Private markets slow to adopt tokenization, still seeking clear use case

Blockchain technology was expected to liberalize illiquid, disparate, and chunky private-market assets by breaking them into digital tokens, but adoption has been slow.

Industry players disagree about the best applications for blockchain or distributed ledger technology (DLT), and many also remain unconvinced of its benefits.

Danny Toe, chief executive of private markets exchange ADDX, is among DLT’s proponents, but he admits progress is wanting.

“How tokenization is used in the market is more piecemeal, so the benefit of using this tech is not fully there yet,” Toe said. “That’s why there is a lot of debate about whether it makes sense.”

ADDX CEO Danny Toe / Photo credit: ADDX

ADDX last week launched a fixed-income marketplace for digitized commercial paper and bonds. Its inaugural listing is a five-month commercial paper issued by Singapore and Hong Kong-listed real estate services company LHN.

As an indicator of demand, ADDX said LHN upsized its offering from S$5 million to S$10 million after receiving orders of over S$17 million.

LHN’s instrument used umbrella terms and an issuance process that ADDX said can be completed in “a matter of days” at possibly a tenth of the traditional cost.

Reducing cost and time is something digital alternative assets marketplace Alta is promising too.

Kelvin Lee, Alta’s co-founder and chief executive, said digitally native funds “created entirely on blockchain” with limited physical documentation or lawyers could reduce costs by 20% to 30%.

The tokenization of equity in a private company, meanwhile, could do away with the need for a central securities depository that keeps track of who owns what.

Today, Lee noted, transfers of ownership for many assets cannot take place on a public holiday. DLT is able to automate such processes and more “so that human intervention is markedly reduced,” he said.

Kelvin Lee, Alta’s co-founder and chief executive / Photo credit: The Business Times