Shalini Nagarajan

Several major lenders across South Korea have reportedly joined a bank consortium dedicated to security token offerings (STOs).



In April, Seoul-based NongHyup established the consortium with the aim of creating an ecosystem centered around security tokens. 



In the context of South Korea, these are blockchain- or DLT-powered versions of traditional investments such as stocks or bonds, but could also confer share ownership or other rights in real estate, investment funds and even artwork.



The Korea Herald <a href="https://www.koreaherald.com/view.php?ud=20230615000547" target="_blank" rel="noreferrer noopener">reported</a> Thursday that Hana Bank, Shinhan Bank and Woori Bank have now joined the NongHyup&#8217;s consortium.



The group includes other fintech companies like Funble, Trackchain (a subsidiary of fintech Aton) and Artipio, bringing the total number of members to 18. Blockworks has reached out to NongKyup for comment.



South Korea <a href="https://blockworks.co/news/koreas-second-largest-city-pushes-for-crypto-hub" target="_blank" rel="noreferrer noopener">legalized security token offerings</a> earlier this year, responding to the rising demand and popularity of digital assets domestically and abroad. 



South Korea’s Financial Services Commission <a href="https://www.fsc.go.kr/no010101/79386?srchCtgry=&amp;curPage=&amp;srchKey=&amp;srchText=&amp;srchBeginDt=&amp;srchEndDt=" target="_blank" rel="noreferrer noopener">published guidelines</a> on these tokens in February, saying they fall under the country’s capital markets law.



<h2 class="wp-block-heading">South Korean banks push for tokenized corporate bonds</h2>



STOs first appeared around 2019, and although the associated South Korean market is still in its early stages, it’s projected to hit 34 trillion won ($26.6 billion) by 2024, the Korea Herald noted.



NongHyup teamed up with two other banks Suhyup and Jeonbuk, along with six security token-related firms including Seoul Auction Blue, Galaxy Money Tree and JB Investment, to create the consortium.



NongHyup reportedly said that members of the consortium will explore ways for banks to enter the STO market while adhering to regulatory guidelines.&nbsp;



They also plan to collaborate on developing platforms for issuing token securities. Ultimately, the goal is to establish a tokenized securities ecosystem where companies can issue tradable corporate bonds as security tokens.



Tokenization is <a href="https://blockworks.co/news/2023-year-of-asset-tokenization" target="_blank" rel="noreferrer noopener">becoming increasingly popular</a> across various blockchain ecosystems. In 2023, prominent institutions including Goldman Sachs and Siemens have embraced tokenized assets in some form.



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blockchain

Top South Korean banks gear up for a $27B security token market

Ornella Hernandez

<div id="highlights-block_629f43a62afd0" class="highlights">
 <ul>
 <li>The agency’s main concern lies in the securitization of NFTs</li>
 <li>Only licensed institutions can operate collective investment schemes</li>
 </ul>
 
</div>



A Hong Kong Securities and Futures Commission statement <a href="https://apps.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=22PR34&amp;module=inline&amp;pgtype=article" target="_blank" rel="noreferrer noopener">published</a> on Monday defines which NFTs fall under its mandate, while advising investors to be mindful of regulated securities.



The statement warned of risks such as “illiquid secondary markets, volatility, opaque pricing, hacking and fraud,” and cautioned that if investors “cannot fully understand them and bear the potential losses, they should not invest in NFTs.”



The Securities and Futures Commission (SFC) is particularly concerned about assets that “push the boundary between a collectible and a financial asset” — those that are structured like a security or a collective investment scheme (CIS). 



A CIS is a type of investment arrangement to pool money around a certain asset or property. The Hong Kong Securities and Futures Ordinance (SFO) specifies that a CIS is managed in escrow, and its participants do not have day-to-day control over its management but are subject to receive profits, income or other returns. 



A recent <a href="https://tokeny.com/the-kmska-museum-tokenizes-a-million-euro-masterpiece-with-erc-3643-standard/" target="_blank" rel="noreferrer noopener">example</a> includes the Royal Museum of Fine Arts Antwerp&#8217;s fractionalization and security token offering on the Polygon blockchain of James Ensor’s 1924 painting &#8220;Carnaval de Binche.&#8221;



While such fractionalized NFTs (non-fungible tokens) fall under the SFC&#8217;s mandate, NFTs of a digital image, artwork, music or video that represent a unique copy of an underlying asset do not.



The financial regulator stated that any Hong Kong residents who wish to issue NFTs or to target local investors must obtain a license from the SFC, or be subject to certain authorization requirements under the SFO.



Recently, Hong Kong also <a href="https://cms.blockworks.co/hong-kong-restricts-trading-of-crypto-etfs-to-professional-investors-only/" target="_blank" rel="noreferrer noopener">limited the sale</a> of crypto spot ETFs to only professional investors, which it defined as those whose portfolio exceeds 8 million Hong Kong dollars (about $1.2 million). And the Hong Kong Monetary Authority deemed “payments-related stablecoins” as a risk to financial stability.



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Hong Kong Securities and Futures Commission Calls for Regulation of NFTs

Macauley Peterson

<div id="highlights-block_6156f00798d1d" class="highlights">
 <ul>
 <li>MakerDAO, the decentralized organization behind $DAI has been trying to bring real-world assets into collateral mix</li>
 <li>Over 50% of $DAI is currently generated from $USDC collateral, but the Maker Community plans to address centralization risk</li>
 </ul>
 
</div>



MakerDAO, the decentralized autonomous organization behind the $DAI US dollar-pegged stablecoin has received a historic proposal from <meta charset="utf-8"><a href="https://www.sgforge.com/" target="_blank" rel="noreferrer noopener"><meta charset="utf-8">Société Générale-Forge</a> (SG-Forge), an affiliate of French investment banking giant Société Générale (SG). The company wants to onboard tokenized, AAA-rated euro-denominated bonds, into the MakerDAO system.



In DeFi circles, there is a running joke that turns &#8220;the future of finance&#8221; — as though by an auto-correct-mishap — into &#8220;the future of France.&#8221; Now it looks like France&#8217;s future may, after all, include some DeFi dollars.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">&#8220;This first experiment at the crossroads between regulated and open source initiatives&#8230;is intended to refinance a Covered Bond Token that has been issued last year on the Ethereum public blockchain,&#8221; <a href="https://forum.makerdao.com/t/security-tokens-refinancing-mip6-application-for-ofh-tokens/10605" target="_blank" rel="noreferrer noopener">wrote</a> Société Générale-Forge in their proposal to MakerDAO.</blockquote>



<meta charset="utf-8">Société Générale is a European banking behemoth, with 138,000 employees in 62 countries. While this initiative is described as experimentation, it is very much in line with the aims of MakerDAO to increase the collateral base of its $DAI stablecoin and diversify away from a reliance on volatile crypto assets (namely ether) and other centralized <a href="https://cms.blockworks.co/the-investors-guide-to-stablecoins/" target="_blank" rel="noreferrer noopener">stablecoins</a> such as $USDC which currently backs about half the $DAI in circulation:



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">DAI&#39;s USDC backing has dropped below 50% again. We plan for this trend to continue. Slowly but surely <a href="https://twitter.com/MakerDAO?ref_src=twsrc%5Etfw">@MakerDAO</a> is making steps to diversify the collateral pool. <a href="https://t.co/GyGK35FNaa">pic.twitter.com/GyGK35FNaa</a>&mdash; Sam MacPherson | hexonaut.eth | 🪱🕳ing (@hexonaut) <a href="https://twitter.com/hexonaut/status/1445374266552225793?ref_src=twsrc%5Etfw">October 5, 2021</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The OFH Tokens are tokenized securities (available on Bloomberg as SIN FR0013510518). They carry a nominal value of €40 million, are issued on Ethereum and are backed by home loans issued by a <meta charset="utf-8">Société Générale-affiliated credit institution. The security tokens are based on the <a href="http://www.cast-framework.com/" target="_blank" rel="noreferrer noopener">open-source framework CAST</a> (Compliant Architecture for Security Tokens), which has previously been employed by Banque de France and the European Investment Bank both on the Ethereum and Tezos blockchains.



SG-Forge plans to borrow up to 20 million $DAI for a period of six to nine months, which it will convert to US dollars and loan to its parent SG in exchange for the use of the $OFH tokens as Pledge — effectively a refinancing of the OFH Tokens.



<h3 class="wp-block-heading">Dealing with a DAO</h3>



Since the Maker Community is organized as a DAO, the proposal requires that the community vote to appoint as a Maker Representative — <a href="https://www.diisgroup.com/" target="_blank" rel="noreferrer noopener">DIIS Group</a> — that will be empowered to execute the legal contracts for the transaction.



Unlike other assets backing the creation of the $DAI stablecoin, the OFH Tokens have no liquid market, so the liquidation procedure — in the event the loan becomes undercollateralized — is rather more manual than generally applies to MakerDAO&#8217;s other collateral vaults.



However, SG-Forge notes in its proposal notes that this just a first step; European regulations are evolving to support security tokens, and they expect that further growth in OTC desks and other trading venues will allow for more automated liquidation possibilities in the future.



The proposal was met with overwhelming support by the Maker Community forum participants with one calling the proposal, &#8220;a new landmark in DeFi and showing how DeFi and TradFi are merging together to create Finance 2.0.&#8221;



Also of note is that the founder of MakerDAO, Rune Christensen, was evidently unaware of the community efforts behind the scenes to bring this proposal to fruition.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Turns out it was the future of France all along! 😀 Amazed that I had no clue about this at all the whole time. This is one of multiple recent examples in Maker Governance of how the post-foundation model of organization is proving to be more scalable&mdash; Rune Christensen (@RuneKek) <a href="https://twitter.com/RuneKek/status/1443712053273939970?ref_src=twsrc%5Etfw">September 30, 2021</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The Maker Foundation is <a href="https://www.coindesk.com/tech/2021/07/20/makerdao-moves-to-full-decentralization-maker-foundation-to-close-in-months">expected to be dissolved</a> by the end of this year, at which point the Maker Community will have full control over the DAO.



The proposal will next undergo an extensive review and discussion phase before it can be implemented, but there is clearly momentum behind the initiative to make this experiment a success.

Major French Bank Wants to Back the $DAI Stablecoin with $40M in Bonds

<div id="highlights-block_615c4b5f3cf81" class="highlights">
 <ul>
 <li>Alaia tokenized shares will be admitted for trading on Taurus Digital Exchange</li>
 <li>Security tokens regulated by the Swiss Capital Markets and Technology Association (“CMTA”) standards, using the Ethereum public blockchain</li>
 </ul>
 
</div>



Part of the promise of blockchain technology is its supposed ability to improve the issuance and exchange of tokenized securities to make them more secure, efficient and transparent than is possible in traditional finance. The practical application of security tokens, however, has been slow to develop, largely due to regulatory hurdles.



One country that seems to be ahead of the rest is Switzerland, where standards developed by the Capital Markets and Technology Association (CMTA) are now seeing adoption in capital markets.



The Geneva-based <a href="https://www.taurushq.com/" target="_blank" rel="noreferrer noopener">Taurus</a> has developed a suite of tools to enable companies to tokenize their shares on Ethereum in a regulatory-compliant manner. Today, Taurus announced that Alaia SA, a startup that develops and manages sport and hospitality infrastructure, has successfully done just that, with the shares deposited at the banking giant Credit Suisse and soon to be available on the secondary market via <a href="https://t-dx.com/" target="_blank" rel="noreferrer noopener">Taurus Digital Exchange</a>.



Lamine Brahimi, co-founder of Taurus, said in a statement, “we are committed to supporting entrepreneurs and financial institutions to make private assets digital,” referring to the prospect as “corporate finance 2.0.” 



Taurus’ product line, called Capital, Protect and Explorer, enables the “end-to-end digital management of Alaia shares and their representation in Credit Suisse booking systems,” according to Taurus’ <a href="https://blog.taurushq.com/alaia-tokenises-its-shares-with-credit-suisse-powered-by-taurus/" target="_blank" rel="noreferrer noopener">press release</a>.



The company simplifies the process for banks, exchanges, broker dealers and large NFT platforms, for example, by facilitating gasless transactions on Ethereum for their clients. Taurus’ smart contracts handle the transaction fees to settle share transactions on-chain.



<meta charset="utf-8">Brahimi told Blockworks the CMTA standard being employed was “an improved version of [earlier standards] with all things related to company shares (investors, whitelisting, corporate actions).” The CMTA “<a href="https://www.cmta.ch/content/52/cmta-blueprint-for-the-tokenization-of-shares-of-swiss-corporations.pdf" target="_blank" rel="noreferrer noopener">blueprint for the tokenization of shares</a>” was developed in September 2018, and outlines a process for Swiss corporations to follow. 



Initially only Ethereum and Tezos are supported blockchains for the security tokens, but the firm plans to support additional chains in the future, he noted.

Credit Suisse

Credit Suisse Integrates Security Tokens on Public Ethereum

Sam Reynolds

<div id="highlights-block_615c7ae2b9695" class="highlights">
 <ul>
 <li>Metaco says demand for institutional grade digital asset infrastructure in Singapore and the rest of Asia is the reason its expanding in the continent</li>
 <li>Singapore has been at the forefront of digital asset adoption led by DBS Bank as well as its sovereign wealth fund Temasek</li>
 </ul>
 
</div>



Digital assets infrastructure provider Metaco announced today that it has opened an Asia-Pacific office in Singapore, citing demand for digital assets in the City and the region as a whole.&nbsp;



Switzerland-based Metaco has played a role in digital bond issuance in Europe and Switzerland during the last year. At the same time, Singapore has been at the forefront of digital bond issuance with Temasek portfolio company Azalea Investment Management issuing its latest Temasek private-equity-backed bonds, Astrea VI, in tokenized format on the blockchain and local digital asset exchange iSTOX also issuing tokenized bonds.&nbsp;



“The decision to choose Singapore as the location for our APAC base made best sense for our business and strategic objectives. Singapore is one of the jurisdictions in which we are seeing the highest levels of demand for digital asset software and infrastructure by financial institutions, driven in part by the progressive regulatory framework towards digital assets by the Monetary Authority of Singapore (MAS),” Andre Israel, Chief Operating Officer at Metaco, told Blockworks in an email.&nbsp;



Israel also said that the country’s talent pool and prior experience with digital assets is another reason the company chose to establish its regional headquarters in Singapore.&nbsp;



Perhaps the most notable example of institutional acceptance of digital assets in Singapore comes via DBS, which is partially owned by the Singaporean government. <a href="https://cms.blockworks.co/can-dbs-sto-revive-a-stagnant-offering-class/" target="_blank" rel="noreferrer noopener">Earlier this year</a>, the bank announced that it was opening up a Security Token Offering issuance desk. During its last <a href="https://cms.blockworks.co/singapores-dbs-reports-100-million-in-digital-assets-in-custody/" target="_blank" rel="noreferrer noopener">earnings</a> announcement, the bank reported that it has over $100 million in digital assets custodied via its institutional-focused digital assets exchange, and it will soon begin to offer digital products via its traditional brokerage DBS Vickers.



In a previous interview with Blockworks, Seamus Donoghue, Vice President of Metaco, called Ethereum the new “rails for the new capital markets” believing it will play a key role in the future issuance of government debt — a “growth industry” according to Donoghue.&nbsp;



<h3 class="wp-block-heading">Singapore vs. Hong Kong&nbsp;</h3>



While Singapore might have had competition from Hong Kong as a digital assets hub, the two are drifting further apart, with Singapore taking the lead given its friendly regulatory environment. Industry stakeholders that Blockworks has spoken to <a href="https://cms.blockworks.co/hong-kongs-digital-assets-double-standard/" target="_blank" rel="noreferrer noopener">have complained</a> about Hong Kong’s digital asset double standard, with layers of bureaucracy and strict anti-money laundering laws that stop most firms from even being able to open a bank account.&nbsp;



“Banking still treats crypto as something that they really don’t want to touch in Hong Kong over money laundering concerns,” Vincent Chok, CEO of First Digital Trust, a registered public trust company headquartered in Hong Kong told Blockworks in an earlier interview. “There’s a definite bias going on.”



It’s also been said that Hong Kong’s <a href="https://cms.blockworks.co/custodian-rules-are-missing-link-for-hong-kongs-digital-assets-industry/" target="_blank" rel="noreferrer noopener">lack of proper digital asset custodian rules</a> — so far it has only issued guidance and not a comprehensive legal framework like Singapore — is inhibiting the territory’s growth as a digital assets superpower.&nbsp;



But Metaco’s Israel said that Hong Kong is still a key global financial center and on the roadmap as the company “continues to grow at a significant pace”. It’s just not going to be its Asia-Pacific headquarters.



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