Tokenization has been a hot topic lately, with a lot of new projects getting launched. Especially in Switzerland, the so-called "Crypto Valley", this aspect of the blockchain technology has gained traction. A conversation with Tokentrust CEO Marco Grossi on the tokenization of commodities.
In short, tokenization is the representation of an asset on the blockchain. For trading traditional financial products it may be only a small step forward, but for illiquid assets such as real estate, art or commodities, tokenization can open up new worlds.
Thanks to their divisibility, global transferability, and the low transaction costs of blockchain tokens, smaller private investors can also gain access to “non-bankable assets”. Markets with historically low liquidity could thus enjoy a new inflow of investment.
Tokentrust, a Zug-based company, is the operator of the tokenization ecosystem Atomyze. The platform aims to provide the issuance, transfer (primary and secondary market), and redemption of various commodity tokens; built on and utilizing the advantages of Distributed Ledger Technology (DLT) and the Hyperledger protocol, co-developed with IBM. An interview with CEO Marco Grossi.
CVJ.CH: How did Tokentrust come about? What was/is your vision?
Marco Grossi: Tokentrust’s shareholder, Global Palladium Fund, founded by MMC Norilsk Nickel - the world's largest producer of palladium and high-grade nickel, and a major producer of platinum, copper and other metals – is on a mission to implement the next big step in the development of the industry, and has identified blockchain as a fundamental technology for the next generation of supply chain. To date, the lack of adoption of modern financial and technological solutions has led the sector to exhibit the following problems:
- Industrial and investor commodity markets are hardly interoperable
- High entry barriers for financial clients
- Investors have no access to industrial scale storage facilities or pricing
- Trading of traditionally illiquid commodities is limited due to lack of standardized infrastructure
- High frictional costs due to excessive number of intermediaries
- Long and inefficient due diligence and settlement processes
- No transparency of cost-breakdown
- Lack of clarity on products’ ESG data such as provenance and ecological footprint
- Larger spreads due to limited price discovery
It is our vision to bring new access, increased liquidity, optimized efficiency, and improved transparency to the commodities industry through tokenization and Distributed Ledger Technology (DLT) within a seamless ecosystem on the Atomyze platform.
Why commodities and not, for example, real estate?
Our shareholder comes from the commodities industry, and it was a natural choice for the initial development. Nevertheless, other industries, for example, real estate and pharmaceuticals, are also of interest to us, and may be part of our mid-long-term evolution.
Regarding the commodities space, we have seen that it was not so innovative in the last years, and we see big potential for development, especially in the alleviation of the pain points mentioned above.
Comparably, commodities also bring with them a certain frequency and magnitude of transactions opposed to real estate, which has far fewer transactions (for example, one does not sell their house every day).
Who benefits the most from tokenized commodities?
To start, the industry benefits from improved supply-chain flexibility and reduced operational costs, while allowing for extended portfolios of industrial clients.
By adopting a digital ecosystem, the industry can bridge the gap between the industrial commodity and financial worlds – developing circular economies. Through tokenization, the industry participates in an eco-system based on ‘digital trust’ in an otherwise trustless environment.
By utilizing DLT, industrial companies and their clients can immutably link provenance and Environment and Social Governance (ESG) data to the commodities and implement track and trace principals.
What has been the reaction of established players in the industry?
Very positive. We tested our solution with some of the industry’s leading players, including GPF, Traxys, and Umicore, and conducted inaugural transactions – seeing not only proof that the solution is working, but the reaffirmation that the appetite for accessibility, liquidity, supply chain efficiency, and industry transparency is high in demand.
Why did you decide to settle in Switzerland, specifically in Zug?
Simply put, Zug, in the heart of Switzerland, is the place to be for the Blockchain and Commodity industry. Aside from a global hub for commodities, Zug is also known as “Crypto Valley” – and for good reason. It offers a matchless business environment, including favorable laws (e.g. the new DLT Law which came into effect on February 1st 2021), low tax, progressive and supportive political system, and top ranking research institutions. Given that we operate on one hand in the commodities industry, and on the other hand, in the blockchain space, it was a natural choice.
Were there any major challenges? If yes, how did you deal with them?
Given the new and pioneering space we are operating in, there were several challenges we faced:
- Finding the right people with the right skills has been a challenge. Nevertheless, we have over 25 highly skilled employees now and are growing steadily.
- Due to the complexities of the multiple industries involved; consultancy, legal, and regulatory costs are substantial, and often take an ample time.
- In many ways, we are in threading in unchartered territories, as this has not been done before. Building such a solution in a greenfield fashion comes with its exciting challenges. It is our expertise of both, the global banking and commodities sectors, coupled with our knowledge of modern fintech – that helps us overcome these challenges.
What would you say has been the biggest achievement so far?
On February 25th 2020 we launched Atomyze – our pioneering industrial asset tokenization platform, with leading players, including GPF, Traxys, and Umicore. Tokenized precious and base metals have undergone the full product lifecycle in January 2021; these inaugural transactions were all successfully facilitated on the DLT-enabled platform, proving the platform’s technical functionality.
Tokentrust was also chosen by Ridgex Investments plc, for the custody and safekeeping of precious and base metals, while additionally maintaining transaction and commodity information over the digital ledger. Ridgex have listed physically backed Gold, Silver, Platinum, and Palladium Exchange Traded-Commodities (ETC) on top European exchanges such as Deutsche Börse and London Stock Exchange.
Where do you see potential for tokenization, apart from the commodities market?
The use cases of tokenization and DLT are vast, and we see they are quickly becoming part of everyday life, business, and institutions. Due to the immutable proof-of-ownership and fractionalization, companies are looking to tokenize everything from traditional assets such as funds, bonds, and real estate to unique goods such as artwork, music, and services.
Tokenization is the key to increased liquidity, optimized efficiency, and improved transparency across all assets, goods, and services – as is our vision.
Marco Grossi is Chief Executive Officer of Tokentrust. He has more than 19 years of experience within financial services organizations. He was CFO of Lehman Brothers Finance (2008-2015, under PWC contract) during its liquidation, Director with Deloitte (2015-2017), Leading DLT Assurance Team Switzerland and elected Global Leader for DLT Assurance Service in December 2018.