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Exclusive: Is Belarus the Heaven for Tokenized Exchanges?

Exclusive interview with George Paliani

In this interview with George Paliani, CBDO of Currency.com, we explored the fundamentals of the tokenization of assets and its underlying regulatory requirements. George explained that Currency.com is not just an ordinary exchange, where it is a platform with cryptocurrencies and traditional financial products such as commodities, indices, stocks, bonds. He then explained the key differences between security tokens and tokenized securities and the significance of “Decree No. 8” in conducting crypto-related business in Belarus.

What are the differences between security tokens and tokenized securities?

To understand the difference, you must be able to differentiate between traditional securities and security tokens. Security tokens represent tokens that have gone through security token offerings, as they have tokenized their assets. Each security token can represent partial ownership of a particular asset. We don’t list these tokens; we list traditional securities found in the traditional financial markets. We only list traditional assets from the financial markets that already exist and have done an IPO.

Tokenized securities, for example, Tesla shares, can be traded on the traditional financial markets. At Currency.com, we have tokenized it and put it on our platform. Not only can you trade cryptocurrencies on our platform, but many tokenized shares can also be traded on our platform as well. We offer our clients to trade traditional financial assets.

Users on Currency.com can use Bitcoin and Ether to purchase tokenized securities. How do you address the volatility concerns of these two cryptos?

We genuinely understand that volatility is a huge issue in the cryptocurrency markets. We solve this by a process by having our own version of stablecoins. Therefore, the funds deposited into your account from the bank will be the exact sum you will find in the Currency.com wallet, enhancing the trading process and user experience.

How does Currency.com compare to other competitors in the market?

One of the significant advantages that we have is regarding regulation. We are a fully licensed exchange, regulated by law and the government, audited by a big 4; we are entirely transparent about this with our users and the government.

We also offer margin trading with leverage of up to 100x, which is unique in this market. It is an option that we provide, and for professional traders, it is a very manageable risk.

Which regulatory approvals have been obtained to become the first regulated tokenized exchange?

We are a European regulated exchange, under the Decree No.8, which was issued in Belarus in December 2017. Being regulated, it allows us to operate in a completely transparent regulatory space. There is an ongoing development in the legal and regulatory space as they are adding more laws and decrees in Belarus; we consider it one of the best legal space to work in the twenty-first century.

Currency.com excluded the USA and the jurisdictions on the FATF list for 1000 tokenized securities to both private and institutional investors. What are the regulatory reasons behind this move?

We do not work with the FATF blacklist, not with the FATF countries. And we do not work with the US for the reason that for the financial activities related to crypto it is obligatory to get the MTL in the several states as well as the approval from the United States Securities and Exchange Commission (SEC).

Currency.com recently issued Belarusian government bonds, is it because of the special regulatory environment in Belarus? Which country’s government bonds will be the next?

Issuing the Belarusian government bonds was the first step as an experiment for us, as they were the first to be issued on our exchange. We have already offered this service to several counterparties, under an NDA. You will be able to see shortly that other bonds will also be on our platform available for traders.

Due to its success, subsequently, we have access to tokenize government bond number 252 with up to 4.2% per annum yield to maturity. The tokens will be denominated in USD, and each token is worth $1000. It can be reinvested into more bonds or other products on the platform and users that have purchased a whole token can request a transfer of the corresponding physical bond at any time.

As you mentioned, Belarus introduced “Decree No.8” last year to promote crypto-related business. How does Currency.com accommodate to this new regulation?

I would say that it is one of the strictest decrees that I have ever encountered. When you enter the Currency.com website to begin trading, you will need to follow the KYC instructions and procedures, as one of the most critical requirements. Necessary personal information would be required, such as your ID or passport as well as your proof of address; this process can be done in under five minutes.

AML, KYC procedures are all regulated and are under Decree No. 8. It is one of the most transparent and strictest decrees I have come across, which makes us one of the most transparent and regulated exchanges in the world. The authors who have written this decree, have extensive experience and are experts in the field.

First Ever Blockchain-Based IPO Launches on National Stock Exchange

MERJ Exchange, the national stock exchange of Seychelles had previously announced a partnership with a UK-based fintech firm, Globacap to issue tokenized securities available on the MERJ exchange platform. MERJ Exchange became the first national stock exchange to list tokenized securities. The exchange is now launching an IPO of the tokens.

Globacap, founded in 2017 and based in the UK, is a blockchain fundraising firm that will also be supporting the launch. The fundraising firm was accepted into the Financial Conduct Authority’s (FCA) regulatory Sandbox Cohort 4 in 2018 and became the first company to issue a security token backed by equity under the FCA’s surveillance. Having exited the sandbox in June 2019, Globacap became the UK’s first fully regulated digital security offering platform.

The shares are available on the MERJ exchange platform as well as through broker-dealer Jumpstart and crypto custodian Prime Trust, which are both based in the US and via Globacap.

Edmond Tuohy, CEO of MERJ Exchange mentioned:

“These novel financial instruments are here to reshape the financial industry for years to come. MERJ provides the regulatory framework necessary for investors globally to access these markets in a safe and compliant manner. Whether they’re issuing tokenized or traditional shares, companies are not going to want to go to a jurisdiction that doesn’t meet high international standards because it will attract greater scrutiny from global regulators.”

Reported by CoinDesk, MERJ mentioned that it is using the Ethereum blockchain to record share register ownership as “it is the best supported protocol for these purposes.”

MERJ’s listings page shows that the tokenized security is currently trading at $2.42, with a market capitalization of $21,015,781.

Licensed by the Indian Ocean nation’s Financial Services Authority as a securities exchange, clearing agency, and securities depository (CSD), MERJ is able to host issuers from North America, Europe, Asia, Australia, and Africa.

Tuohy further mentioned that MERJ being licensed as an exchange, and CSD will help deliver on the benefits of tokenization:

“We’ve spent three years working with our regulators to build a robust and compliant framework for issuers wanting to leverage the benefits of distributed ledger technology within a publicly listed environment.”

Marketlend Launches New Stablecoin Against the Australian Dollar for Security Token Purchasing

Marketlend, an Australian-based online marketplace that prompts lending in a secure environment, has developed a new digital currency known as ‘Black,’ which is supposed to be on a 1:1 ratio against the Australian dollar. The main purpose is to create a secondary market for corporate loans prompting a means through which assets can be tokenized by blockchain, as reported by the Financial Review on Oct.28.

The launching of Black will make it possible for 26 investors in one of the loans on the platform to hold their digital currency in a digital wallet which according to Leo Tyndall, founder of Marketlend:

“Marketlend will formalize recordings on the blockchain ledger, improving the security and efficiency of transactions.”

About the entire structure, Tyndall said that it did not just come rather, it took some time, resources, and rigorous testing. In his words, he said: “This is the result of many months of research and testing, and we believe this will drive greater speed, efficiency, and security across the Marketlend platform and its global recognition.”

The new currency is capable of being used to purchase a security token, which can easily be traded on Marketlend’s loan exchange or other security token exchanges. This is meant to provide investors with a perfect option, which should reduce the expensive order of credit.

As stated by the news, Black was created using Polymath technology. In this regard, the head of tokenization at Polymath, Graeme Moore, commented that he expects more financial market applications for crypto-assets worldwide.

“Given the size of the markets they operate in, the big investment banks won’t be the leaders with rolling this out, but they will closely watch innovation in start-ups, and if these small market use-cases prove themselves, then I expect significant scaling up worldwide.”

Image via Shutterstock

Hong Kong Crypto Exchange OSL Opens Institutions Investment in Security Tokens

OSL Digital Securities Limited (OSL), a major cryptocurrency exchange based in China, announced on Tuesday that it has become the first Type 1 SFC-licensed digital asset broker to offer sales of security tokens to professional investors in Hong Kong through private security token offerings (STOs).

According to the official statement, OSL is the first regulated digital assets brokerage firm in Hong Kong to facilitate sales of new asset-backed digital tokens classed as securities to global institutions.

OSL has been doing that for a while. So far, its institutional clients include the likes of Animoca Brands, Head & Shoulders Financial Group, China Fortune Financial Group Limited, Volmart, and Monmonkey Group Asset Management Limited.

OSL hopes to see continued growth if this is what the market demands. The firm disclosed that it offers end-to-end services for the STO transaction, acting as the bookrunner, placing agent, fiscal and paying agent, transfer agent, registrar, calculation agent, tokenisation technology partner and trading venue.

According to OSL, each digital token represents a USD10,000 unit of a Bitcoin-linked coupon-rate USD bond. The company develops the tokens using the Ethereum blockchain, has a three-month tenor and carries a fixed and a bonus coupon linked to Bitcoin performance.

In this way, investors are not only able to indirectly own digital assets pegged to traditional financial assets, but also buy the digital assets with U.S. dollars, Bitcoin and Ether, the digital token of the Ethereum blockchain.

OSL CEO Wayne Trench talked about the development: “The OSL STO transaction is a viable model for security token issuance and distribution of digital tokens by regulated operators. We designed the issuance to demonstrate the immense value and ease of distribution for a security token issued on a public blockchain. Through the STO, OSL reaffirms its position as a pioneer in the Hong Kong digital asset market. Blockchain-based digital securities represent the future of capital markets and financial products, and this is a key step in the adoption of this innovative and efficient technology.”

Through STOs (private security token offerings), OSL is playing a key central role in STO issuances and other digital asset transactions in the future. Licensed partner brokers and banks can emulate its innovative action to offer such products.

OSL Digital Securities holds a license for Type 7 (automated trading service) and Type 1 (dealing in securities) regulated activities related to digital assets from the Hong Kong Securities and Futures Commission (SFC). As a licensed broker, OSL is authorised to issue and distribute digital securities through security token offerings to professional investors.

Tokenisation Providing Opportunity for Investments

There have been increasing talks of security tokens in the cryptocurrency industry. These are digital tokens that represent tradeable securities and are regulated under securities laws. They are pegged to financial assets such as real estate, bonds, and stocks, to avoid the volatility witnessed in cryptocurrencies.

Startups with less financial experience and regulatory know-how definitely find difficulty introducing such digital assets and also hit roadblocks with regulators.

On 28th January this year, the Hong Kong Monetary Authority (HKMA) and the SFC issued a joint circular, which for the first time, allowed registered institutions and licensed firms to offer digital asset investment services through a partnership with SFC-licensed virtual asset trading platforms.