Digital asset technology provider Alphapoint will now offer issuance of asset-backed security tokens to its clients. It will allow institutions to create and trade tokens securely and privately. This strategic expansion is the topic of the talk by our Chief Editor with AlphaPoint Head of Product Ned Myers:
Q) You have recently announced inclusion of asset-backed tokens to the list of products that you will offer to institutions. Which asset-backed tokens do you hope to attract first?
AlphaPoint provides software and data to the asset digitization industry. As such, we do not create asset-backed tokens ourselves, but our software enables the creation of asset-backed tokens by our customers. AlphaPoint’s Asset Digitization software can be used for the primary issuance and management of asset-backed tokens, and the AlphaPoint Exchange software is used by our customers to provide a trading venue to enhance the liquidity of the tokens in the secondary market. Our software is offered on a white-labeled basis, so in many cases the brand that you hear about in the market is actually utilizing AlphaPoint technology. While AlphaPoint customers have utilized our RBT (Regulatory Asset-Backed Token) framework to create security tokens, we support a wide range of public and private blockchains.
Q) In which classes of digital assets do you see most potential? In other words, where is the money in digital assets?
AlphaPoint’s motto is “Making Illiquid Assets Liquid.” As such, we are focused in asset classes where there is limited or no liquidity today. While original interest from clients has focused on natively digital (crypto), equity shares in companies, funds, real estate and even traditional structured credit (ABS/MBS) transactions, we also have seen interest in tokenizing currencies, commodities, other forms of debt, and exclusive goods (art, luxury items).
We see digital asset classes ranging from the representation and subsequent fractionalization of physical assets – e.g., a commodity or a piece of art, to the fractionalization of equity ownership in something – e.g., funds or shares in a company, to the structuring of innovative financial products – both brand new as well as traditional instruments.
Q) Do you aim to become a platform for secondary trading in security tokens?
Our customers use AlphaPoint software to support both primary issuance and secondary trading in security tokens. As a company, we have worked with over 100 companies in over 35 countries. Our customers include asset-backed token issuers, broker dealers, exchange operators, custodians, and other intermediaries. While AlphaPoint Exchange handles all types of digitized tokens today, AlphaPoint does not create or trade any financial products – our customers do.
We believe AlphaPoint is a unique vendor in the space of asset-digitization with our offering of a regulatory compliant token framework, asset-digitization capability, and AlphaPoint Exchange software. As such, we have three types of software customer: (1) Customers that use both our AlphaPoint Asset Digitization (APAD) and AlphaPoint Exchange (APEX) platforms together, (2) customers that mint and manage asset-backed tokens using APAD and trade on non-AlphaPoint powered exchanges, and (3) customers who have created tokens outside of our software but license APEX to enable transparency and liquidity for those tokens in the secondary markets.
Q) How do you cooperate with issuers? Can you provide an example of such cooperation? If a firm issues security tokens, what will it need to do to get onboard with AlphaPoint?
AlphaPoint’s team has already worked on the creation of tokens for a variety of asset types ranging from physical assets like gold and real estate to financial assets like shares in a company and the shares in a fund. Some of our past customer announcements have included Muirfield’s EVER token, Laureate’s fund tokenization, the Royal Mint’s digitization of gold, the London Block Exchange’s creation of the first stablecoin for the British pound – GBP-Peg, and the first token backed by diamonds.
Q) What is your target the end of this year, in number of various tokens and in the volume of trade you hope to achieve?
AlphaPoint has already gone on record as declaring 2019 as the year of the security tokens. With a long track record in the digital asset space dating back to 2013, AlphaPoint has experienced tremendous growth in all phases of the business, but as we look at our current prospect pipeline we see the majority of new customers involved in both the creation and trading of security tokens. Due to lock-out periods and other restrictions that many of these tokens feature, however, we think that the trading volume of digital security tokens will remain modest in 2019 relative to the cryptocurrency volume that’s traded on our customers’ platforms.
Q) With asset-backed tokens, which types of institutional investors will you target?
One of the biggest growth drivers in the industry is the institutional adoption of digital assets. Fixed income and equity investors now have access to a wider variety of asset classes, e.g., interests in limited partnerships. Institutions like JP Morgan, Fidelity, and others are playing an active role in the space, engendering deeper investment by all types of institutions. Since AlphaPoint is not creating financial instruments ourselves, we are not targeting institutional investors with financial products, but one of the interesting dynamics we see in play is that family offices, hedge funds, and traditional asset managers have begun to use asset digitization as a means of sourcing assets and creating new financial instruments themselves.
Q) What is your assessment of the market capitalization in asset-backed tokens, in short term, mid-term, long term?
We have estimated that the near-term potential for asset-backed tokens is at least $10 Trillion+. While we don’t believe that volume will be fully realized in 2019, we think we are on the cusp of the reformation of financial markets where eventually all financial instruments will be digital. If you consider that today the market capitalization (non-digital) for single-family real estate alone is north of $200 trillion, then it’s easy to see that if just a fraction of existing assets in circulation are tokenized, then the long-term potential is enormous. If we factor in other forms of private capital, traditional securities, exclusive goods, commodities, other forms of debt and equity, then our long-term expectations grow even higher.