EKMH Innovators Interview Series
A new interview series spotlighting global tech influencers, disruptors, visionaries, and of course, innovators.
Launched in 2017, Luxembourg-based Fintech company Tokeny Solutions (recently rebranded from Tokeny) provides private markets securities issuers, from mid-cap companies and asset management companies to advisors like investment banks, with modular and user-friendly end-to-end solutions to issue, manage and transfer tokenized securities on public blockchain. The platform's T-REX protocol integrates compliance obligations into the digital asset smart contract, in order to create tokens compliant by design.
Last week, Euronext, a leading pan-European exchange in the Eurozone, subscribed €5 million capital increase of tokenization platform Tokeny Solutions, resulting in a 23.5% stake and strong governance representation. Tokeny Solutions indicated that this investment complements Euronext’s position in the nascent digital asset industry, combining Tokeny Solutions’ token management expertise with LiquidShare’s post-trade solutions. Such tokenization allows institutions to digitize financial assets, such as equities, debt-like instruments, funds and streamline administration to provide clients a digital-first service.
Selected as 2019 Startup of the Year at KPMG’s FinTech Awards Luxembourg, Tokeny Solutions has issued multiple tokenized offerings across five continents with further security offerings imminent.
Over the last two years CEO Luc Falempin has been at the forefront of tokenization innovation. His team has grown to over 20 professionals with a global reach spanning from Luxembourg, London, Paris and Minneapolis. I recently caught up with Falempin to discuss his views on topics such as how the platform is shifting to address current needs and anticipate future secondary market opportunities, partnerships and the T-REX infrastructure.
Our interview follows:
EKMH: How do you think Tokeny Solutions sets itself apart from its peers during this last year?
Luc Falempin: In Europe, we were the first live tokenization platform and as such we have established a broad range of customers. We have been lucky enough to acquire over 30 clients across five different continents. As a result of this, we believe we are in a strong position as we can rely on the knowledge gained from these experiences. In such a nascent industry, I think that experience is quite rare. Additionally, through the Ethereum token standard, T-REX (Token for Regulated EXchanges), our approach to compliance is also unique. It has predefined workflows and KYC data sets, of which we are enriching as we onboard new projects. The standard also creates on-chain identities for investors that can be reused from one offering to another.
EKMH: How has Tokeny Solutions shifted gears since launching in 2017? How do you plan to grow the platform in the next few years?
Luc Falempin: We’ve been working with single issuers and they have been our core business since our inception. However, for us to grow we need a more scalable approach, so we’re beginning to work with multi-issuers who wish to use our tech to serve their customers. We see a big opportunity particularly in private markets, an industry that is still laden with manual processes, one where our tech can have a big impact.
EKMH: How are tokenized securities streamlining existing processes?
Luc Falempin: I think you could separate this into three segments. Firstly, with the issuance process, we deliver solutions to onboard investors through a web-based platform. Cumbersome and manual processes are no longer needed as the compliance is coded into the token. Secondly, with regards to the transfer, tokenization reduces the need of intermediaries acting as multiple points of failure, adding fees and slowing the process down. Thirdly, the management of securities is improved as issuers can utilise a platform to directly manage investors and execute corporate actions.
EKMH: How does Tokeny Solutions utilize the T-REX (Token for Regulated EXchanges) infrastructure to ensure compliance from the issuance of tokenized securities to their lifecycle management?
Luc Falempin: The T-REX was created with compliance at its heart. The standard is based on three main pillars, an identity management system, set of validation certificates and a transfer manager. This creates a decentralized validator to control transfers and enforce compliance. Every time a security token is requested to leave a wallet, the token will have to ping our compliant validator to get its approval. The compliant validator has all the rules and regulations coded in, and the validator checks the profiles of the buyer and sellers to approve or reject the transaction. It’s only possible to buy a security token compliantly if issuers use the T-REX.
EKMH: How does Tokeny Solutions leverage blockchain technology in its issuance solutions?
Luc Falempin: Our issuance solutions allows for the onboarding of investors, including the creation of on-chain identities for users through investorID. As security tokens are digital representations of securities, they must be permissioned tokens in order to apply the compliance during transfers. At this point we setup all the necessary requirements as advised by the legal partner and code those specifications into the token. This includes features such as token supply control, so the issuer can mint/burn/freeze tokens. This means that if tokens are lost, the issuer can burn the lost tokens and mint new tokens on the new wallet of the investor. Also here we process multi currency and multi payment methods securely and instantly and we accept major crypto currencies and FIAT.
EKMH: How does Tokeny Solutions manage its clients across five continents?
Luc Falempin: We have a customer success manager and administration team that we allocate to each customer. This helps them setup the funnel, encode the compliance obligations and get the project ready for launch. This team also supports the client throughout the fundraising process to ensure everything runs smoothly. Once the STO has closed, there will be services the issuer will need to perform depending on the type of security, dividend, voting, etc., and the customer success team will be there to support the client through this too.
EKMH: In which ways do you see the security token market shifting? What’s your vision for the security token ecosystem in the future?
Luc Falempin: One of the key cogs that’s missing, are the secondary markets. One of the promises of tokenized assets is improved liquidity. Through tokenization, of assets such as real estate can be traded freely, an asset class which has been typically illiquid. Without the exchanges and market places, i.e. the trading volumes, there is no liquidity. I see this being a move the market will make, the new exchanges will launch and the existing traditional players will of course be there too. The regulation also needs to be clearer in most jurisdictions. In Luxembourg a bill was passed which has validated distributed ledger technology as an appropriate means to transfer the ownership of securities. As one would expect, this has given participants in Luxembourg confidence and there has been great interest in tokenization since this progressive stance was announced. We hope others will follow suit.
EKMH: Please share updates about ST8, the digitized financing solution designed for French SMEs looking to raise capital?
Luc Falempin: ST8 is a digital financing solution for SMEs in France which gives growing businesses the opportunity to utilise the European directive and the French regulatory framework to achieve streamlined funding of up to €8 million. They can raise capital without the need of creating a prospectus and they can take advantage of blockchain technology to automate and simplify the issuance, transfer and servicing of securities. With ST8, the focus so far has been on real estate projects and the pipeline is strong. Real estate is a great use case for tokenization as the asset is tangible and the value can be easily assessed through market benchmarking.
EKMH: In May, IdentityMind joined the investorID Onchain Identity Ecosystem. This partnership is said to enable Security Token Offerings issued using the T-REX Ethereum standard to have access to IdentityMind’s compliance and risk management capabilities. Please comment on this, as well as the unexpected benefits of the partnership.
Luc Falempin: investorID serves both the buy side and the sell side. For investors, it provides them with a platform whereby they can create their on-chain identity and compliantly access tokenized securities issued using T-REX. As part of the identity creation process, they need to go through KYC & AML checks to confirm they are who they say they are and they have not been involved in any suspicious activity. This is where IdentityMind provides value, as they are a top solution to provide that service. On the sell side, issuers need to be sure that their security is being bought by the appropriate investors. If the offering is only available to accredited investors in the US, they need a service that is able to validate this information. Again, this is what IdentityMind provide. They are part of the piece to ensure compliance in everything we do.
EKMH: How did your ventures at Modizy and Izberg shape your career path? What lead you to shift your own focus to Tokeny Solutions?
Luc Falempin: I worked with technology and developing marketplaces at these businesses, and this is transferable to what we’re doing here at Tokeny Solutions as we’re building digital solutions to enable the digital trading of financial securities. The opportunity is massive as private markets are worth under 800 billion globally and they suffer from a lot of complexity and manual processes. We’re building the solutions to enable players in these markets to alleviate these problems and benefit from the advancement in technology.
#EKMH: What advice do you have for newcomers to blockchain and digital securities?
Luc Falempin: To be aware of the regulation, there have been projects that have sold securities unknowingly, and they are being picked up on this. It’s essential for any project raising capital to seek legal advice before doing so, and to work with the players who are able to enforce this advice from a technological standpoint.