Like many Fintech entrepreneurs, Tokeny CEO Luc Falempin, was immediately excited when he read the Bitcoin whitepaper, so much that he devoted his career to using blockchain technology to make financial markets available to everyone.
A few years later, Falempin is well on his way to realizing that vision at Tokeny, a Luxembourg-based firm that is building compliance technology for digital assets. Tokeny’s 50-plus industry partners include DLA Piper and Polygon.
In July of 2019, Euronext, a leading European securities exchange invested €5 million in Tokeny Solutions. At that time, Euronext held a 23.5% stake in the blockchain platform. Earlier this month, Tokeny raised another €5 million in a strategic funding round.
Falempin recently answered a series of questions about Tokeny, the state of the marketplace, and his goals for the future.
Tell us how Tokeny came to be in existence. What needs in the market did you see that led you to create the company?
Luc Falempin: I discovered Bitcoin and blockchain almost 10 years ago when I was looking to invest my student savings. After reading the Bitcoin whitepaper and starting to see the use of its alternative payment methods on different investment and gaming platforms, I took a keen interest in the development of these revolutionary technologies. Since then, I was closely following the development of the blockchain market, while busy developing my first marketplace technology startup for e-commerce websites.
In 2017, the ICO boom began, bringing blockchain to the attention of the crowd. I realized it was time to work on something that I’ve been waiting for – making financial markets accessible for everyone by leveraging the ultra-efficient distributed ledger technology. I then successfully exited my previous business and fully devoted myself to the blockchain space.
And here we go, I founded Tokeny with my partner Daniel to provide a technology toolbox for companies to compliantly issue, transfer and manage assets on the blockchain. To date, $28 billion in assets have been tokenized through our enterprise-grade tokenization solutions.
When meeting with a company interested in your services, what is the interaction like? What is their general awareness of blockchain? What if any are their fears about using the space?
Luc Falempin: We are receiving a high volume of demands now and in order to make the best use of our resources, we have to select well-structured projects by asking leads about the stage of the project preparation. It is worth noting that in 2021 many financial institutions were already among the inbound leads, further proving that 2021 was the beginning of institutional adoption. As the market becomes more mature, most of our leads have a great understanding of blockchain and its benefits.
The fear of companies and institutions often lies in two main parts. Firstly, they are confused about how to technically bring assets to the blockchain. Secondly, they struggle with how to comply with regulations on-chain. That’s exactly what Tokeny provides: a technology shield for them to compliantly bring assets to the public blockchain through digital identity, ensuring on-chain and automated compliance.
You describe capital markets as fragmented and siloed with little interoperability between them. How does Tokeny’s technology improve that and what benefits and opportunities does that bring to companies and investors?
Luc Falempin: By using blockchain technology, all participants and stakeholders share the same digital ledger, eliminating the need for reconciliation between different parties. In addition, tokenized assets are programmable, all rules and conditions can be embedded into the asset itself, enabling automated compliance and processes. As a result, interoperability is enabled between different parties as all records are reflected in real-time onchain.
Tokeny provides companies with a complete tokenization solution that allows them to focus on their core business without worrying about technical hurdles, enabling fast onboarding of investors, cost-effective management, and improved liquidity for investors.
Compliance is a constantly evolving issue and of course, changes across multiple jurisdictions. How can blockchain technology help address what is a complex responsibility for issuers? What are permissioned tokens and what role do they play in the process?
Luc Falempin: Tokenized assets’ programmability enables issuers to embed compliance rules into tokenized assets. Therefore, transfers of tokenized asset ownership can only happen when both parties meet the conditions. That basically explains how permissioned tokens work. These tokens consist of two parts:
Investor and offering rules: All rules regarding securities (e.g. lockup period) and investors (e.g. KYC’ed, country of residence) are coded into the tokens when dematerializing underlying assets on blockchain.
Token holder’s identity: Investors provide their digital identity and verifiable credentials of their data to allow smart contracts to verify if they meet investor rules embedded in the security tokens. Once it’s verified, the ownership of the tokens will be linked to the holder’s digital identity, instead of a wallet address, ensuring the ownership of the security tokens.
Therefore, permissioned tokens not only act as an automated validator for compliant peer-to-peer transfers but also guarantee the ownership of digital assets (e.g. tokens can be recovered if wallet lost via digital identities), reducing compliance costs for issuers while improving liquidity.
Potentially, any asset can be tokenized. Are there certain asset classes that are more conducive to the process and will be among the first to be tokenized?
Luc Falempin: Yes, all asset classes can (and will) be tokenized. Among our portfolio, we have already tokenized funds (Weinvest, Belobaba), debts/loans (Inverpriban,TokenChampions), and real estate (Blockhome, Digibrixx), as well as private equity (Enegra). We believe these asset classes are more amenable to tokenization.
As institutional adoption accelerates, we expect a large number of the asset classes mentioned above to be tokenized in the coming year, with other types of asset classes to follow.
Looking ahead to 2022, what are some of the main issues (political, technological) that you are watching?
Luc Falempin: The main issues will certainly be related to regulations. Regulators from all around the world are making new rules to make the blockchain space a safer place for users, but also to track money laundering.
On the one hand, new regulations will bring clarity to stakeholders, on the other hand, they can hinder innovation as sometimes laws don’t take into account the way blockchain technology works. That can make these rules simply inapplicable.
Tokeny’s technology provides the complete compliance infrastructure to financial institutions to bring assets to blockchain. It was designed to code compliance rules into digital assets and automate the process to reduce the cost and improve asset liquidity.
While everything is ready technologically, regulation will affect the speed of adoption. For instance, people are waiting for stablecoin regulations in the U.S. to find out what the next step will be, whether issuers need to apply for a license, etc. While the new rules will result in additional compliance costs for issuers, they will provide clarity for players and confidence for stablecoin holders. As a result, the regulations will accelerate the adoption of blockchain technology. As a downside, this could create (or strengthen) the monopolistic positions of certain market players.
What are some developments or additions you are working on at Tokeny?
Luc Falempin: Aside from continuing to improve our tokenization solutions to provide the best experience to our customers, we plan to decentralize ONCHAINID, the digital identity system used by permissioned tokens. To date, $28 billion of digital assets are already owned and managed by ONCHAINID owners.
As mentioned earlier, ownership of digital assets can only be guaranteed when tokens are linked to digital identities, however, we need a digital identity system that is recognized and used by a majority of users and players.
Currently, the internet of information (web 2.0) is controlled by powerful corporations, but blockchain enthusiasts want the internet of value (web 3.0) to be controlled by its users. It is therefore mandatory to decentralize the ONCHAINID system as much as possible.
By decentralizing the governance, the development of the identity system will be in favor of end-users thanks to community-driven decisions, therefore incentivizing and attracting more blockchain users to use ONCHAINID. The ecosystem of compatible DeFi protocols, dApps, and permissioned tokens will flourish with more users using this anonymous credentials system, leading to virtuous network effects.
Looking forward to what 2022 holds for us – we can’t wait.