On-Chain Finance Meets Capital Markets

00:00:00: Typically, after ten-twenty years you reach a point where you cannot just upgrade the existing infrastructure.

00:00:05: You need to make it cut and move into new infrastructure to reach next level right?

00:00:11: And I think with on-chain finance is such kind of moment when we say okay... We had traditional financial system It works well!

00:00:19: We did incremental upgrades but kinda moved towards our next level ...we needed a new infrastructure or ecosystem which was blockchain.

00:00:28: Welcome to Inside Digital Assets, the podcast about the future of capital markets.

00:00:34: Tokenization digital assets and the technologies that power them.

00:00:41: Welcome to a new episode of Inside Digital Asset.

00:00:45: Today we have very interesting guests with us Tobias Wohlfahrt from Obligate.

00:00:50: Welcome!

00:00:50: Thank you, Gloria.

00:00:51: Glad to be here.

00:00:52: Obligat is Swiss company modernizing capital market.

00:00:57: It does so by enabling the issuing, trading and managing of debt instruments directly on blockchain.

00:01:04: We will hear more about that in a minute from Tobias Walfaerts directly.

00:01:09: he's the Chief Business Officer & Deputy CEO at Obligate where is responsible for advancing the client network and product offering.

00:01:20: He brings deep expertise in financial products structuring gained as ten years at Leontech, so he's a great person combining both the traditional financial structuring and the new structuring on the blockchain.

00:01:34: So Tobias I'm very excited to have you with us today!

00:01:37: Thank You!

00:01:39: So Tobius let's kick off... And yeah i mean i think you're the best person to tell us a bit more about Obligate its offering and what do you have achieved so far?

00:01:49: Sure Yeah.. So Obligat is Swiss Financial Intermediary And we use blockchain technology to create digital securities natively on the blockchain.

00:02:03: The company was founded already seven years ago in the context of the DLT Act, which was created in Switzerland at that time... ...which allowed you to create securities not only into traditional markets or traditional form but also a new digital form using blockchain technology so-called ledger based securities, and the founders of Obligate thought there's also a business opportunity for this to leverage that law.

00:02:32: And kind of Switzerland was one of first countries actually go ahead with such legislation which is great to bring innovation into market here.

00:02:45: So yeah, we built a platform that allows you to create these digital securities.

00:02:51: To manage them, subscribe fund them, manage the life cycle all kind of processes around it and also established a legal framework for the issuance off such instruments.

00:03:03: And since three years We are live with our current platform which is focused primarily on depth instruments which can range from very classical corporate bonds all the way to structured products.

00:03:19: And we have now transacted more than eight hundred million by now in volume on that platform these years, I believe is a good success as starting environment and yeah... We recently also expanded into decentralized finance markets with our flagship product, Otify which is live on Camino and Morpho markets by now where you can actually do boring lending in these instruments.

00:03:53: And use digital securities also within the blockchain infrastructure for other purposes.

00:03:59: Congratulations to having been a pioneer and achieved so far.

00:04:04: it's often not easy to take vision into practice.

00:04:10: Now let's go a bit into this vision.

00:04:14: So modernizing capital markets, on-chain finance?

00:04:18: Why do you do this and what does that mean for you?

00:04:20: On-chain Finance basically means establishing new market which is happening in the new environment.

00:04:28: when we think about on chain finance it means that we have instruments which are actually created.

00:04:40: These securities are created using blockchain technology, smart contracts for example.

00:04:45: which kind of design how the product is handled on the blockchain.

00:04:51: Transfer rules who holds the token.

00:04:54: all these things can be seen in a block chain or to handle coupon payments.

00:04:59: I can be done fully automated in that sense.

00:05:04: So it's an environment which relies on much less intermediaries, because you have the blockchain where all the processes are already kind of pre-programmed to a large extent and It is also borderless market right?

00:05:20: Where everyone can participate in the blockchain Can be institutions or private individuals All across the world can use this technology and interact with each other.

00:05:32: And that allows you to create efficiency gains by immediately connecting people, uh...with each other.

00:05:42: You don't have to wait for your money transfer from Singapore or Argentina one week right?

00:05:48: You just send it over using that.

00:05:52: so there are many new use cases which come about.

00:05:57: I always think of it like when an industry operates in a certain market, there are evolutionary steps on yearly basis or continuously.

00:06:08: But typically after ten-twenty years you reach the point where you cannot just upgrade existing infrastructure.

00:06:15: You need to make a cut and move into new infrastructure to reach next level.

00:06:20: And with On Chain Finance is such kind of moment that we say We had the traditional financial system.

00:06:28: It works well, we did incremental upgrades but kind of to move toward next level you need a new infrastructure and ecosystem which is blockchain right?

00:06:39: And that's just an evolution for this next phase on financial markets.

00:06:45: Now let us make these four listens maybe more specific.

00:06:50: Let us talk about your specific market within this DLT environment the credit market, could you describe a bit?

00:06:58: The products that you have there and what does it really make different now for CFO versus in today's world.

00:07:07: What does it improve?

00:07:09: so we have two I would say product types.

00:07:11: one is called an E-note And the other is called eTracker.

00:07:15: both are depth instruments but they're different shapes.

00:07:19: An E note is classical let's say bond instrument with fixed tenor pays a certain coupon, right?

00:07:28: And you have all the usual terms that come with bond issuance attached to it.

00:07:34: It can also be structured in structure product format which kind of brings your then more bespoke payoff profile into the product.

00:07:43: so thats very classical instrument.

00:07:45: and we have an eTracker Which is more investment product.

00:07:50: Its typically products which doesn't has a tenor right, so it's evergreen product and It just is a yield accruing instrument.

00:08:00: So kind of the yield value of the token.

00:08:02: Just increases over time because it typically tracks pool of assets Right?

00:08:07: You can think about that as two tiered approach where we have our E-notes And they can be pulled together.

00:08:14: then an eTracker Can Be created to track this portfolio of E-Notes.

00:08:20: And what's different is basically that on the one side, as I mentioned before... ...the efficiency side.

00:08:27: Now you can create an instrument if your like a issue of such an instrument with much less intermediaries You could just come to us and we can set up everything A-Z.

00:08:40: You don't need thirteen different intermediaries in the end launch bond.

00:08:47: That makes it also more flexible once you are set up.

00:08:50: on our platform, we have issuers which create bonds like every day because it's so easy for them.

00:08:57: It takes two or three minutes to launch a bond and that makes it for CFO or Treasurer much more flexible kind of manage their funding needs from the perspective right?

00:09:10: It also enables new companies to participate in this let say multilateral financing market.

00:09:17: if let's say an SME company or a very specialized company, you are not able to launch a bond because for this you need like fifty million minimum size.

00:09:29: On our platform you can probably easily start with one hundred thousand just to launch something.

00:09:35: so it gives access to new group of issuers and they don't have the bank which could give them money.

00:09:49: Also, on the investor side it brings new access possibilities.

00:09:53: Before as an investor you might not have had access to these instruments and now we make them available through a broader audience that can invest also from international perspective in attractive assets which are being brought into the credit market.

00:10:12: so assets you want to invest in, they're made available on the platform and You don't just have the menu that your bank selects for you.

00:10:23: To be invested is more self-directed

00:10:26: And may I maybe ask there?

00:10:27: So it's more than just a technical tokenization element.

00:10:32: It also then has this aspect of that Issues can find investors through your platform.

00:10:39: how does this whole placement Element work?

00:10:42: yeah we have seen.

00:10:43: i mean It's by now a commodity.

00:10:48: That's not the critical part to solve, right?

00:10:50: The technology works since many years.

00:10:52: it has been created and works very efficiently as we have seen.

00:10:55: but you've done so many transactions By Now.

00:10:59: But when you look at creating a new financial market is not necessarily just about the technology.

00:11:04: that is about trust Building the connectivities building the rails with the market participants And we are like a connecting piece between the different sides of the transactions.

00:11:18: We connect to the issuers with investors, so we manage both sites and bring them together in order to reach a deal.

00:11:26: Our focus is very much on the primary market.

00:11:29: So we do initial transactions obviously.

00:11:32: then later they might look at secondary side which will develop into something new that comes as well demand for secondaries as well.

00:11:48: And yeah, that's how we connect all these ecosystems and As I said, We are active internationally so we have not just clients from Switzerland even though they're based here ,we have clients from around the world .We work together with a large group of new Clients also emerging right?

00:12:08: So it is Not necessarily that we focus on bringing traditional let's say investment companies to the blockchain and try to make them do the transaction using their blockchain now, what they did before.

00:12:23: But it is also about working with new companies.

00:12:26: there are many new wealth managers asset managers which are digital native right?

00:12:31: They manage funds of blockchain.

00:12:34: investors already have stablecoin And these stablecoins need to be invested as well.

00:12:40: So

00:12:40: are these like the famous foundations?

00:12:43: or what type of wealth managers?

00:12:46: Foundations is one element, but there they mostly manage their foundation money.

00:12:52: But wealth managers also mean new funds which have been created on the blockchain that managed money from investors who have made money in a block chain and those assets want to create return.

00:13:10: People have invested mostly in crypto to make a return, but the market is maturing as well.

00:13:16: So they are seeking now investment opportunities which are more linked to traditional investments and kind of.

00:13:25: we're at platform that brings these let's say more traditional looking investments institutional great investments through blockchain community And make it investable for them so then can also get an exposure To real world.

00:13:40: That's what we call the real-world assets.

00:13:42: It is also a big buzzword at the moment.

00:13:44: So to

00:13:44: jump in here, could you describe these three world assets?

00:13:48: What type of assets are we talking about?

00:13:50: Yeah!

00:13:50: These are as the name suggests assets which originate from the real world.

00:13:56: so they're not crypto right there are issued by companies who have a real business In The Real World.

00:14:04: for example our big focus on trade finance.

00:14:09: Trade Finance is an attractive asset class for blockchain investors because it's also very short term.

00:14:16: Many blockchain investors have a short investment horizon, so that matches quite well.

00:14:22: and trade finance is about moving commodities around the world financing these transactions between trading counterparties really real business because it's commodities which you can touch and see them moving around in the world.

00:14:41: And we kind of create an investment opportunity or investment product that creates exposure to this business, right?

00:14:50: That is what I mean by real-world assets.

00:14:52: there has been if you look at a market overall There was Money Market Funds Which were one of first let say Real World Assets created on blockchain.

00:15:02: We now have which is mostly our segment, the private credit now.

00:15:06: Which are bond-like instruments coming to the market.

00:15:12: and you also have the equity side that has been in focus a lot this year creating tokenized versions of equities being traded on blockchain.

00:15:23: so we have different segments off the market.

00:15:25: it just shows how the market is maturing towards kind of mirroring classic traditional markets.

00:15:33: Can you give us some insights into what have learned from some of these transactions that we've done?

00:15:40: Yeah, as you said so the technology part is kind of solved.

00:15:43: It's not a critical thing.

00:15:46: it's about building trust and comfort between participants.

00:15:51: for this its very important to have solid legal framework which is great here in Switzerland with proper certainty.

00:16:03: all the products that we do based on Swiss law, right?

00:16:06: It doesn't matter if it's a company from Hong Kong dealing with Singapore investor.

00:16:11: We still launch this with security which is kind of very nice thing for the framework here to leverage these kinds purposes.

00:16:21: and yeah its lot about due diligence.

00:16:25: thats big topic at moment because people want know what they are investing in.

00:16:31: It's great that you have a token and the token promises are certain yield.

00:16:36: But in the end, people still want to look through what is behind the token?

00:16:40: And we need to have proper framework for the token on one side but also for exposure that you're creating at the company or business that is behind it as solid.

00:16:52: We work with rating agencies which provide an opinion about credit risk.

00:16:59: on the kind of token framework, right?

00:17:02: You can look at all different aspects.

00:17:05: So that's a due diligence side to big focus.

00:17:08: you have to pass that gate otherwise nothing is happening.

00:17:11: it's kind of the first barrier.

00:17:14: so investors are comfortable with their asset in principle and then its about designing the product in a way structuring the products for the investment audience, right?

00:17:30: So there it's about liquidity.

00:17:32: How can investor get out?

00:17:34: these are usual questions that would also come up in a traditional world is not nothing new but you also have to solve them.

00:17:43: and on chain finance context yeah That's where we have seen that You just need to tick all the boxes along the life cycle Not just create a token And people will invest.

00:17:53: I

00:17:55: also hear that often and you know, so blockchain etc.

00:17:59: can make a lot of things in the transaction cheaper.

00:18:04: And then they say yes but all these other boxes need to be ticked.

00:18:08: They're still expensive.

00:18:10: due diligence prospectus All this kind of thing.

00:18:13: Do see that?

00:18:14: The cost on that block will come down.

00:18:17: So we have not just the blockchain efficiency But whole ecosystem efficiency at new level.

00:18:23: I mean, we hope so because for example if you look at let's take collateral as one example.

00:18:31: The blockchain gives the opportunity to have that look-through of a token directly on chain and once we also have underlying assets... If we stick with the trade finance example right?

00:18:45: We're not fully there yet but i think it can involve.

00:18:48: there is where you invest in a bond, let's say which gives the exposure to a trade finance company.

00:18:56: But at Trade Finance Company they can also put all their trade finance transactions on chain right?

00:19:02: Which we then see as part of that token and it give much more transparency into this asset Right!

00:19:09: And obviously through debt is more efficient because You don't need rely on third parties who provide confirmations or whatever.

00:19:18: Yeah, that's why I believe it is possible to also create efficiency in these other areas.

00:19:22: Interesting!

00:19:23: So...I think you painted this great vision of the efficiency and global interconnected markets.

00:19:32: The legal system is there Your offering.

00:19:36: But where do we stand overall in the adoption?

00:19:39: I mean, CFO today at The Large SMI Company.

00:19:43: Is he aware of these opportunities?

00:19:47: what would be needed for CFOs to use this naturally as their tool set?

00:19:53: yeah i think right now We are still At the beginning.

00:19:56: all Right!

00:19:56: We have seen a lot Of growth.

00:19:58: if you look at Overall volumes compared to volumes in traditional market, it's still a small...

00:20:05: Right.

00:20:05: The eight hundred million versus the trillions?

00:20:09: We are obviously very happy with success and growth that we're having but is still a smaller area where as an adoption, the adoption is mostly with participants who already have been in blockchain ecosystem because there was a lot about leveraging existing infrastructure.

00:20:29: And if you look at a traditional company, let's say an SMI company.

00:20:34: They have zero blockchain infrastructure for them to build up that capabilities will be obviously larger lift and integrate into their systems and adopt it.

00:20:46: with the big endeavor I believe It Will Come.

00:20:50: but At The Moment Let's Say The Adoption Is Mostly With Companies Who Are Already More Native With This Technology And there's already a big market and this market is also growing.

00:21:04: Let us say the blockchain native market, we can see that companies are more closer to that market moving next.

00:21:14: so now many FinTechs, Revolute Robinhood they're all moving into that on-chain finance as well because for them it obviously easier because they operate in new technology stack integrate that technology.

00:21:31: But obviously for, if we stick with the example of let's say a bond issue from SMI.

00:21:37: they want to issue one for five hundred million in one clip right?

00:21:41: At the moment the market on the blockchain would not be able to adopt like absorb that directly.

00:21:46: so they will still need to rely on traditional markets and some sense all right.

00:21:51: That's why On that side I think We Still Need Some Time To Get There Over and obviously it's a lot about for these let's say larger companies And I mean we have seen many large companies already adopting the new technology.

00:22:10: right if you look into them us market We have many in large asset managers Which are already very engaged with blockchain, right?

00:22:19: You have black rock franklin tempter and cancer.

00:22:22: I mean so many players are already using blockchain and launching products there, right?

00:22:28: And even in Europe if I made chip-in.

00:22:29: There were some big names like Siemens etc.

00:22:32: that have tried this technology at least.

00:22:35: Yes

00:22:36: They've been POC's but i think it is not... If we look the corporate funding market It isn't really used on a regular basis, right?

00:22:48: But what very specifically would be needed to repeat that the banks as well move onto these rails

00:22:55: or

00:22:56: the companies themselves have wallets.

00:22:59: What exactly will we need for this next step of adoption for large corporate CFOs?

00:23:06: I mean on one side yeah... The buy-side needs to be there in a broader context To the institutions.

00:23:13: Institutioners, banks need to be also more investing through that kind of technology.

00:23:20: and then I think it's about standardization.

00:23:23: at the moment The market is still very fragmented.

00:23:27: We have different ecosystems And we are active across multiple ecosystems.

00:23:32: But obviously for such a player It would make it more difficult having to adopt all these different ecosystems.

00:23:43: So I think once that harmonizes and there's like a more unified standard, maybe two or three right?

00:23:49: That will help.

00:23:50: And yeah to have then all the puzzle pieces that are needed for such issuers.

00:23:56: in theory everything is there but by just proving the market is growing and by creating new products i think every day we prove more than it's a marker to stay alright.

00:24:10: And in the end, that will hopefully then move these companies also over to the blockchain.

00:24:18: Right?

00:24:19: In the end I always say we are at this digital technology market but it's also people.

00:24:27: business still right has always been these markets.

00:24:30: so its about just building connections engaging with these companies which you're doing and long term discussions because things take time But is important.

00:24:41: both sides engage with each other and move toward that direction.

00:24:47: So if we moved five years ahead, people would meet again?

00:24:55: What's your idea of what will it look like?

00:24:58: What part of the market will have changed most?

00:25:00: I believe that adoption that you can see mostly in markets where there are hurdles at the moment that these markets will have changed the most.

00:25:12: These are in transparent markets like private credit markets, all this mid-tier market or also if we look on an international basis financial markets which are less developed right?

00:25:26: It's also where you see at the moment The Most Demand.

00:25:29: it is to connect parties Which operating in let us say super efficient financial system like we have here, right?

00:25:43: Because obviously we can make an incremental efficiency gain.

00:25:47: But if you compare to the efficiency gained that it can be achieved If we connect Lata market with agent markets is not comparable there.

00:25:54: It's a much bigger and more immediate game That can be achieve.

00:25:59: so I believe these markets will transform much faster.

00:26:03: i mean We Have seen in The past at blockchain.

00:26:07: adoption has already been much higher there, if we look at Brazil or all these markets and I think that trend will continue.

00:26:14: These markets will move much faster their whole let's say economy over right?

00:26:20: So i think five years probably this market would have moved here.

00:26:23: maybe If you look at the European Market may be it is ten fifteen years which still need to reach same level of adoption.

00:26:33: It's

00:26:33: very interesting, or it will be interesting to see how this develops.

00:26:37: Many thanks Tobias for looking with us in the crystal ball over the next few years!

00:26:43: Thanks for being with us and also to our listener.

00:26:47: thank you for joining today on Inside Digital Assets.

00:26:50: We hope that we have enjoyed your conversation And I'll see you again soon.

00:26:55: This was inside digital assets A joint project by Biggs Digital Anceturion.

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