Outlook 2020: Juan Hernandez, OpenFinance
Through 2019, the growth of tokenized assets has blossomed as more issuers have adopted the new technology. IntelAlley sat down with Juan Hernandez, founder & CEO of Openfinance, to discuss what 2020 has in store for the new asset class.
When do you expect the alternative asset market to move beyond its proof-of-concept phase regarding the adoption of tokenization?
We’ve seen a lot of strong use cases for tokenization across a variety of industries. From real estate to hedge funds, security tokens continue to provide investors with new investments, potential value, and access to liquidity in the alternative asset market.
However, a supportive and clear regulatory environment is essential for the long-term success of digital securities. We expect to see more constructive regulatory clarity in 2020, such as the recent announcement from the SEC proposing an expansion of the accredited investor definition, which will be instrumental to the growth of the industry.
Where do you see the most adoption by issuers and investors, such as real estate, intellectual property, or art, and to what do you attribute it?
There is a tremendous amount of value trapped in illiquid alternatives. GPs and LPs all want to realize that value, regardless of the underlying asset. Real estate lends itself well to fractional ownership, so we have seen the greatest interest within this sector. Other interesting use cases include fractional ownership of fine art, collectibles, natural resources, and even spirits.
How vital is token fractionalization when it comes to creating additional liquidity within this space? Have there been high-profile examples of this adding liquidity?
Liquidity comes from three elements: a desirable asset, access to that asset by interested investors, and ease of transaction. Tokenization is one method to facilitate the last item. Still, we believe our platform assists in solving all three because ultimately, tokenization does not create liquidity; it merely facilitates a streamlined process by which investors can seek the option of liquidity. At the end of the day, the underlying asset needs to be strong and performing well, and there needs to be a demand from buyers in the market.
What do you expect will be the major milestones for this market in 2020?
There is an opportunity for significant growth in 2020. We expect to hear more from the SEC and the Financial Industry Regulatory Authority (FINRA) concerning regulations for digital securities.
Whether through the use of blockchain or the digitization of existing manual processes, we are on the verge of more widespread adoption of historically illiquid alternative investments. We believe that interest by large players such as Franklin Templeton and Fidelity will serve as a catalyst for clearer guidelines from the regulators and an entrance into the space by other traditional capital markets firms.
We have also seen keen interest from issuers and investors in modernizing traditional workflows that have long plagued the space. By digitizing how different entities communicate during the transfer of an alternative asset, weeks can be shaved from historical settlement times. This leaves two very viable paths to an improved secondary market for private and public, non-listed securities, both of which benefit the issuers and their investors. The SEC’s proposed expansion of the accredited investor definition further validates the opportunity for significant added interest/participants in the private security space in 2020 and beyond.
Investments in art and real estate will initial asset classes.
Societe Generale – Forge aims to offer crypto structuring, issuing, exchange and custody services by 2022.
The NYSE NFTs mark the first trades of six notable listings.
Some hedge funds investing in decentralized finance have already achieved 100% returns.
Trusted custody partners are essential to increase institutional adoption of cryptocurrencies.