Kris Hopkins, head of capital markets at SBI Digital Markets, the Singaporean subsidiary of SBI Digital Assets, joined the Waters Wavelength Podcast to talk about digital assets and why he thinks capital markets firms should become more involved. 

SBI Digital Assets is the digital asset arm of Japan’s SBI Group.

Hopkins started his career as an intern in the trading pits at the London International Financial Futures and Options Exchange (now ICE Futures Europe), which led to a full-time job trading interest rate derivatives when he was 17 years old. Since then, he has witnessed first-hand the changes wrought by electronic trading and later on algorithmic trading, and believes that capital markets firms “cannot afford to not get into” digital assets. 

One area, in particular, is in the tokenization of assets—a tradeable blockchain token that represents a physical asset, such as bonds or equities, real estate, or even wine and art. 

Security tokens can give organizations a wider range of investment opportunities to consider. The simple way of looking at it, Hopkins says, is that it’s a reformatting of existing products—be they bonds, equities, or real estate—into a tokenized form. 

“One of the main benefits of tokenization is the ability to fractionalize; you can actually split the asset into smaller tradable fractions in the form of these tokens. That basically allows for fractional ownership among different investors. It even opens up investment opportunities for people who wouldn’t ordinarily have the opportunity to do so,” he said. 

Firms can use security token offerings as another avenue to raise capital. In Singapore, where SBI Digital Markets is based, security token offerings (STOs) are considered regulated securities, thus providing financial institutions the comfort to get involved. 

Currently, security tokens fall under the Monetary Authority of Singapore’s Securities and Futures Act. 

That said, the tokenized landscape is not without challenges. The one that stands out particularly in regards to STOs is liquidity. 

“It’s all very well tokenizing everything, but if there isn’t a liquid venue to trade your tokens after they have been issued, then it’s going to be very difficult to convince people to buy them,” he said.

To this effect, SBI Digital Asset aims to build a liquidity corridor. It has a joint venture with Six Digital Exchange to build a Singapore-based digital issuance platform, exchange, and central securities depository (CSD) venue that’s aimed to be up and running by 2022.

It already has ties in Europe to the Boerse Stuttgart Digital Exchange. It is also in the planning stages for a digital securities exchange in Osaka with Sumitomo Mitsui Financial Group.

Hopkins said, “[The liquidity challenge] is like one of those chicken and egg things, you have to build it and then people will come. It just takes a while for things to build and mature and develop, and it’ll involve market makers to make sure there’s liquidity coming in. It’s something that all exchanges listing any new product face—whether it’s in the traditional world, or in the digital world. That’s going to be something that the industry will need to look at and to address.”