Tokenized Securities are gaining momentum: An Overview

While the digital asset ecosystem continues to evolve in high speed, relevant regulatory standards such as Digital Finance Package (EU) or Electronic Securities Act (eWpG) in Germany pave the way for digitizing assets. The adoption of the eWpG on 10 June 2021 gave the go-ahead of the issuance of electronic securities. [1]

According to the eWpG, an electronic security is a security for which an entry is made in an electronic securities register instead of a securities certificate being issued. This electronic securities register can either take the form of a central register or a crypto securities register. [2]

Let’s take a closer look on the two types of securities:

1. Electronic central registry securities: Are not evidenced by a certificate in accordance with the definition of securities in German legal norms, but only in digital form (section 4 (2) eWpG).
2. Crypto securities (Tokenized securities): Are entered in a crypto securities registry and thus a sub-type of electronic securities (Section 4 (3) eWpG). [3]

Based on the supported assets at Trever, in the following article we refer only to crypto securities, also known as tokenized securities.

How to issue Tokenized Securities

Tokenized securities are issued in 4 different steps, which we would like to explain further.

1. Agreement: Under the law of obligations there is an agreement between the issuer and the first taker (purchase contract, etc.). The issuer undertakes to issue and the taker to take over. All legal and commercial regulations must be contained.
2. Commissioning contract: The agreement between the parties that the registration in the register will take place (instead of the issuance and delivery of the securities certificate). Similar to the scriptural act for physical securities, tokenized securities do not come into legal existence until they are entered in the register.
3. Issuance: Tokenized securities are entered in an electronic register which is maintained on a blockchain. The registration is implemented by the registrar.
4. Legal effect: One the tokenized security is registered it has the same legal effect as a physical paper document and is deemed to be a thing by virtue of a legal fiction. As a result, dispositions can now be made with legal certainty in accordance with the principles of property law. [3]

As a result, there are a number of advantages of tokenized securities which raise popularity of these assets:

• Lower costs: drastically reduced costs of the value chain.
• 24/7 transferability: previously illiquid assets can now be transferred easily all the time and anywhere.)
• Faster settlement: significantly increased speed of transactions by the use of tokenized securities.
• More transparency: transactions are stored in an transparent and unchangeable manner. [4]

Outlook: Tokenized Securities gain attraction

By looking at the straightforward process of issuing digital securities and the multiple benefits, it is no surprise that more and more financial institutions are considering tokenized securities.

Also the statistics show, that demand for tokenized securities is increasing. Analysts have forecast that $4 trillion to $5 trillion of tokenized digital securities could be issued by 2030. [5]

In the future, tokenized securities will therefore be in much greater demand, and financial institutions should prepare themselves with the right infrastructure.

Fintech companies like Trever provide financial institutions with a holistic system to manage tokenized securities and further asset classes. Why manage multiple partner integrations when a single system can connect you to all the key players you need?

Get in touch with our experts to get more insights: https://trever.io/contact/

Sources:

[1] Fact Sheet – Elektronische Wertpapiere und Digital Assets. (2022). In Bundesverband für Alternative Investments e.V. https://www.bvai.de/fileadmin/Veroeffentlichungen/BAI_Publikationen/BAI_Fact_Sheets/Fact_Sheet_Elektronische_Wertpapiere_und_Digital_Assets.pdf

[2] Elektronische Wertpapiere nach dem eWpG. (o. D.). FinPlanet. https://www.finplanet.eu/expertisen/ewpg

[3] Cashlink Technologies GmbH. (o. D.). Everything you need to know about the Electronic Securities Act (eWpG). Cashlink. https://cashlink.de/en/electronic-securities-act-ewpg/

[4] Cashlink Technologies GmbH. (o. D.). Get started with crypto securities now. Cashlink. https://cashlink.de/en/ewpg-crypto-securities/

[5] Tokenization: A digital-asset déjà vu. (2023, 15. August). McKinsey & Company. https://www.mckinsey.com/industries/financial-services/our-insights/tokenization-a-digital-asset-deja-vu

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