Currently, entering into partnerships is one most important trend in the market of tokenization. What do partnerships give and what they take, how synergies effect the digital environment, what will the immediate future bring, are the topics of the talk between our Chief Editor and Graham Rodford, Archax CEO. Archax is the digital exchange that joins force with others prior to the launch.
The partnerships that we have cemented with both Quod and Tokeny, like all of our other collaborations so far, are strategic and help us move towards launching the Archax security token exchange. The tokenisation industry is emerging and will rely on many players to work together to see the growth that is projected. All of our collaborations at Archax, from partnerships with other companies to people joining the team, are made strategically so that we can add value and help to evolve the security token ecosystem in the correct, regulated manner needed.
Q) You are to lunch now, in 2019. What type of investors will you target?
We will be targeting institutional investors by offering an exchange that is regulated in London and that will seamlessly fit into their current trading operations. This has been the clear vision for Archax from the start, to bring this new and emerging market to the traditional investment space. Having a clear focus on institutional investors will also mean that any institutions that trade on the Archax exchange can be confident that they will be trading with parties that have also passed our AML, KYC and other due diligence checks.
Q) When do you think that the market of security tokens will open up to individual investors? What is needed to be implemented for it?
I think that the first stage of the development of this industry will be focused on institutional investors before it moves on to retail investors. One of the main benefits of tokenisation is that assets can be tokenised in a way that enables partial ownership of the asset. For example, a piece of art can be tokenised to have multiple owners rather than one which can lead to more people being able to access such assets. Eventually, as the market grows, I think naturally it will be opened up to retail investors too, however, they will be subject to the same regulation as institutional investors, but for now and the foreseeable future, Archax is wholly focused on opening up this asset class to the professional investment community.
Q) How many security tokens will you start with?
We are speaking with multiple firms at the moment that are wanting to list their security tokens on the Archax exchange. As these conversations come to fruition, we will decide on how many tokens we will open the exchange with. The focus for Archax, as it has been from the outset, will always be to list credible tokens rather than listing a high quantity of tokens. This will mean that institutions that trade on our exchange can trust that they have access to some of the most credible tokens in the market.
Q) In your partnership with Tokeny, will you be essentially a trading platform for security tokens issued by Tokeny? What other functions will you perform (custody, voting, reverse distribution of dividends)?
Our partnership with Tokeny means that tokens issued by Tokeny will have the opportunity to be listed on the Archax exchange, subject to our own due diligence. Archax will accept tokens from other issuance platforms to trade on the exchange too, but our Tokeny partnership helps to create synergy and ease in the issuer to a secondary trading market. Regarding custody, Archax will get regulatory permissions for the safe guarding of assets, meaning we can offer our own custody solution. In terms or corporate actions, these are typically handled by the smart contracts used to encode the tokens which firms like Tokeny then manage.
Q) What are your key targets for 2019 and plans for 2020 and beyond?
Our plan for 2019 is to launch an institutional-grade exchange for trading asset-backed tokens that is fit for the traditional institutional investment community. The exchange will have the regulated systems, controls and processes that institutions need and expect so that they can move into this space. 2020 will be focused on adding more high-quality tokens to the exchange and helping to support the emergence of this industry.
Q) What is the strategic goal of Archax? What does Archax want to become in 3 years, then 5 years?
The strategic goal for Archax is to be the go-to place for institutional investors to trade security tokens. Our exchange will be familiar to what the traditional investment space are used to using meaning our exchange can be seamlessly introduced to their workflow. We aim to bridge the gap between the traditional financial markets and this new asset class.
Q) How do you see the market of security tokens develop in the same time span. What is your assessment on its capitalization?
Our research has suggested that any asset that holds value can be tokenised and within the next decade or so most, if not all, will be. Because of this, the value of the market is likely to be into the trillions, potentially as soon as within the next decade.
Q) What regulatory and political challenges are there for this market? For example, does Brexit present such a challenge?
In the UK, the organisation that will be responsible for the regulation of security tokens is the Financial Conduct Authority who recognised this in their report on crypto assets. Even though Brexit creates uncertainty within financial services in the UK, we see this as an opportunity for the UK to lead the way in this emerging space.