The concept of abstracting the ownership of a thing from the thing itself using blockchain technology, known in the digital realm as “tokenisation”, is taking off with supportive legislation, to judge from the experience of VP Bank, one of the three main banks in Liechtenstein. Inheritance planning is one area where tokenisation can provide benefits, the experience in the Alpine state shows.
VP Bank has been able to make tokenisation work for it and its clients thanks to the Liechtenstein blockchain law, which is serving as an inspiration for MiCA, the coming EU Markets in Crypto Assets Regulation, according to Dominik Kara, head of DLT business engineering at VP Bank.
The law that makes what VP Bank is dong possible in Liechtenstein is the country’s blockchain law – the Liechtenstein Tokens and TT Service Providers Law, known by the acronym TVTG – “which guarantees a secure legal framework for the token and the underlying physical object.”
Luxembourg moving forward slowly
Luxembourg’s fintech community is keen to become a leader in developing digital assets for the financial market. Several legal changes have accelerated the development of digitalisation and the creation of blockchain based services. Several well-known banks are working hard at pioneering in this area. In January, the Luxembourg Stock Exchange admitted the very first financial instruments registered on a public blockchain through distributed ledger technology, as security tokens issued by French banking group Société Générale. Luxembourg’s FundsDLT is actively looking at investment fund tokenisation.
But the real enabler for Luxembourg will be EU’s MiCA regulation. The text for this regulation is expected to be presented before the end of October. Liechtenstein already is ahead of the EU and had adopted its blockchain law in January 2020.
Holistic view
Starting with a focus on artwork tokenisation, VP Bank has been taking a more holistic view of real asset tokenisation, explained Gabriel Übleis, VP Bank’s head of DLT business solutions. “While artwork tokenisation remains our flagship product, we have broadened our spectrum of eligible underlying to include more collectibles (e.g. watches, jewellery and fine wine),” he said.
VP Bank was founded in Vaduz in 1956 and is considered an internationally-oriented Liechtenstein banking group. It is a leading bank for private clients and intermediaries and is active in Luxembourg’s financial centre in the form of VP Bank (Luxembourg) SA and VP Fund Solutions (Luxembourg).
In May, VP Bank announced that it had tokenised the first watch in Liechtenstein, placing a vintage Audemars Piquet watch, a Royal Oak 14802ST, on the blockchain. The watch is worth in excess of 100,000 dollars.
Rights distribution
Tokenisation, the bank explained, is the process of distributing and tracking real-world rights on a digital blockchain. Tokens are generated that represent ownership rights – the holder of the tokens is also the legal owner of the underlying watch. Tokenisation makes it possible to modify, transfer and divide ownership rights. It also means that you can track your assets by checking your bank account.
Speaking at a a fintech conference in Luxembourg, Kara discussed the relationship between the TVTG and MiCA, on which the European Parliament adopted its negotiating position last March. “We have heard about the MiCA regulation, that is coming in the next two years to Europe, which might be a little bit of a copy of the Liechtenstein act and we know exactly that with the Liechtenstein approach, we can offer a banking service directly on the blockchain,” Kara said.
Making the unbankable bankable
Übleis said “when we talk about the tokenisation of an artwork, we really mean tokenising the ownership in the underlying asset and booking it into the bank account.” “That means we have a very cost-efficient solution to make previously illiquid and un-bankable assets bankable.”
One of the needs this could serve, he explained, is in inheritance planning, which traditionally involves lawyers and consultants in dealing with the legal and administrative issues.
“We can use fractional ownership and co-ownership in a very easy, cost-efficient and legally secure way to resolve such issues,” Übleis said. “So all wealth planning which, right now or was in the past very focussed on traditional assets, now also extends into the art world and includes those non-bankable assets.”
VP Bank eyes tokenisation fees
Übleis explained the bank’s tokenisation business model as involving a one-off tokenisation fee covering the token creation and assessment of the underlying, a custody fee, identical for traditional assets under custody, and partner products, “the cross-selling of services like logistics, storage, insurance, and credit products from our prime partners.”
He said that VP Bank’s decision to offer tokenisation follows its overall strategy to become an “open wealth service pioneer”, which he explained involves introducing innovative services and opening its traditional banking platform to third-party products.