The Era of Digital Asset Marketplaces 1

The Era
of Digital Asset
Marketplaces
How players in capital markets can benefit
from blockchain technologies
Foreword
Global regulations have progressed to recognise Dis- keeping. All of sudden, it became possible to borrow
tributed Ledger Technology (DLT) as a suitable infra- capital for investments in a structured way, more akin
structure for the dematerialisation of securities. In Sep- to modern lending than the high-level individual bank-
tember 2020, the European Commission published its ing offered to upper-class and notably wealthy families.
Digital Finance Strategy (DFS), which included the draft In short, the Medici family invented the marketplace for
Regulation on Markets in Crypto-Assets (MiCA), propos- money. Owners of capital were interested in transfer-
ing a comprehensive EU wide regulatory framework for ring the risks of being robbed, for example, to a bank,
digital assets based on the principle of “same activity, while borrowers were keen to have access to capital
same risk, same rules”. that they could then invest for a profit. In a nutshell,
what happened back then became a core principle
In the meantime, a number of countries published new
underlying modern economic structures today.
legislation. In December, Germany legalized securities
to be issued on DLT. In January, Luxembourg adopted We now find ourselves at a similar crossroads. Firstly,
a bill that explicitly recognised the possibility of using decentralized ledger technology is driving transforma-
distributed ledger technology for the dematerialisation tive change, as it enables entrepreneurs to contribute,
of securities. In February, the first part of the Swiss in a decentralized way, to building the future of finance
Federal Act on the Adaptation of Federal Law to Devel- now. The amendments contained in the DLT bill are
opments in Distributed Ledger Technology (DLT bill) a second key element, which will help pave the way for
entered into force. mass adoption. As we see more and more jurisdictions
adopt a more progressive stance regarding blockchain
These amendments are more than welcome – they
technology, it becomes clear that what has hap-
will create a number of opportunities to promote the
pened over the last twelve years was just the prelude
mass adoption of digital assets, given the new laws
to a massive trend.
will make it easier to transfer and hold these assets.
Outside of Europe, Singapore, for instance, is anoth- Once, while attending a roundtable with many prom-
er advanced environment where local regulations inent CIOs from investment funds and pension funds,
support digital asset marketplaces. These countries I asked what the main driver behind the way they
are advancing the financial revolution brought about structure new products that are offered to investors.
by blockchain: allowing financial institutions to use new Without exception, they replied that the main factor
technology operationally. influencing their
Since the publication of the whitepaper “Bitcoin: decisions were not “demand” or “potential returns”, but
A Peer-to-Peer Electronic Cash System” in late 2008, “regulation”. “Regulation” goes a long way to explaining
a series of innovations have paved the way for building the success enjoyed by the eco-friendly funds we saw
the financial system of the future, one which repre- following the Energiewende (energy transition) in Ger-
sents a complete revolution of the way banking oper- many, ethical funds which refuse to invest in specific
ations are monitored and organized. Back in the 14th industries such as weapons or cigarettes, or other sus-
century, the Medici family invented modern finance, tainable funds that have also attracted great demand.
as we know it today. They introduced a system based
Together with technological innovation, regulatory pro-
on the pooling of assets and a centralized ledger,
gress is the key factor that will influence future banking
which for the first time used the double-entry system
products and services, as highlighted by the partial
of tracking debits and credits or deposits and with-
adoption of the Swiss DLT bill.
drawals. This meant that even 600 years ago, advances
in technology had transformed the world of finance We at Gazprombank (Switzerland) Ltd are pioneers
by moving to a decentralized organization and had when it comes to developing and offering digital
revolutionized the inherent logic of custody and safe- financial services capabilities to our clients. We have
The Era of Digital Assets Marketplaces. © Cointelegraph Research, Tokeny Sàrl 2

already launched bank accounts in cryptocurrencies, and waiting – systems have been developed to en-
which enable our clients to keep their assets safe sure that a sound IT infrastructure is in place. While
and trade cryptocurrencies as they would any other we need to change the logic underlying the custody
fiat currency. We are in the process of developing process, the technology for decentralized and au-
crypto payment services, which will perform the three tomated custody is available. Progress is also being
functions of a bank account. We are ahead of our made on regulatory issues, as shown by the adoption
time, soon expecting the roll-out of central bank digital of the first part of the Swiss DLT bill. Private assets
currencies (CBDCs). In the near future, we plan to offer will benefit from decentralized ledgers as investors
a full range of digital asset capabilities to our clients emerge across the globe, and at the same time, new
and help them to access digital capital markets and qualitative assets, which would have otherwise flown
innovative financial products alongside our traditional under the radar, become available to a wider audience.
banking services. To quote Christine Lagarde, Head
Marketplaces are to be founded and organized so that
of the ECB and a strong supporter of digitalization, “the
investors can participate in the market for digital
euro belongs to Europeans and we are its guardian.
assets. This is the focus of this research paper. Gaz-
We should be prepared to issue a digital euro, should
prombank (Switzerland) Ltd will stay ahead of innova-
the need arise”.
tion in the field of digital assets too. However, we need
Digitalization is not only about currencies and means to be able to rely on many additional institutions for
of payment. The tokenization of assets will fundamen- both primary and secondary markets: not only banks,
tally change how companies access capital and interact but also exchanges, private market funds, market
with investors. Decentralized access to capital and the makers and issuers, for instance, are examples of the
real-time distribution of financial information will bring financial institutions, which have a role to play. This
trust, transparency and efficiency to capital markets paper sets out the challenges they face and proposes
and therefore benefit all actors along the financial solutions to these issues, which will help entrepre-
services value chain. neurs embrace their future and participate in the
building of a new financial order.
Yet there is a third pillar in terms of what is required
for the mass adoption of an innovation, one which We find ourselves at the start of the third millennium
still requires some work when it comes to digital asset with the digital revolution well and truly upon us. Now
marketplaces: actors and infrastructure. is the time to shape our future. All the elements are
lining up – it is now only our minds that need to evolve!
The technology required to issue digital assets is ready
Edouard Hurstel
Head of Crypto & Blockchain Services
Gazprombank (Switzerland) Ltd

Сontents
1. Highlights 6
2. Capital markets in the digital-first era 8
3. What is a Digital Assets Marketplace? 10
3.1 Purpose of a Marketplace 11
3.2 Stakeholders 11
Investors 12
Issuers 13
Marketplace Operator 14
3.3 Services provided 15
Primary Market 15
Custody & Asset Management 19
Secondary Market 22
4. Revenue models 24
4.1 Revenues from Issuers 25
4.2 Revenues from Investors 26
5. Functional components 27
5.1 User identification 28
5.2 Wallets & Custody 28
5.3 Primary market offerings and assets data 29
5.4 Subscription system 29
5.5 Secondary market offers and orders system 30
5.6 Operator dashboard 30
6. How do DAMs leverage DeFi ecosystems? 31
6.1 Interoperability 32
Blockchains 32
Smart contracts composability 33
Available standards 33
6.2 Identity Systems 37
7. DeFi Players 38
7.1 Decentralized distribution 39
7.2 Payments and stablecoins 39
7.3 Wallet & asset management 40
8. Conclusion 41

Authors
Luc Falempin
Chief Executive Officer Tokeny Solutions
Luc Falempin is CEO and Founder of Tokeny Solutions and has been immersed in enterprise
grade technology ever since he founded his first venture in 2012, an advanced software
transforming the leading e-commerce websites into multi-seller marketplaces he later suc-
cessfully exited in 2017. That same year, Luc decided to set up Tokeny Solutions, a technolo-
gy enabler with the vision of digitising traditional finance to bring more accessibility, fairness,
and transparency to capital markets.
Ivor Colson
Head of Marketing Tokeny Solutions
Ivor Colson is Head of Marketing at Tokeny Solutions and has been working in business
communications for nearly a decade. Before entering the FinTech world, Ivor worked at one
of Europe’s leading business and financial publishers, Euromoney Institutional Investor.
Based in London, he joined Tokeny Solutions in 2018 to drive market education and brand
through strategy and communications.
Read Tokeny Solutions Latest Reports

Co-authored by Tokeny Solutions and PwC Luxembourg, Driving Liquidity in Private
Markets covers how private markets will be impacted by the blockchain technology.
Read this ebook to learn:
ý The state of play in private markets

ý Challenges and opportunities for the industry
ý Blockchain as a solution
ý A hypothetical use case
Tokenized Securities is the ultimate handbook on how to issue compliant securities

on the blockchain. Download the ebook to:
ý Understand tokenized securities

ý Define what you want to tokenize
ý Ensure compliance in your operations
ý Join the right ecosystem

HIGHLIGHTS
SECTION 01
1.0
Every year we see an increase of interest in DLT from contracts, the industry has grown by over 2500% in the
institutional players. Blockchain technologies open last 12 months (from $690mn to $19.9bn at the time
a large spectrum of new financial services and the of writing). Financial institutions must launch their dig-
demand from Investors is growing. Investors now ital platforms to ensure they are not disrupted by this
demand a digital-first experience to discover invest- digital wave of innovation. To do this they need to allow
ment opportunities and manage their portfolio. The for the easy management and distribution of private
first players to offer an easy-to-use web experience securities. The technology is now ready to allow finan-
to their clients will enable them to make a significant cial players to develop new revenue streams with new
impact in this new digital ecosystem where the transfer services for a larger investor base.
of value is almost instantaneous. Blockchain is the
The first Digital Asset Marketplaces (DAMs) have tried
IT infrastructure, but investors need online marketplac-
to launch in the past few years by building their own
es built on top of the blockchain to buy, manage and
private blockchains. Their notion was that they would
sell digital assets.
become the central player controlling the private
The promise of security tokens in terms of improving infrastructure. However, these marketplaces failed
the flow of liquidity is beginning to materialise. Since to realize that other players wouldn’t want to join their
their inception, private markets have suffered from network because the beauty of blockchain is in the
poor liquidity due to their limited asset discoverability decentralization: The use of a private blockchain
and lack of transferability. Blockchain technology has doesn’t change what’s apparent in capital markets
opened up the opportunity for financial institutions today, which already consists of isolated and fragment-
to launch their digital asset marketplaces (DAMs) and ed private networks. Financial institutions don’t need
utilise a network that brings solutions to these long- to manage the full IT infrastructure anymore. However,
standing problems. their position as trusted entities and front-offices for
Investors is becoming more important than ever.
By leveraging DLT and applying the appropriate com-
pliance with smart contracts, existing players can now Now, by using the right security token standard such
launch online platforms that broadcast security tokens as the T-REX protocol, financial institutions can issue,
on a shared network. Issuers can reach and manage manage and transfer security tokens in a compliant
a larger audience of Investors. On the buy side, Inves- way. They can empower their clients but still keep
tors can enjoy a seamless and fully digital experience control in order to bring the trust to the ecosystem.
to discover and subscribe to investments whilst main- A DAM is a central online platform where a financial
taining control over their assets and identity. institution provides a safe environment for investors
to interact with digital assets available on a decentral-
2020 saw DeFi (Decentralized Finance) emerge
ized IT infrastructure.
as an industry that cannot be ignored. In terms of asset
value that’s been locked up through the use of smart

C A P I TA L M A R K E T S I N
T H E D I G I TA L - F I R S T E R A
SECTION 02
2.0
Public markets already have well established trad- or IDEX. The ICO bubble of 2017 and the rise of crypto-
ing venues where digital platforms offer a wealth currencies such as Bitcoin have pushed the relevance
of opportunities for Investors. Companies can file for of tokens issued on decentralized networks. More and
an IPO and, albeit a lengthy and costly process, gain more, money and assets are beginning to be tokenized.
access to an electronic market that enables easy asset
We believe the same technologies and protocols can
and price discovery for Investors. Due to this, pub-
be used with compliant securities: Compliance rules
lic markets experience high levels of trading activity.
that govern private markets can now be programmed
More and more, these markets are made accessible
into security tokens. As Investors need websites and
to smaller Investors with new robot advisors and
mobile applications to use the blockchain easily, the
FinTechs offering innovative investment services, such
arrival of high quality and compliant assets on a global
as Robinhood. However, only a few securities are made
blockchain infrastructure is helping many service
accessible: the biggest ones. What about the millions
providers and digital marketplaces emerge and scale.
of other private securities?
These are taking the form of traditional financial institu-
Private market securities are very hard to access tions or FinTechs that utilise and deliver the digital and
because they lack infrastructure. They operate in an in- compliant technological solutions for their audiences.
dustry that is extremely fragmented and still heavily re- These marketplaces are materializing to enforce the
liant on paper-based processes. Old technology such trust between Issuers of tokens and Investors by lever-
as fax machines are still being used. As a consequence, aging blockchain solutions.
the industry has poor asset and price discovery and
The purpose of this ebook is to outline the role
barely any secondary trading activity. Investors miss
of these digital marketplaces and the value they
out as private markets usually provide higher returns.
provide to Issuers and Investors alike, along with
Blockchain technology has already opened a new the functional elements that are required for such
and more efficient way to issue, manage and transfer an Operator to exist. We will also see how these new
digital assets. Utility tokens, cryptocurrencies and sta- marketplaces can leverage DeFi ecosystems to reach
blecoins are already accessible and traded by millions a global audience, while at the same time improving
of users on centralized marketplaces such as Binance customer satisfaction and loyalty.
or Coinbase and on decentralized ones like Uniswap

W H AT I S A D I G I TA L
ASSET MARKETPLACE?
SECTION 03
Purpose of a Marketplace 3.1
Cryptocurrency exchanges were the first type of Digital In this ebook, we define DAMs as platforms that are ac-
Asset Marketplaces (DAMs) to emerge. A few of them cessible via websites or mobile applications.Their pur-
such as Binance and Coinbase now mostly concentrate pose is to connect security token Issuers with Investors.
on the development of their audiences, having already
DAMs provide a complete framework for their users.
successfully delivered easy-to-use and optimized web
They act as a trusted intermediary between Issuers
platforms for buyers and sellers of crypto-tokens. How-
and Investors by proposing a set of tools and services
ever, no one can claim to be the marketplace for secu-
to facilitate transactions between the different players.
rity tokens. As an Investor, if I want to invest in digital
These tools can be made directly available to the users,
securities in order to lower custody fees and improve
and/or additional services can be provided in order
the liquidity of my portfolio, where should I go?
to enhance the customer experience.
Stakeholders 3.2
The principle of an online marketplace is to connect several players. When it comes

to an investment-related marketplace, the main players are Issuers, Investors, the market-
place Operator, and possibly other service providers.
For Issuers For Investors

IT Shield
Issuers can reach a larger Investors can enjoy a fuily
audience without having Regulatoty digital experience to discov-
to worry about IT complexity Shield er and subscrible to security
while ensuring compilance tokens, as well as control
over assets and identity

Investors
Investors are looking for quality investment products. knowing the Investor’s profile, only offers them prod-
They need to be able to discover opportunities that ucts they are eligible to subscribe for.
fit their mandate, subscribe to these offerings, eas-
The Investors are the main users of the marketplace,
ily manage their assets and have the option to free
but above all, they are the customers of the Issuers.
themselves from their positions when they wish. For
The Operator is a service provider that helps Issuers
Investors, a marketplace is first and foremost a central,
and Investors to share information and transact. Gen-
easily accessible venue where they can discover finan-
erally speaking, the Operator makes the connection
cial securities. They want direct access to information
between the buyers and sellers but never itself acts
in order to assess investment opportunities, expected
as an Investor. Furthermore, in the secondary market,
benefits and associated risks. Ideally, the marketplace,
Investors can play the role of both the buyer and seller.
For Investors, a Digital Assets

Marketplace provides
Digital experience Control over assets and identity
` Direct discovery of investment opportunities ` Sovereignty over their own identities via digital
Investor passports
` Digital subscription to investments
` Custody over their assets or via delegation
` Investment management via digital touchpoints
to a trusted entity
` Access to a global and interoperable ecosystem
` Direct communication channels with Issuers
based on blockchain technology
and asset managers
` Greater data transparency

Issuers
Issuers of financial securities seek Investors by offering Thus, by joining a digital distribution marketplace,
to subscribe to their investment products. To do this, an Issuer will be able to offer its products to the mar-
the Issuers must describe their value proposition, ketplace audience. This will generally offer the Issuer
detail the financial perspectives and the legal structure various services such as the listing of offers, onboard-
of their project, and distribute this information to In- ing for Investors, or even communication or manage-
vestors, while respecting the regulations related to the ment tools.
distribution of financial securities. The advent of web
Accessing these distribution marketplaces allows
and blockchain technologies allows for the emergence
Issuers to reach larger audiences and new types
of new tools to facilitate these operations, and most
of Investors, and even the ability to offer new types
importantly, to create new digital distribution channels.
of assets. The tokenization of securities makes it easier
For Issuers, the main goal of a marketplace is to reach to fractionalize assets and manage a larger number
an audience. If the Issuer already has a regular cus- of Investors, while obtaining a greater level of automa-
tomer base, it can decide to become the Operator tion, control and compliance. Also, tokenization facili-
of its own marketplace by offering a website where its tates the efficient transfer of securities, something that
Investors can discover and subscribe to one or more allows smaller Investors to participate in products usu-
of its projects. More generally, Issuers can also come ally reserved for Investors who are willing to wait many
into contact with larger marketplace Operators who years before liquidating their position. For example,
can aggregate several Issuers and their investment more and more Issuers are using these distribution
products, offering a greater choice to their users. marketplaces to target younger (millennials) or retail
Investors by tokenizing specific share classes.
For Issuers, a Digital Assets

Marketplace provides
Access to new segments of Investors Digital administration
` Digital distribution directly accessible via the ` Rapid digital securities issuance and allocation
internet to Investors
` Enhanced accessibility of the offerings thanks ` Fee reduction with digital and efficient servicing
to greater asset fractionalization of securities
` Improved liquidity opening the access to smaller ` Automated cap table management, even with
Investors an active secondary market
` Access to a global and interoperable ecosystem ` Automated compliance for onboarding and
based on blockchain technology transfers

Marketplace Operator
The Operator of the marketplace is the entity and team The Operator’s role is clear: to provide the compliant
that provides the solutions and services to Investors tools and services to enable the seamless meeting
and Issuers. The Operator helps the latter to work of buyers and sellers. The Operator facilitates this
in a safe environment through the application of ro- by providing the technical and regulatory framework
bust governance and the clear definition of rules and and also through the defining of processes and es-
responsibilities that apply to the marketplace. For tablishing some overarching rules to ensure that they
example, the Operator will conduct its due diligence run smoothly.
on the projects listed on the platform, provide software
The main role of the marketplace Operator is to enter
where Issuers can enter their offering information
into a cycle where supply brings demand and more
and documents, control the access to this information
demand brings more supply, all within the context
by verifying the information of the Investors and so on.
in which their service improves through networking
The Operator acts as an organizer and a place whereby effects. The marketplace aggregates an audience
the buyer and seller can meet but should not partici- by helping its users with the curation of content and
pate in the marketplace by buying and selling. It should products proposed on the platform.
also never be an intermediary in the transactions.
For the Digital Assets Marketplace Operator,

the objectives are to
` Monetize a customer base by leveraging digital capabilities
` Provide an IT and regulatory framework for Issuers and Investors
` Automate operations and services to customers
` Leverage an interoperable ecosystem based on blockchain technology

Services Provided 3.3
Now that we have defined the different stakeholders in a DAM, this section will define the
various services that marketplace Operators can implement and offer to Investors and
Issuers across the lifecycle of a private market security.
Primary Market
The primary market is when securities Issuers sell approved list of Investors. We see this model mostly
to an initial list of Investors. This is essentially where for equity and closed-end funds. A continuous offering
the securities offerings are created and allocated allows an Investor to subscribe at any point in time
to the first list of buyers. The offerings can be across during the lifecycle of the security. This is usually the
any asset class and can be either periodic or continu- case for UCITS(open-ended funds), for example, and
ous offerings. A periodic offering is when the subscrip- generally for tokenized commodities and stablecoins.
tion period length is defined. For example, Investors
For the primary market, a DAM provides the following
have three months to invest and at the end of the
services to Investors and Issuers.
period, the securities are issued and allocated to the
Primary market services provided to Issuers
Setup of the offerings
A DAM proposing primary market solutions to Issuers must allow them to list their offerings by providing
a process or software where the Issuer can provide information about the investment opportunity. Usually,
two types of data are needed:
ý Information about the Issuer: Investors want to know who is behind the securities and be sure that these
people or the company are trustworthy. The DAM provides solutions that allow the Issuer to create a pro-
file where it can describe its expertise and track record, provide additional links, testimonials, reports and
ratings, mention the management team etc.
ý Information about the proposed securities: Investors must be able to assess the investment opportunity
in terms of potential and in terms of risk. The DAM provides solutions in order to make an offering page
where all the information is made available to users: Type of securities (equity, debt, funds, etc.), images
of the project, descriptions, timeline, persons involved, expected benefits, risks elements, compliant token
standard used, etc.
The platform can provide the web interfaces to the Issuer to enter all this information, and can also propose
some services to do it on the Issuer’s behalf. The creation of an Issuer on the platform must be done only after
proper due diligence on the issuing company by the DAM. This ensures that the offerings on the platform are
high quality and compliant.

Onboarding of Investors
Issuers must collect a set of information and documentation from their Investors in order to comply with legal
obligations. At any point of time, they are supposed to know who their Investors are and ensure that only
eligible Investors hold their securities. Numerous regulations about the identification of Investor KYC and AML
must be applied.
In traditional finance, the onboarding of Investors is very manual and several intermediaries need to share
personal information of the Investors as none of them works on the same IT system. Collaboration is compli-
cated, especially with sensitive information. Online platforms can digitize this onboarding process. We saw the
power of digital onboarding with the rise of Neobanks: They were able to get thousands of new clients by veri-
fying their identities and creating accounts directly from smartphones. The rise of efficient digital KYC services
aided this onboarding method. Today, onboarding solutions exist and can help Issuers or digital platforms
scale their user base rapidly and drastically reduce their costs.
In order to deal with private securities, a DAM must verify the identity of its users, and propose to its Issu-
ers that they can rely on these verifications. The DAM can provide the online onboarding interface, with its
branding, managing different workflows depending on the type of Investors (individuals, corporate), their
status (accredited, qualified, retail, etc.), and their jurisdiction. In this onboarding process, Investors fill in their
information and upload their supporting documents to the platform. After this, verifications are performed
to generate a risk score allowing the Issuer to decide if an Investor is a suitable owner for its securities.
Placement and subscriptions management
As previously stated, the main value proposition of the marketplace is to bring Investors to the Issuer. Through
the use of a digital platform, the Issuer is able to facilitate this and can deliver these investment opportunities
to its user base.
Once the Issuer is onboarded on the platform and its offering is created, the project is displayed to the rele-
vant users in the marketplace. The digital platform must help Investors to discover the offering, assess the op-
portunity, and invest if they are eligible and interested. The Issuer receives subscription requests and it’s their
responsibility to approve or reject them. In order to make it manageable, the DAM must propose a complete
administration panel where the Issuer can easily view potential Investors and approve or reject them based
on their validity.
The marketplace Operator may also be able to provide some management services and act as an agent for
the Issuers. They will therefore verify the applicants of the offering to review their appropriateness in connec-
tion with the financial product. The payment of these orders need to be verified as well: even if payments are
automatically reconciled, a paying agent must review them and potentially change exchange rates, proceed
adjustments, refunds and capital calls. Finally, the Operator can propose direct support to Investors if ap-
pointed by the Issuer to do so. The marketplace should therefore provide communication tools between the
Issuers and its potential Investors.
Issuance of the security tokens
In order to fully access the private markets infrastructure, the securities must be represented on the block-
chain network chosen by the Issuer and/or the marketplace. This representation is performed by the deploy-
ment of several smart contracts and the generation of tokens (digital keys issued on the blockchain thanks
to the smart contracts).
As it could be complex for Issuers to issue digital securities, and because the purpose of a marketplace
is to provide the IT and regulatory framework to its users, the marketplace must provide the needed tools and
services to create the security tokens.

More precisely, the marketplace must use, or impose to its users, a reliable and proven security token proto-
col. The Operator proposes fully-managed services or self-services to Issuers in order to deploy the needed
smart contracts. At the end of the process, Issuers must receive the following:
` Token smart contracts — these are the smart contracts that represent the Issuer’s securities.
` Permissions functions to appoint Agents — this allows the Issuer to assign a role to the agent
so they can carry out administrative operations.
` Token functions — this enables the Issuer to control the supply, transferability of tokens and the
other required specifications.
` Batch functions — gas fees can add up if functions are processed on an Investor by Investor basis,
batch functions reduce these fees.
` Compliance smart contracts — these smart contracts enable the Issuer to enforce the rules
of the offering.
` On-chain whitelist of investors — Issuers can validate transfers and identities on-chain, creating
an immutable register of token holders.
` Complete allocation to the initial list of investors — enables Issuers to digitize an existing cap
table, or to allocate tokens to new Investors.
` Access to its cap table — digitally manage cap tables and benefit from automatic updates.
Primary market services provided to Investors
The Standard Strtucture

of a Digital Assets Markeplace Sing Up
Investor
Qualification
Primary Secondary Blockchain

Portfolio
Market Market Account
Discoverability:
For Investors the main benefit of a DAM is to easily discover investment opportunities. The marketplace se-
lects Issuers of securities depending on its positioning and the value they offer to Investors. Some marketplac-
es are generalist, some focus on certain types of Investors; retail, institutionals, or they focus on geographical
regions, or type of asset; funds, equity, bonds, commodities, etc, or even verticals; green finance, real estate,
and so on. With tools like filtering, ordering and specific promotion mechanisms, the Operator helps Investors
to find projects they like by making them easily searchable.

In today’s market, there are multiple providers that offer information and transparency on private market
companies. This information is usually very difficult to find and intelligence providers such as PitchBook,
Bureau Van Dijk and Crunchbase charge Investors or individuals for access to this information. As the DAM
grows, so will its private company intelligence service, representing a rich resource of information for prospec-
tive Investors.
With this selection of investment opportunities, the Investor can decide on projects that meet their preferenc-
es and ensure they only subscribe to projects based on their level of quality. The Operator can even go further
and personalize the recommendations to Investors based on their information and preferences.
Digital subscription:
Being able to easily discover projects is important in terms of improving accessibility, but of equal importance
is providing the functionality for a user to be able to subscribe to the offering easily and in a compliant way.
It’s for this reason that DAMs must be compatible with the most adopted blockchain identification systems
used on the market. It allows Investors to directly use their blockchain account to prove who they are without
submitting the same information for each token. We explore this topic thoroughly later.
Order creation: To facilitate the subscription, the DAM must provide Investors with a subscription work-
flow once they have proven their identity and express their interest in buying a security. The Investor can
use a webGUI to create a request for investment. Ideally, the platform integrates and offers a set of tools,
such as a calculator to know the amount of tokens the Investor will receive depending on its investment,
several currencies, exchange rates indications, and payment methods can be proposed as well. Finally,
digital signature capabilities are offered by the platform to facilitate the process for Investors.
Payments: Easy-to-use payment solutions must be provided in order to maximize the conversion rate
of the offering. Providing payment solutions to buyers is usually a key role of any digital marketplace.
They can offer these two services:
ý Traditional payments via bank transfers: In capital markets today, payments are processed through
the disclosure of bank details and transfers processed and sent by the Investor and their bank. With
DAMs, this process can remain the same and banks are able integrate this service with their existing
customer accounts. The Issuer will need a bank to receive the funds for this to be possible. Some
marketplace Operators have the necessary licenses to offer this type of service. The reconciliation
between the orders and the payment can be handled manually or automated.
ý Blockchain based payments: The DAM may allow Issuers to offer crypto and stablecoin based pay-
ments. These payment options are usually more efficient as they are technically P2P transactions
without the use of any intermediary. The reconciliation can be made automatically by “scanning” the
blockchain. Furthermore, it can be interesting for the marketplace to propose commonly used stable-
coins in order to facilitate operations and to avoid the back and forth between the blockchain infra-
structure and the banking networks.
Notifications and communications: The DAM must also provide a notification system to inform the
Investor about the status of his investment order(s). This information can be visible on the Investor
dashboard and can also use traditional communication channels like transactional emails, sms, mobile
notifications, or even a paper letter sent by post.

Custody & Asset Management
One of the key benefits of tokenization is that Investors by providing web interfaces reflecting the blockchain
get direct ownership of their assets. Through tokeniza- states. If the DAM helps issuing tokens on a public
tion, they can directly control their portfolio or dele- blockchain, they can also provide ways for their users
gate the management to third-party service providers. to connect their blockchain identities and/or wallets
As the assets are controlled by smart contracts, it is im- to secure the access to smart contracts and token
portant to understand the roles and permissions keys. Indeed, Issuers and/or their agents need to per-
of each of the parties in order to ensure a high level form administrative and corporate functions by signing
of security whilst allowing efficient asset management. blockchain transactions, and Investors can manage
their identity and portfolio of tokens.
Usually, marketplace platforms enable Issuers and In-
vestors to manage security tokens across the lifecycle
Asset management services provided to Issuers
Custody — Safekeeping of private keys
Marketplace Operators must not propose wallet services to Issuers. Issuers must be in control of their se-
curities as they are the liable counterparty. They can delegate some responsibilities but they must be able
to manage their service providers. Concretely, the Issuer must be the technical owners of their smart con-
tracts, and be able to appoint the relevant smart contracts functions to their agents depending on their roles
and delegated responsibilities.
Therefore, the Issuer needs a wallet that’s set as the owner and controller of the smart contracts and one that
can be used to grant certain permissions to Agents. This wallet will therefore not be used on a daily basis and
can be easily secured with a multisig or in cold storage.
Everytime a function of a smart contract is triggered, a transaction is sent to the blockchain, and an authorized
wallet must sign it. In order to respect the roles and permissions, it is important that each stakeholder man-
ages the access of its own wallet. To reduce risks, these wallets must always be replaceable and this is only
possible if the wallets are linked to a blockchain identity. For example, a smart contract owner should be able
to change its agent(s) at any time, and the agent should be able to recover the lost tokens of an investor and
so on.
Custody — Agent roles
Issuers are obligated to perform a range of administrative tasks and functions after the primary issuance
of their assets. In traditional markets these functions are typically performed by agents. The marketplace, with
its own wallets, can act as an agent and combine different roles such as KYC agent (add proofs of KYC on the
blockchain, whitelist Investors, etc.), paying agent, transfer agent, registrar, etc.
These tasks could be performed on the blockchain directly but of course, a web platform triggering the
blockchain functions is more suitable and easy to use. Therefore, in order to perform these functions, Issuers,
or the agent they instruct, should ideally access an administration panel linking the blockchain data with confi-
dential information such as the names and addresses of the Investors.
The DAM, by leveraging the security token standard they use, should provide a servicing platform in order
to manage the lifecycle of the assets. This part of the platform needs to enable the agent or directly the Issuer

to perform operations on the tokens (like mint/burn, pause/unpause, force transfer, etc.) and to manage In-
vestors status and access their identity information. At the minimum, the platform should provide the follow-
ing set of features:
ý Asset control and oversight to force and block transfers between their Investors.
ý Maintain complete and transparent logs of data.
ý Run position reports immediately.
ý View their cap table that’s automatically updated throughout the lifecycle.
ý To perform the recovery process for Investors if they have lost their wallet information and access to their
security tokens. This can be performed securely through identification of the Investor (seen below).
Custody for Issuers
Self-custody in
blockchain account
Agent
Verify investor’s identity
and allocate tokens
Issuers Smart Contracts Investors

Autorization
Agent
Asset management services provided to Investors
Portfolio management:
Like with investments seen in public and crypto markets, DAMs need to be able to provide Investors with
a platform to login and manage their assets. Depending on the type of Investor and their requirements, they
can use self-custody thanks to the blockchain or they have the option to utilise institutional-custody services.
As with the Issuer side, the web interface should be developed to make the blockchain functions accessible,
executable and simple to use. This gives Investors direct oversight on their assets and enables them to easily
manage their portfolio. Through this kind of portal, Investors can:
ý Connect or directly use their blockchain wallet.
ý Transfer their tokens to other compliant Investors.
ý Assess the value of their portfolio through Net Asset Value (NAV) calculations and easily access a range
of blockchain-based and immutable reports including those on their position and transaction history.
ý To potentially view market and industry news on the assets they own, much like is possible in pub-
lic markets.
ý Perform recovery requests if they have lost access to their private keys (seen below).

Custody for Investors
Blockchain Account
1,000
Private
Fund ABC
Key A Lost Tokens
Wallet A
1,000 Fund ABC Tokens Request recovery
3 1 process
transfered to wallet B
1,000
Private
Fund ABC
Key B Autorize recovery
Wallet B
Tokens 2 process
Investors Issuers
or Agent
Private
Key C
Wallet C
Identity management:
The marketplace must also offer identity management services that enable the Investor to easily manage their
personal information. They can login to manage and use their identity from their fingertips:
ý Ability to update their identity data and automatically alert the relevant counterparties that need
to be aware of this change. The information can be linked to the Investor’s wallet through an on-
chain identity.
ý Enable GDPR compliance by giving the Investor control over who has visibility over their data.
ý Investors can join a growing ecosystem that’s enabled through the creation of a digital assets invest-
ment passport.
Communication
The Operator needs to offer certain functions to enable communication services for the Investor. Today, the Is-
suer and the Investor have a range of intermediaries between them and do not have much direct communica-
tion with each other, if at all. The utilisation of technology can act as a communication channel to re-establish
this direct relationship and at scale, along with that of the Investor and Operator:
ý Reactive customer support from the marketplace should the Investor have any technical trouble with the
management of their assets.
ý Ability for the Investor to contact the Issuer directly if they have any queries about the team or about
the asset.
ý Notifications that are triggered based on the Investor’s holdings, such as company announcements etc.

Secondary Market
The secondary market is where Investors are provid- and is made accessible through the technical servic-
ed with a platform that enables them to compliantly es the DAM offers to qualify and check the eligibility
transfer their security to another. It is the main pull for of Investors. If the web platform only accepts tokenized
Investors and Issuers to this ecosystem as the current assets with compliant token standards, it can propose
infrastructure used in private markets fails to provide secondary market solutions where the buyer, the seller
any form of transferability and asset liquidity is almost and the asset are identified by default. They can meet
non-existent. The blockchain provides this missing each other via offers on a bulletin board, an order
piece of infrastructure by allowing industry partici- on an exchange, or other means. The transactions can
pants to apply compliance and control on this efficient, happen directly on the blockchain between the coun-
shared and transferable network. terparties, without the intervention of the Operator.
Even if the transfers are made in P2P, the Issuer keeps
Issuers and asset owners can utilize this network
control as the compliance will be enforced in the trade,
through Operators that provide the use of bulletin
and the cap table is automatically updated.
boards, order books, decentralized exchanges or reg-
ulated exchanges depending on their licence. For this Asset transferability & liquidity: Through the use
marketplace to function, an underlying system, built of a common infrastructure, buyers and sellers can
on a decentralized blockchain, is needed in order for access, discover and invest in compliant opportunities
both the buy-side and sell-side actors to exchange via a digital platform. Today, OTC markets offer this
their assets with each other without the need of a reg- service but they suffer from low liquidity levels be-
ulated intermediary. Through this, market actors can cause they operate on private and closed networks.
leverage the attributes of the blockchain in terms It is difficult for companies to be profiled and offered
of global reach, robust record keeping, automation and to investors on a continual basis simply because there
asset transferability. Ultimately this will enable market is no actor in place with a busy investment community.
participants to solve the well-known discoverability and For this to occur, it’s fundamental for a marketplace
pricing issues and improve the levels of liquidity in the to demonstrate the accessibility and transferability for
market today. market participants. Investors need to be able to easily
find, transfer and settle their tokens with one another.
Operators can offer the following market services
The embedded trust, along with the digital nature and
to Investors:
the ability to apply automation, allows market actors
Built in compliance: Of course, as with every other to bring efficiency to many cumbersome operations
stage of the security token, compliance remains critical seen today and deliver a new and highly transferable
in the secondary market. In private markets today, the digital marketplace. By building the necessary tools
meeting of a buyer and seller is facilitated by interme- on this hyper-efficient network, Investors experience
diaries, perhaps transfer agents, broker dealers, law- the improvement of asset transferability in the follow-
yers or even banks. The process is largely paper based ing ways:
and manual, and typically occurs over email, phone
ý Easy asset discovery that’s provided to Investors
conversations and meetings. These intermediaries
through a digital and instantly accessible market-
bring the trust needed for the two parties to trans-
place. Investors can easily sign up to the secondary
act as the intermediary is typically experienced and
market, upload their documentation and view the
will enforce a thorough KYC verification process and
assets they are eligible to subscribe for. Once ver-
vetting process. Each of these intermediaries would
ified, they can view all the information the offering
have verified both the buyer and seller. This process
discloses combined with the information on the
is something that takes time and can be expensive for
asset owners.
the stakeholders in question.
ý Efficient agreements in pricing are facilitated in the
This same level of trust can be enforced directly and marketplace as counterparties are connected and
efficiently on the blockchain with the right security they can communicate using the medium of their
token standard, those of which we discuss below, choice and to negotiate the quantity and price.

ý The secure and efficient transfer of value is offered is executed by the blockchain and there is no need
to Investors without the need for any escrow agent for an escrow agent.
via the blockchain. They can do this by triggering ý The interoperability between multiple marketplace
their wallets and swap, or via the DVP (delivery-ver-
platforms will maximize the amount of users in the
sus-payment) smart contracts available on the
network. The use of common token standards
blockchain. Once the trade is executed and the new
will continue to encourage this and develop the
investor is eligible for the token, the two Investors
connectivity between security tokens. Such interop-
are able to sign the transaction and transfer is pro-
erability is also promoted by the thriving, innovative
cessed between the two counterparties. The trust
DeFi products listed later in the ebook.

REVENUE MODELS
SECTION 04
From the aforementioned services, DAMs can mone- of services. Starter or ‘lite’ packages are also offered
tize a range of different services across the platform to Issuers that are piloting the service for one offering,
and receive revenue from both Issuers and Investors or if an Investor simply wants to invest in one particular
alike. As complex technical solutions, these services company. This model allows marketplaces to capitalize
are typically offered to financial players in a sub- on the increasing value of their customer relationships.
scription-based revenue model that can be billable
From our experience of talking to these market actors,
on a monthly or annual basis. It is a predominant
we have identified a set of features that are important
model for business software and allows the DAM
for the previously stated services. These features are
to generate recurring revenue by offering subscription
packaged and sold to both Issuers and Investors.
packages based on their customer’s overall usage
Revenues from Issuers 4.1
Setup of the offerings: The DAM can charge based DAMs can also bill for the administration panel pro-
on the standardized offering setup services they vided to the Issuer where they can approve or reject
provide to Issuers. Included in this is a landing page orders from prospective Investors. Here, the DAM can
where the information about the asset owner/s is dis- also act as the agent for the Issuer and charge for this
played, along with the information needed on the asset service too. Also, the deployment and allocation of the
itself. Issuers can set up their profile and add as many tokens can be billed as a flat fee or included in the
landing pages for their offerings as they wish. The placement fee.
DAM can charge based on the amount of offerings the Custody & Asset Management: As it could be tech-
Issuer sets up in the monthly or annual license. This nically complex, the marketplace may help the Issuer
setup of the offering can be seen as the usual retainer to deploy its token smart contracts. However the own-
fee we see in private markets. It is a fee to access and ership of these smart contracts must be transferred
reach the audience and clients of the Operator. to the Issuer, meaning the main wallets controlling the
Placement and token allocation: The main revenue smart contracts must be changed as it is the entity of-
stream for capital markets platforms is to take a com- fering the financial instrument to Investors. Also, the Is-
mission on placement. The marketplace aggregates suer can delegate DAMs certain roles and responsibil-
an audience and monetizes it when its users make ities that they can charge a service fee for. If they have
transactions. For example, crowdfunding websites the appropriate licences for their jurisdiction, DAMs
usually take between 5-10% of the investment raised. can also play the traditional banking role of a custodian
For bigger tickets, the commission is usually between and are able to bill for the following services it provides
1 – 5%. to the Issuer:
Agent roles Oversight of assets Smart contract management
Marketplaces can offer some Issuers have oversight duties This service can open up new
traditional agent roles such in regards to due diligence, revenue streams by managing
as that of the KYC agent, trans- asset reporting, cap table man- the smart contracts needed for
fer agent, registrar agent and agement, cash monitoring, and the aforementioned servicing
so on. They can also provide Investor ownership verification. of the assets and the manage-
new roles that are required, The marketplace can offer this ment of Investors.
such as the recovery process- oversight as a paid service
es in case the keys are lost to Issuers.
by the Investor.
Usually, these agent roles are billed on a periodic basis, or by action with
a minimum recurring fee, similar to accounting firms.
Revenues from Investors 4.2
Access to the discoverability services: Being on the Management: The digital investor services are also
primary or secondary markets, the marketplace can billed to Investors, of which are generally included
drive revenue from the discoverability services it pro- as part of the package. This includes the portal needed
vides to Investors. Investors can be charged for access for an Investor to manage their assets through the
to the platform and investment opportunities coming utilization of features such as NAV calculation or im-
from the listed Issuers (primary) or coming from other mutable transaction and position reports. In addi-
Investors (secondary). tion to this, the ability to access a portfolio whereby
Investors update their identity data and automatically
Also, the DAM can charge additional access fees for
update the relevant counterparties, along with the
features required by advanced investors needing
ability to control who has access to their data are also
more data in order to properly assess projects listed
valuable services.
on the DAM. Private market information and data
is notoriously difficult to come by and is a rich and Secondary market: DAMs can improve the trans-
lucrative business asset. The DAM should ensure parency, accessibility and ultimately liquidity of the
that it is protected and licensed so it can package this secondary market. By collecting data and information
intelligence and sell it to Investors. The service of being on a wealth of quality assets, they can earn a significant
able to search across private market information and amount of revenue by leveraging the activity and in-
easily find assets is a significant revenue opportunity formation available on the platform. In fact, this is how
for DAMs. OTC markets create a significant amount of their
revenue today. DAMs display their data sets in various
Custody: Depending on the type of user and wheth-
tools such as company screeners, pricing products,
er they are institutional or retail, Investors can either
compliance products and so on. DAMs are able to de-
self-custody their assets with their integrated wallet
liver all of this in an Investor platform that’s billable
or marketplaces can offer services to manage the cus-
as a subscription service.
tody for them. If the DAM provides the wallet services
it could charge the Investor for each wallet or offer When a user wants to make an offer on the secondary
a certain amount of wallets as part of their subscrip- market, the web platform can charge a fee to post this
tion package. Depending on the type of Investor the order. We usually see this kind of monetization on bul-
revenue from custody could operate in one of two letin boards more than with exchanges.
ways. For traditional institutions it will be expected
When a user finds an investment they want to make
to charge for Assets under Management (AuM) and
an offer for, the marketplace can monetize the link be-
to take a percentage fee as they are safeguarding
tween the counterparties. It can be matching an order
the asset. Although, our take is that as the assets are
on the exchange or making the contact of the advertis-
on the blockchain, the only part that needs to be safely
er visible. This linking can easily be charged per event:
secured is the access. This makes it harder to justify
Today, this is how public marketplaces create revenue
the AuM model, but we expect it to still play a popular
as the regulated exchange acts as the central authority.
role given that financial institutions are familiar with it.
Lastly, token recoveries can be charged directly to In-
vestors if the DAM is an authorized agent.

FUNCTIONAL
COMPONENTS
SECTION 05
Here is the specific list of the technical services needed for a marketplace to operate
and offer the aforementioned services to Issuers and Investors.
User Identification 5.1
To guarantee a quality and compliant audience to Is- Finally, it is helpful for DAMs to be compatible with the
suers, the DAM must have a robust user identification main on-chain identity standards in order to facili-
system: Users must be able to access a secure account tate the registration of their users. These on-chain
and manage their identity information. The Investor identity systems can act like an investment pass-
base is generally the main asset of the marketplace. port that’s reusable from offering to offering across
Advanced CRM features can be used to optimize user blockchain-based marketplaces. These identities are
management. Also, these users should be KYC verified created on behalf of all parties in the subscription and
by the marketplace in order to verify their information the transactional process of security tokens (Issuer,
and to comply with the distribution rules of securities. KYC provider, security token administrative agent
A simple and easy-to-navigate onboarding system that and obviously, Investors). Investors are able to make
allows users to go through the workflow, disclose their their information known to third parties on request
information, verify KYC information, and the function- and can enrich their data with the relevant qualifying
ality to receive tokens in their wallet at the end of the information such as accreditations, KYC checks, proof
process is also needed. of identity etc.
Wallets & Custody 5.2
The platform must make it easy for Investors and Issu- blockchain. This helps its users trigger the functions
ers to use their wallets, and should therefore be com- of the relevant smart contracts when they need it.
patible with all the main wallets of the blockchain
Therefore, the DAM should provide a way for its users
accepted on the marketplace. These wallets are not
to connect, manage and change the wallet(s) linked
necessarily provided by the DAM, but the DAM should
to their profile.
build the business layer and web GUI on top of the

Primary Market Offerings 5.3
and Asset Data

A section of the website dedicated to the primary and so on. By offering a landing page that is accessible
market provides all the offering information needed digitally and on-demand, market transparency and
for Investors to assess the asset and to conduct their the overall dissemination of information in a currently
due diligence. This will include information on the opaque private market industry is improved. A com-
asset owners, white papers, pitch decks, subscription plete system to manage this content is necessary
agreements, financial plans, proofs of sustainability in order to provide primary issuance listings.
Subscription System 5.4
In order to maximize the conversion rate of each tors wishing to invest should be able to create their
offering, the DAM must have an optimized subscription orders and pay easily, with different payment methods
system. It can be optimized almost in the same way and currencies.
e-commerce shopping carts are optimized. Inves-

Secondary Market Offers 5.5
and Orders System

This system allows counterparties to publish and networks are being developed to interconnect several
broadcast offers reflecting their intention to buy or sell. liquidity providers together. Projects like 0x (decen-
It can take various forms depending on the regulations tralized exchanges or DINO (bulletin boards network)
and licenses of the secondary market platform Oper- are emerging and help marketplaces to monetize their
ator. The system can go from a simple ads manage- audience in a better way, as their users can easily find
ment system or a complex matching engine of orders counterparties to trade with.
with high-frequency trading capabilities. Today, new
Operator Dashboard 5.6
The dashboard allows the Operator to select tokens, it is a platform to manage the DAM. Its features and
manage users, moderate content, provide support complexity will depend on the services provided by the
to Investors and drive the marketplace. Essentially, marketplace to its customers.

H O W D O DA M S L E V E R A G E
DEFI ECOSYSTEMS?
SECTION 06
The emerging world of DeFi has already leveraged DLT infrastructure brings interoperability and com-
these decentralized networks, and usage has grown patibility in various ways. For example, a marketplace
exponentially in 2020. At the time of writing, the could easily onboard a new user thanks to its on-chain
value of assets that are locked up in smart contracts identity and access the needed information to apply
has reached $14.3bn (December 2020). This is small compliance in seconds. Also, the tokenized assets
in comparison to capital markets, but considering the are all compatible, opening countless opportunities.
value locked up was $690mn at the start of the year, Every time their clients need a counterparty, the DAM
it showcases the upward and rapid trajectory of this can find one by utilizing other networks for its client
emerging industry. This new industry has emerged be- through aggregating with other marketplaces and
cause a range of complex financial products have been monetizing this linking.
offered to individuals without the need for a banking
For DAMs to connect to this burgeoning ecosystem
intermediary. Innovative and financial products such
they need to be built on decentralized market stand-
as automated market-making or algorithmic lending
ards that deliver interoperability whilst also ensuring
have been enabled through the use of interoperable
market actors can enforce the compliance that govern
smart contracts.
private market securities. How do they do this? And
DAMs can also benefit from DeFi by providing new what platforms and successful DeFi products are out
services to their users, but also to increase their audi- there already? This is the basis of the next section.
ence directly or indirectly. By default, using the main
Interoperability 6.1
Blockchains
The DAMs that have tried to launch in the past few ance or the technical consensus to record transactions
years started by building their own private blockchains. across the network is managed by a single or a few
They did so with the notion that they would become entities, it becomes more difficult to trust this network.
the central player controlling the marketplace. They To create a centralized network, it would be easier
failed to realize that it would take years to build such to use a database.
a network, if at all possible, considering it would direct-
Blockchain technologies and ecosystems have evolved
ly oppose the fundamental principles of decentralized
a significant amount in the last few years. Decentral-
networks. Moreover, the use of a private blockchain
ized networks such as Ethereum are resilient enough
doesn’t actually change what’s apparent in capital
to be used by financial institutions and Investors.
markets today, which consists of many isolated and
Thousands of applications and technical building
fragmented central networks.
blocks have proven their efficiencies. Financial institu-
Indeed, a blockchain is a technical infrastructure that tions are beginning to understand that they don’t need
individuals and/or entities can use because they trust to control the IT infrastructure (i.e. the blockchain), but
the mechanics behind the transaction. If the govern- they can control what happens on this infrastructure

through the use of smart contracts, for their own have been launched in the years since. Today, Issuers
organization, or on behalf of their clients. of tokens don’t need to manage the underlying infra-
structure anymore, they can focus on controlling what
The most used and widely accepted decentralized
they issue on the network: tokens.
network for financial markets is Ethereum. The net-
work is operated by over 8,000 nodes that share the More and more, developers are building parallel net-
same consensus for transactions. In addition to this, works to enhance the capabilities of Ethereum. Cross-
it has a tremendously active community managing the chains protocols and side-chains are starting to appear
governance and evolution of the open-source system. and can be used to improve the speed of transactions,
On top of this, there are hundreds of thousands of de- costs and/or stakeholder confidentiality. In May 2020,
velopers building tools, libraries and standards every the amount of BTC on Ethereum through wrapped
day to make the blockchain more accessible, reliable tokens surpassed the amount of BTC on the Lightning
and secure for its users. Network, Bitcoin’s layer 2 scaling network. This cross-
chain state is likely to be the future of blockchain,1 but
The ability to deploy and execute smart contracts
is only possible through the use of interoperable
on the blockchain was a seminal moment for the block-
standards for decentralized networks.
chain industry as many tokenized financial products
Smart contracts composability

Smart contracts are code and can be executed on the and apply compliance. Additional smart contracts
blockchain. A user can combine several smart con- can be added and linked to the initial set of smart
tracts for several use cases. For example, the smart contracts to automate revenue distributions, add
contract of the token will generate token keys, and specific management rules, etc. These smart con-
these security tokens will be held in a wallet. When tracts combine to create security token standards that
a user wants to use its tokens on a decentralized ex- ensure the functionality and compliance across the
change, it’s tokens will follow the code imposed by the token’s lifecycle.
token smart contract (rules for transfers, etc.), but also
It is therefore essential for DAMs to utilize standards
the code imposed by the exchange (swap, etc.).
that are used in a global ecosystem and those that
The composability of smart contracts is a real asset for provide interoperability with other services. It will open
digital securities. A “security token” is usually issued the door to many other applications for the market-
and controlled by a set of smart contracts. These are place’s customers.
deployed in order to offer control over the tokens
Available standards
In order to be compatible with an ecosystem, an Issuer cased the significance of interoperability and through
must use the same standards as the other players. the unlocking of new pathways and more efficient
Thousands of standards are created every year for flows for capital from a significantly wider group of In-
various needs. vestors.2 The use of common standards like these are
required for the interoperability of the blockchain, and
When the ERC-20 standard was invented and reached
without them new applications and services would not
its peak in terms of use on Ethereum in 2017, it show-
be able to work seamlessly with one another.
1
Page 5 ConsenSys Q2 2020 DeFi Report.pdf
2
Page 7 https://assets.kpmg/content/dam/kpmg/us/pdf/2018/11/institutionalization-cryptoassets.pdf

The ERC-20, whilst an important invention in the evo- rules related to users (identities) and those related
lution of blockchain technology, doesn’t allow for the to the offering. The Issuer of the securities or its agent
enforcement of the rules and regulations that govern always keeps control of the tokens and the transfers.
private securities. For this, many standards have been ERC-1400 is another approach where each trade must
proposed, with the main standards being the Token for be validated by a specific key generated off-chain
Regulated Exchanges (T-REX) and the ERC-1400. They by the Issuer.
use a different approach but can enrich each other
For services to take advantage of the extended reach
thanks to the composability of code. Both of the stand-
and accessibility of DeFi, and more broadly of block-
ards enable the enforcement of compliance rules and
chain, it’s essential they work on common and interop-
the control of transfers to eligible Investors.
erable standards like these.
The T-REX manages compliance by leveraging the
To represent assets on the Ethereum blockchain, Issu-
security of the blockchain with an automatic and on-
ers can use some standards:
chain validator system. This system applies the transfer
ERC-20
ERC-20 is the most important standard to issue tokens on the Ethereum public blockchain. These tokens are
compatible with most of the wallets and platforms, bringing a high level of interoperability. ERC-20 tokens
are fungible tokens, usually non-permissioned, that can be transferred easily between peers on the Ethere-
um blockchain.
The ERC-20 is a token smart contract that defines and implements all the necessary functions of a standard
token on Ethereum such as the token’s name, symbol, the total supply, and the number of decimals allowed.
Of the 13 functions defined by an ERC-20 token, the most important ones are as follows:
ý balanceOf: This function allows a smart contract to store and return the balance of the provided address.
The function accepts an address as a parameter, so it should be known that the balance of any address
is public.
ý totalSupply: Although the supply could be fixed (as it is with Bitcoin), this function allows an instance of the
contract to calculate and return the total amount of the token that exists in circulation.
ý transfer: This function lets the owner of the contract send a given amount of the token to another address
just like a conventional cryptocurrency transaction.
ý approve: When calling this function, the owner of the contract authorizes, or approves, the given address
to withdraw instances of the token from the owner’s address.
ý transferFrom: This function allows a smart contract to automate the transfer process and send a given
amount of the token on behalf of the owner.
T-REX
In terms of functionality, the T-REX is probably the most advanced standard to tokenize assets on the Ethere-
um public blockchain. Based on the ERC-20 standard, it supplements it with more than 100 functions to en-
force compliance and manage control for the Issuer, agents and Investors.
The T-REX smart contracts enable compliant securities transfers. It is the only security token protocol with
an on-chain compliance trade validator system. Directly on the blockchain, each transfer’s offering rules and
investor rules are verified to validate or refuse the trade.

Workflow of a T-REX security token transfer
Transferor/Seller Transferee/Buyer
1 Transfer Instruction Compliant Transfer 3
Transfer
2 compliance check
Transferor wallet Transferee wallet
Offeering rules
Investor rules (ONCHAINID)
T-REX onchain
Blockchain (Ethereum) validator system
Thanks to the T-REX smart contracts, securities Issuers and their agents benefit from a high level of control
over digital securities. At any time, if authorized, they can carry out the previously mentioned management
operations such as creating or destroying securities, making transfers, blocking positions, pausing transfer
activity, authorizing or revoking Investors, etc. These operations can be performed one by one or by batch
in order to reduce the gas costs.
With the recovery function, Investors are protected from the loss of their tokens, as long as they can prove
their identity to the Issuer or appointed agent.
In short, T-REX smart contracts provides:
ý An on-chain validator of trade enforcing securities regulations
ý An immutable proof of ownership
ý An advanced permissions system for Issuers, Agents and Investors
ý Dozens of functions to control the tokens (mint, burn, pause, recovery, force transfer, etc.)
ERC-1400
Like the T-REX, the ERC-1400 is open source and was created to transfer security tokens on the Ethereum
network. It contains the combination of four other propositions to the Ethereum community:
ý ERC-1594 — Core Security Token — enables the necessary functions for token issuance, redemption,
transfer and validity
ý ERC-1410 — Token Partition — allows for the creation of partially fungible tokens
ý ERC-1643 — Document Management — off-chain management of documents
ý ERC-1644 — Forced Token Transfers and Controller Token Operation — allows for forced token transfers

Although they can work together, there are native differences between the two standards:
T-REX & ERC1400 Comparison
Feature T-REX ERC1400
Open source smart contracts  
Manage share classes  
Audited by an external party  
Validate transfers onchain  
Block or unblock tokens  
Tokens recovery process  
Immutable cap table  
Permission management with multiple agents  
Stakeholders identity management  
Perform batch functions  
Partially fungible tokens

 
(not compatible with decentralized exchanges)
Overall, the T-REX manages compliance by leveraging the security of the blockchain with an automatic valida-
tor system. This system applies the transfer rules related to users (identities, detailed below) and those related
to the offering. The Issuer of the securities, or its agent, always keeps control of the tokens and the transfers.
ERC1400 is another approach where each trade must to be validated by a specific certificate generated off-
chain.
Different token standards on the Ethereum blockchain
Standard Uses Description
Basic fungible digital as- Most common token on the Ethereum blockchain, it can
ERC-20 set, ideal for currencies hold value and be sent and received by most major
and standard tokens Ethereum wallets
Based on the ERC-20 standard, but with over a hundred

T-REX Digital securities different functions aimed at making digital securities more
compliant and easy to issue
A suite of standard interfaces for issuing and redeeming

ERC-1400 Digital securities security tokens, managing their ownership and transfering
restrictions in a transparent manner
Unlike the fungible tokens, ERC-777 tokens are attributed

ERC-777 NFTs and Gaming with metadata that makes each token unique from other
pieces, often used in digital art for verification purposes

Identity Systems 6.2
Identity systems are the key to bring compliant or an entity, it should be directly managed by its owner.
securities in the DeFi space. Compliance or security The identity owner should be given the ability to man-
tokens cannot be enforced on the blockchain without ually grant access to each service needing this identity
an identity system that allows Investors to identify information in order to process the KYC and AML veri-
themselves and manage their data. If participants are fications. From these existing proofs, the service could
not in control of their “blockchain account”, the ecosys- easily check who has previously processed the checks
tem will recreate the silos we see today in traditional and if the owner has been verified or not.
finance. This identity piece is one of the main differ-
Identity systems not only allow Investors, but also
ences between the unregulated world of utility tokens
agents, depositaries, infrastructure providers and
or cryptocurrencies and the regulated world of se-
service providers to easily and securely share their
curity tokens. For security tokens to work in the DeFi
data with one another. Today, these systems enforce
ecosystem, identity is key. When DAMs onboard new
the compliance needed for actors wishing to utilize the
users they can easily facilitate the allocation of these
blockchain in private markets. In the future, once these
on-chain identities.
systems are fully developed they will unlock data rich
A blockchain account is an on-chain combination and high functioning assets, providing more accessibili-
of an identity and a wallet, allowing its owner to prove ty and liquidity in private markets.
that they are eligible to receive a defined security
If identity systems use the blockchain to share proofs,
token (proof of eligibility), and that they are an owner
they can be made compatible with every application
if applicable (proof of ownership). Currently, a wallet
of the ecosystem as nobody can alter this digitization
is not recognized as an identity in any jurisdiction
of trust. Ultimately these verifications become execut-
and therefore the wallet must be linked to an iden-
able, meaning you can create programs using these
tity system. This identity system could be managed
proofs. For example, the transfer of a security token
off-chain as we are dealing with sensitive information,
can only be executed if the on-chain identity of the
but the end results of the verifications must be added
receiver contains the proof of KYC.
on-chain to allow for interaction with the rest of the
ecosystem. As the identity belongs to an individual

D E F I P L AY E R S
SECTION 07
As mentioned before the DeFi industry is already be at an advantage to take the largest chunks of mar-
live and functioning as new financial products are ket share. For the moment, an individual can buy cryp-
constantly created and offered to users in the eco- tocurrencies or stablecoins to utilise and benefit from
system. However, the DeFi space has not integrated the below the DeFi products below, many of which are
with securities yet and the first Operators of DAMs will traditional banking functions:
Decentralized Distribution 7.1
Decentralized exchanges: mean that licences are required to operate a DEX for
security tokens. We expect the regulation to continue
Unlike centralized exchanges, DEXs operate without
to progress in this area as regulators become more
a central authority and allow users to transact peer
aware of the technology and the ability to improve the
to peer. With a DEX, the wallet interacts with the
accessibility of private markets.
webpage via smart contracts, hybrid order books,
or liquidity pools.3 Networks of bulletin boards
For some digital assets, such as cryptocurrencies, In the regions where it is too complex and costly
decentralized exchanges already exist. They exist to operate regulated exchanges, the bulletin board
in the form of two smart contracts that are hosted approach can be prefered. In today’s market, bulle-
on a blockchain. A popular example of this is Uniswap tin boards find it difficult to reach a critical size due
that acts as a 100% on-chain market-maker allowing to market fragmentation. The blockchain can be lever-
users to swap ERC-20 tokens. It matches buyers and aged to interconnect these bulletin boards and create
sellers to determine prices and execute trades through a global marketplace based on a shared network.
the use of programmed equations that users contrib- These new networks of bulletin boards make all the
ute to in return for interest payments. offers made by Investors visible on every marketplace
listing the corresponding tokens.
Fundamental to these decentralized exchanges are
liquidity pools. These pools make the exchanges possi- Lending protocols
ble through funding. The more liquidity there is in the
For businesses and the public, decentralized lenders
pool, the more users can buy with the minimum risk
or, ‘yield farmers’, provide the ability to secure loans
of incurring slippage. Once the funds are added to the
with no intermediaries. These lenders can collateralize
pool by the user the funds are available to be traded
their assets and earn interest. The interest rates are
on exchanges between users. There are many combi-
calculated through algorithms and without human in-
nations of assets collected in pools such as ETH/DAI
tervention. Balance verifications are based on a block-
or ETH/USDT and so on. So whenever a user wants
chain and assets are transferred to a smart contract
to sell its ETH for USDT, another user’s USDT will
as collateral. This type of lending experienced large
be used to buy up the Ethereum on the other side
growth in 2020 and there are now many platforms
of the trade. This process, in other words, is called
working in the space. A good way to message the
automated market making.
success of these types of lending platforms is to assess
A similar scenario could be imagined for security the amount of ‘locked’ funds in DeFi. In December
tokens. However, due to security tokens operating 2020 funds locked in smart contracts reached its all
in a far more heavily regulated arena, the situation time high of $16 billion, increasing over 2,200% from
is more complicated. For example, in Europe, there are the $690 million locked at the start of 2020.4
constraints imposed by MiFiD and CSDR that currently
3
Definitive Guide to DeFi — Cointelegraph
4
https://cointelegraph.com/news/funds-locked-in-defi-surge-1b-as-analyst-tips-post-election-bull-run

Payments and Stablecoins 7.2
Stablecoins coins can make offerings more accessible as volatility

concerns are mitigated.
Cryptocurrencies can be highly volatile and suscepti-
ble to price fluctuations. To mitigate this, stablecoins Fiat to tokens ramps
were created. They are backed by reserve assets that
This is a service provided by payment processors
are bought and sold through algorithmic mechanisms.
in order to facilitate direct payments from bank
They can be backed by FIAT currencies or commodities
cards in exchange for cryptocurrencies. These types
such as gold but they live on a blockchain and thus
of applications are centralized but are very important
reap the benefits of privacy and efficiency of block-
to link the banking infrastructure with the blockchain
chain-based transactions. The most common stable-
infrastructure. Crypto-exchanges are currently the
coin is USDT, which is pegged to the US Dollar and
main providers of fiat to tokens services. More and
is stored on nearly 1.4 million addresses with close
more, stablecoins Issuers are providing these services
to $7 billion in circulation, making it a top five crypto-
directly as well.
currency by market cap.5 For security tokens, stable-
Wallet & Asset Management 7.3
Wallets are a fundamental element in the Digital Asset they can be connected to the wider DeFi ecosys-
Marketplaces ecosystem. In the issuance of tokenized tem through a variety of DeFi Management tools
securities, each actor needs a wallet to securely store such as Zerion and others. They are very easy to set
their assets. As discussed previously, having wallets up and manage.
that are ERC-20 compatible are required, as it means
5
Definitive Guide to DeFi — Cointelegraph

CONCLUSION
SECTION 08
As we have previously noted, the limited accessibility As we cast our eye over to private securities, what
in private markets is due to the lack in use of a shared happens when compliance meets this decentralized
infrastructure. Today, Issuers and Investors have many network? Issuers and Investors are protected by two
obstacles to overcome to interact with one another. things: the built in trust of the blockchain and the
This leads to a closed market with poor asset and price regulations that govern securities. They get the best
discovery and ultimately low levels of liquidity. There- of both worlds by being protected whilst also leverag-
fore, there is a real need for digital asset marketplaces ing this highly transferable and efficient network. The
(DAMs) to emerge and help the market players to in- balance of opening access to investment opportunities
teract with each other by providing the suitable IT and whilst also protecting Investors remains a challenge for
regulatory framework. regulators although it is one where they are reacting
- the SEC recently announced changes in crowdfund-
Conversely, these accessibility and liquidity problems
ing and similar progressive moves have been made
are the strengths of this new wave of innovation
in Europe too.
in DeFi. New and everyday types of Investors are
gaining access to complex financial products that have For this wave to reach the shores of private markets,
previously only been seen in capital markets. Users marketplaces need to be built withthe necessary
can now collateralize, lend and earn competitive building blocks to enforce the compliance and gov-
interest through automated market making algorithms ernance on a digital-first platform. Once this has been
at the click of a button. More and more traditional established, high quality assets will be issued and
banking functions are slowly being replaced by exe- a vast array of Investor types will be attracted. Regu-
cutable code. At the time of writing this industry has lation will change to firstly protect, but also to open
grown by over 2500% in terms of value locked in smart access to more Investors. In this new era of private
contracts. However, actors should proceed with cau- markets, Investors will ultimately be able to build their
tion: many compare this DeFi wave with the ICO boom wealth and easily access, discover, and agree asset
of 2017 where the majority of Investors fell victim prices in a flourishing and more liquid private securi-
to fraud. As the identities of stakeholders in DeFi are ty marketplace.
largely unknown, it is fertile ground for those wishing
to exploit unknowing Investors.
6
https://www.coindesk.com/sec-capital-formation
7
https://tokeny.com/simple-prospectus-exemptions-to-target-retail-investors-in-europe/

Disclaimer
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vestment advisor, or broker/dealer. This publication any decision made or action taken in reliance on the
is for information purposes only and represents information in this report or for any special, direct,
neither investment advice nor an investment analysis indirect, consequential, or incidental damages or any
or an invitation to buy or sell financial instruments. damages whatsoever, whether in an action of contract,
Specifically, the document does not serve as a substi- negligence or other tort, arising out of or in connection
tute for individual investment or other advice. Readers with this report or the information contained in this
should be aware that trading tokens or coins and all report. Cointelegraph reserves the right to make addi-
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The Era

The Era of Digital Assets Marketplaces. © Cointelegraph Research, Tokeny Sàrl 2

The Era of Digital Assets Marketplaces. © Cointelegraph Research, Tokeny Sàrl 3

The Era of Digital Assets Marketplaces. © Cointelegraph Research, Tokeny Sàrl 4

Read Tokeny Solutions Latest Reports

ý The state of play in private markets

Tokenized Securities is the ultimate handbook on how to issue compliant securities

ý Understand tokenized securities

The Era of Digital Assets Marketplaces. © Cointelegraph Research, Tokeny Sàrl 5

The Era of Digital Assets Marketplaces. © Cointelegraph Research, Tokeny Sàrl 7

The Era of Digital Assets Marketplaces. © Cointelegraph Research, Tokeny Sàrl 9

The principle of an online marketplace is to connect several players. When it comes

For Issuers For Investors

The Era of Digital Assets Marketplaces. © Cointelegraph Research, Tokeny Sàrl 11

For Investors, a Digital Assets

Digital experience Control over assets and identity

` Greater data transparency

The Era of Digital Assets Marketplaces. © Cointelegraph Research, Tokeny Sàrl 12

For Issuers, a Digital Assets

Access to new segments of Investors Digital administration

The Era of Digital Assets Marketplaces. © Cointelegraph Research, Tokeny Sàrl 13

For the Digital Assets Marketplace Operator,

` Monetize a customer base by leveraging digital capabilities

` Provide an IT and regulatory framework for Issuers and Investors

` Automate operations and services to customers

` Leverage an interoperable ecosystem based on blockchain technology

The Era of Digital Assets Marketplaces. © Cointelegraph Research, Tokeny Sàrl 14

Primary market services provided to Issuers

Setup of the offerings

The Era of Digital Assets Marketplaces. © Cointelegraph Research, Tokeny Sàrl 15

Placement and subscriptions management

Issuance of the security tokens

The Era of Digital Assets Marketplaces. © Cointelegraph Research, Tokeny Sàrl 16

Primary market services provided to Investors

The Standard Strtucture

Primary Secondary Blockchain

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The Era of Digital Assets Marketplaces. © Cointelegraph Research, Tokeny Sàrl 18

Asset management services provided to Issuers

Custody — Safekeeping of private keys

Custody — Agent roles

The Era of Digital Assets Marketplaces. © Cointelegraph Research, Tokeny Sàrl 19

ý Maintain complete and transparent logs of data.

ý Run position reports immediately.

Custody for Issuers

Issuers Smart Contracts Investors

Asset management services provided to Investors

ý Connect or directly use their blockchain wallet.

ý Transfer their tokens to other compliant Investors.

The Era of Digital Assets Marketplaces. © Cointelegraph Research, Tokeny Sàrl 20

The Era of Digital Assets Marketplaces. © Cointelegraph Research, Tokeny Sàrl 21

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Revenues from Issuers 4.1

Agent roles Oversight of assets Smart contract management

The Era of Digital Assets Marketplaces. © Cointelegraph Research, Tokeny Sàrl 26

User Identification 5.1

Wallets & Custody 5.2

The Era of Digital Assets Marketplaces. © Cointelegraph Research, Tokeny Sàrl 28

and Asset Data

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© Cointelegraph 2021. All rights reserved 43