Fintech is where blockchain technologies are being applied most actively. But to base a whole bank on blockchain is a giant step forward. Read the tall of Digital Asset Live Editor-in-Chief with Arnaud Salomon, Founder and CEO of Mt Pelerin, the world’s first blockchain bank.
Q1: To many, the term blockchain relates to cryptocurrencies only, some know about the power of decentralization. You position Mt Pelerin as the world’s first blockchain bank. Can you elaborate on it what it means to a non-fintech audience?
A2: A bank on blockchain is what we are building indeed, but what it means is way beyond that. What Mt Pelerin is proposing is a vision for the future of banking that will answer today’s societal aspirations for more freedom, fairness and transparency in finance. The blockchain is just a tool to achieve that vision. Our customers won’t have to know what it is and how it works to benefit from the unprecedented financing and investment possibilities that they will have access to with Mt Pelerin.
Q2: These days people tend to talk about the unbanked. Let’s take those “banked” already. Democratization of finance through blockchain, what does it mean to a European or an American?
A2: Some would argue that the term unbanked even applies to Europeans or Americans, not because of the difficulty to open a bank account but because of the increasing difficulty to obtain financing. Mortgages aside, lending money to people and SMEs is too much of a hassle for banks and not profitable enough. As a result, these customers struggle to obtain proper and fair financing for their projects, if any at all. Beyond lending, it’s virtually all investment products that are out of reach for most. The democratization of finance is about reshaping how capital flows and fuels the real economy, the one creating jobs and growth. For us, it means letting people decide if and how their deposits should be invested, and letting companies address the crowd directly to fund their business.
Q3: You have recently announced the launch of one stop shop service, where you will help firms to issue and process security tokens as a tool for crowdfunding. What is the cost to a firm that wants to use this service, and how it is structured?
A3: The point of this service is to already help businesses raise funds while we’re applying to a banking license. We do so by helping them to replicate the tokenized equity model that we used ourselves to raise funds end of 2018.
The technology is open source, and the platform we provide is actually free to use for anyone able to structure a token and a token sale without help.
We even created a front-end interface to facilitate its use. For those who need assistance, we can take care of all the technical, compliance and financial aspects of the sale, so that the company can focus on finding its investors. We priced these services as competitively as we could, to make this fund-raising method accessible to any company. Prices are on our website.
Q4: What is your target audience, on both ends, issuers and contributors. What is your forecast for the first year of operation?
A4: Issuers can be any company that has a strong business case and message to go to the crowd to raise funds. The contributors can vary a lot depending on each token sale, but ultimately it can be anyone.
That’s the advantage, with a single vehicle (the token) a company can propose at once the same investment to the crowd, to angel investors, to VCs, to family and friends, etc.
By being able to invest very small amounts of money, anybody can support a business that he or she believes in and be a part of their future success story as a shareholder. That’s a very powerful message.
As for forecasts, tokenized fund raising is in its very early days so it’s hard to give reliable projections, but we are currently progressing with a dozen companies. We are working hard to have some success stories to show by the end of this year.
Q5: What is the difference between your one stop shop service and an issuance/transfer/custodian platform?
A5: We have an authorized financial intermediary status in Switzerland, and as such we can offer many key services that the platforms you mention can’t offer, notably fiat fund collection and investor KYC/AML processing. We can even help our clients establish tokenized holding companies in Switzerland. With our technical, financial, legal and compliance services, we can offer almost everything a company needs for a fundraising.
Q6: Will contributors be able to trade the security tokens they have purchased outside your platform, if not why?
A6: That will be up to each issuer to decide, but yes it will be possible. Our tokenization technology allows for full control over how a token can be transferred or not.
Once its transferability rules have been set, it can be traded on other platforms while enforcing compliance to KYC and AML regulations. We are working on a fully decentralized and DEX for security tokens as part of the open source ecosystem that we are building with the BRIDGE and our upcoming wallet.
Q7: Which areas in finance fit best for tokenization, in your opinion? Why?
A7: There are two main areas that are great fit for tokenization. The first one is at the institutional level, where tokenization can bring vast improvements and cost savings through the smart contract automation of middle and back offices, risk reporting, netting, settlement, etc.
The second is made of the segments underserved by the current financial system, mainly personal finance and small cap corporate finance. We go back to the concept of democratized finance, people and SMEs are the ones that can benefit the most from an increased access to capital, which tokenization enables.
Q8: There are some pretty far-fetching estimates for potential market cap in tokenization of finance. You are one of the few practitioners in the area. It is therefore interesting to know your estimate, a conservative one, short, mid, and long term.
A8: As practitioners we are indeed extremely positive on this potential.
On the short term we will mainly see tokenization spread between financial institutions through projects like funds tokenization and so on.
On the long run, we will have properly regulated venues accessible to the crowd, we are convinced that the whole finance will be tokenized.
Q9: There are undoubtedly many new opportunities that DLT brings to finance. However, the technology did not enjoy mass adoption yet. What are the main challenges on its way? How to overcome them?
A9: Today the ecosystem is still focused on issuance, which is not enough to kickstart adoption. We still need elements like secondary markets, custody, liquidity protocols, etc. This is precisely why we are building Mt Pelerin, to have all the required ingredients for mass adoption integrated in a single place as a Swiss bank.
Q10: There are talks of a stablecoin to be issued by Swiss National Bank, a tokenized frank of sorts. What are your thoughts on this idea?
A10: Those were mainly people external to the SNB discussing the idea, so there’s absolutely nothing concrete at the moment. It would a great initiative however, and it would be interesting to see if a national bank would limit such a coin for the use of institutional actors only or if it would be open for anyone to use.
Beyond the SNB, private sector initiatives are welcome in Switzerland too, which means that any bank could actually decide to start a tokenized CHF. Of course, to structure a stablecoin they would have to respect and enforce all the compliance rules that are in vigor. This is why we have developed BRIDGE, our compliant tokenization technology. We made it open source so that existing financial institutions can use it and launch their own tokenization project with a fully compliance oriented solution.