they had no such properties in place at all. Very often, they were linked to things like network capacity and usage and other types of utility that linked to the underlying software. If you fast-forward then five years to where we are now, this has actually become even more complex as we've seen a global DeFi decentralised finance system start to evolve. We've seen a wide range of innovative new products that have further led to types of tokens coming out. For example, that link to decentralised governance is another big one. And in all of these cases, this is adding more and more layers of complexity to digital assets. And that, I think, is also proving to be more and more challenging for regulators globally to really understand how they're supposed to regulate, particularly given that the landscape of what these digital assets are is continuing to innovate at a rapid pace. In terms of where this is heading, we're seeing a range of things that we think are very interesting trends. We're seeing the established asset classes like security tokens and utility tokens starting to really mature out now. And we're seeing a range of solutions that are going to enable mass adoption and utilisation of those by companies, asset managers, banks, and right down to individuals. But we're still seeing this innovation as well, with whole new areas starting to appear. Another example of this, of course, are NFTs, which have become a very big thing in the last few months. Some of the valuations are eye-watering. But really again, NFTs represent another fundamental type of token. That again, is very hard for regulators to know quite how to handle. And indeed, the underlying mature use cases for those are yet to be, I think, fully tapped and understood. So, for digital assets generally, we're in an interesting phase where we're starting to see the first, I think, aspects of mass adoption by the mainstream. And that is something that I think we're going to see increasingly in 2022, 2023 onwards. But we're also going to see the innovation, I think, continue and if anything, accelerate as we see more and more potential to programmatically create effectively new types of tokens that have different properties.

4. Why must wealth and asset managers focus on this opportunity?

Ultimately, the answer to that question lies in the question why is there a move steadily towards digital assets, and is this just a fad or is it something else? And the answer really very clearly from examining the "why" there is a move towards digital assets is that it is going to become an inevitability for asset managers and other financial institutions to adopt and fully move across to digital assets in the coming five years. The reasons for that are the enormous efficiency gains they get from having a distributed ledger blockchain technology sitting at the heart of the trade life cycle. What that means is we move away from this highly siloed financial system where large amounts of resources are being taken up to reconcile positions with one another, where settlement times are slow and where data reconciliation is just a necessary but expensive part of operations. When you actually move on to embracing blockchain in such a scenario, you could see up to a 70 to 80% reduction in costs. At least that's the estimate that's come through in a recent report by Accenture. And I think that's probably very accurate in terms of the underlying cost there. So, from an efficiency and margin perspective alone, there's a powerful driver there to actually adopt a competitive framework that's going to enable you to thrive and offer the best prices to your clients. But really then outside of that, there are massive business opportunities as well for firms. Particularly from the smaller and mid-tier firm size, there's opportunities for them to actually gain a competitive advantage in the industry. For the larger tier players, it's more of a defensive place to ensure they maintain those positions they have. But in all cases, they're looking at what are the opportunities here. And for them, it's to explore whether they can access wider user and investor bases that they currently can't access, particularly the young. And for others, it's also to look at ways of growing out new types of business, be it issuance or market operation. And for others, it's ways to potentially disrupt an asset class they operate in already, such as real estate, where they can add liquidity for the first time, fractionalise it, and reach a much higher valuation for their clients.

5. What are the challenges that firms face who are looking to start this digital asset journey?

The primary challenge is for firms looking to start that transition to digital assets is very much about a lack of necessarily expertise or understanding of blockchain itself internally in organisations. It's inherently a complex subject that's quite difficult to explain to outsiders who necessarily haven't spent some substantial time understanding the basic underlying principles of decentralisation. But even then, once they do understand that, they're faced with a raft of different underlying protocols, confusing information and misinformation about what's better and why. They've got concerns related to how these different protocols interconnect with one another. And then, from a reputational perspective, as an organisation, they're all concerned very much about regulatory compliance and falling foul of the regulators by inadvertently starting to do something and realising that they're actually now at fault and have caused themselves a problem. So those are, I think, definitely the core underlying aspects there. In terms of how they therefore solve those solutions, really it's that there are a range of options for them. One is that they can go in from the ground up and spend a lot of money to try and build something bespoke in-house, which for some larger firms may be something they want to explore. For, I think, the majority of organisations, they will benefit from high-quality solutions that they can leverage today, which are designed from the ground up to actually meet their needs, to carry out an experiment with types of issuances, launch a market, but also embed compliance from the ground up. And obviously, Chintai is designed to fill exactly that kind of need. And broadly, then compliance is a core part of that. You know, they need to have comfort that the regulatory rules are fully embedded and that their own liabilities are covered with that. And I think what we're going to therefore see over the next two years is an increasing number of firms in asset management and elsewhere in the financial services sector signing up, carrying out test issuances. We'll see increasing numbers of press releases for relatively modest sort of 20 to a hundred million dollar type size issuances. And they will be the first pioneers really that prove the concept internally and making comfortable that this is or something they're going to focus on building out as a business dream for themselves.