Mar 2023

Market report

Tokenization:
practitioner point of view
All you need to know to tokenize successfully any asset.

Foreword by Dr. Jacques Iffland, partner at Lenz & Staehelin,

Chairperson of the Capital Markets and Technology Association
Table of content

Foreword by Dr. Jacques Iffland, partner at Lenz & Staehelin, CMTA 3

I. Preamble 4

II. Asset tokenization: Introduction 5

1. Definition: what is tokenization 5

2. Addressable market: Private markets 5

3. Regulatory frameworks: Overview 7

III. Tokenization: process and operational aspects 8

1. Why tokenize - benefits of tokenization 8

2. Asset universe eligible for tokenization 9

3. Tokenization 6-bullet point check-list 9

4. Tokenization process: Equity capital raise 10

5. Tokenization process: Smart contract management 11

6. Trading tokenized securities 12

a. Switzerland 12

b. European Union 12

7. Other relevant considerations 13

IV. Reflection on 3 use cases: equity, debt, structured products 14

1. Tokenization use case 1: Equity capital raise 15

2. Tokenization use case 2: Structured products 16

3. Tokenization use case 3: Debt 17

Conclusion 18

2
 Foreword by Dr. Jacques Iffland, partner at
Lenz & Staehelin, chairperson of the CMTA

In the financial markets, distributed ledger and blockchain technologies are often associated with the idea of
cryptocurrencies. Such means of digital payment, however, only represent a small part of the universe of financial
instruments that are now generally referred to as "digital assets", and which have in common that they are based on
"distributed ledger technology" or "DLT". But one of the most appealing features of this technology is that it opens the
door to a welcome modernization of the way in which securities and financial products are issued, held and transferred as
well as the way in which businesses interact with investors.

Most of the time, the process for issuing and transferring securities (such as shares in private companies) is hardly
different today from what it was two centuries ago: shares and other transferable securities are issued in the form of
physical certificates, and are transferred through the manual delivery of documents bearing assignments and wet-ink
signatures. Deciding not to issue certificates (as some companies do) is hardly an adequate alternative, as this exposes the
acquirer to the risk of multiple assignments, and of losing track of the rightful owner of a particular security. Publicly
traded securities are generally held through custodians and transferred through the debit and credit of custody accounts,
but the costs of keeping such "intermediated" securities with custodians and central securities depositaries are significant.

The DLT represents a quantum leap in this context, since it makes it possible to associate securities (and other financial
instruments) with digital tokens recorded on a distributed ledger (typically a blockchain), rather than with physical
certificates. Transfer of such "tokenized" securities are time-stamped, publicly accessible on the ledger and unfalsifiable,
with the personal data of the relevant holders protected by cryptographic means. Since the DLT makes it technically
impossible to transfer the same digital token twice on a distributed ledger, the transfer of a particular tokenized security
can always be traced. Digital tokens can be either held by their owners themselves (through the control of so-called
"private keys") or through professional custodians, in the same manner as traditional intermediated securities.

It is to the credit of the Swiss federal authorities to have recognized early the potential of the DLT for the financial sector,
and to have adopted legislation that provides a clear and reliable legal framework for the digitalization of financial
instruments. Under the Swiss legislation often referred to as the "Lex DLT", financial instruments of Swiss or foreign issuers
can be associated with digital tokens created by means of a digital code referred to as a "smart contract", and recorded
on a (public or private) distributed ledger such as the Ethereum or Tezos blockchains. Trade bodies such as the Capital
Markets and Technology Association have further adopted standards to facilitate the issuance, trading and custody of
such digitalized financial instruments.

The consequences of the drive to digitalization are profound. Tokenization simplifies how securities can be issued,
transferred, held or admitted to trading, and the manner in which businesses can raise capital to finance their activities.
But the digitalization of securities also opens the door to possibilities that go beyond the mere replication of existing
capital market infrastructures. The digital code that governs tokenized securities can be given properties that are
unknown to traditional securities, such as the automation of certain corporate actions (e.g. dividend or interest payments)
or the management of equity plans (e.g. the vesting, exercise or forfeiture of equity grants to directors or employees).
Digitalization can also facilitate the implementation of mechanisms adopted in the context of private equity transactions
(e.g. the drag along or call features that can regularly be found in shareholders' agreements) or the realization of certain
compliance processes such as the identification of security holders or beneficial owners.

Tokenization opens the door to a broad universe of new possibilities, which the financial industry is only starting to
comprehend and embrace. With a well-designed and flexible legislation that creates an explicit legal basis for the
digitalization process, Switzerland is well positioned to take advantage of the new technology's possibilities. Its flexible and
DLT-friendly regulatory framework also allows it to become the home of financial intermediaries and trading platforms
organized to take full advantage of the benefits of the DLT in the financial sector.

© Taurus - all rights reserved 3

 Preamble

This paper sheds some light on the concept of This paper does not try to forecast tokenization
tokenization of securities, which is distinct from market size (not our objective) but rather gives the
other types of token instruments (such as utility reader a sense of the asset types and asset pools that
tokens and NFTs representing digital art), from a we believe are eligible for tokenization. This paper’s
European perspective, and in particular a Swiss other core objective is to provide the reader with a
one. Its objective is to provide the reader with a step-by-step approach to tokenize any type of
security.
“practitioner” report based on real tokenization
transactions Taurus was involved in.
Section II introduces tokenization and provides
definitions. Section III describes the tokenization
Over the last couple of quarters, Taurus
process and provides detailed operational aspects for
participated in ca. 15 tokenization deals, either
issuers contemplating the tokenization of assets.
directly with issuers or in collaboration with banks Section IV puts Section III in practice with real case
that use Taurus’ tokenization technology. Our studies covering equity, debt, and structured products.
experience spans different asset classes including
equity shares, participation capital, debt We hope this document provides you with some
instruments, structured products, etc. valuable insights and hope you will enjoy the reading.

© Taurus - all rights reserved 4

 II. Asset tokenisation: introduction

1. Definition: What is tokenization 2. Addressable markets: private markets

Tokenization is simply the process of digitizing securities To simplify, there are two main value chains in the
and registering them in a distributed ledger such as a securities world:
blockchain. In this respect, digital tokens are created and Listed markets | Listed capital markets:
are associated or represent a security, for example: Cconsisting of securities listed on stock
Equity shares, exchanges. For example, this includes large
Participation certificates, companies that are listed on a stock exchange or
Debt instruments, pursuing an IPO;
Shares of investment collective schemes (i.e., funds) Private markets: Consisting of the remainder of
Structured products securities. For example, this includes Taurus,
QoQqa, Bank Cité Gestion or any small or
Tokenization can be seen as the representation of medium enterprises (“SME”) that you can find
traditional securities as digital assets, also known as around you.
ledger-based securities. Importantly, in Switzerland
(source: CMTA, https://cmta.ch):
This paper will avoid making forecasts. It will rather
Tokenization does not result in the creation of new
highlight global asset pools to give the reader a
types of assets. Tokenized shares are –- and remain
sense of the addressable market (see Figure 1 below).
–- shares in the company that issued them;
A company can only tokenize shares that already
By end of 2021:
exist, meaning that shares need to be issued in 1
World GDP: USD 96.53 trn;
accordance with Swiss Corporate Law before they
can be tokenized; Listed markets were a combined USD 249 trn,
2 3

Tokenized shares will not constitute a new class of USD 121 trn from Listed equities and USD 128 trn
shares under Swiss law. from Listed debt (debt instruments can also be
listed);
The above should hold true for other jurisdictions that Private assets fat-finger estimates is USD 289
recognize ledger-based securities (see Section III below). trn, the bulk of which comes from real-estate

96.5 121 128

2021

Figure 1: Global asset pools

1 https://data.worldbank.org/indicator/NY.GDP.MKTP.CD
2 https://focus.world-exchanges.org/articles/market-capitalisation
3 https://www.icmagroup.org/market-practice-and-regulatory-policy/secondary-markets/bond-market-size/

© Taurus - all rights reserved 5

 It is interesting to notice that in the European Union One of Taurus’ deep convictions since our inception
and UK, there are 27 million corporations out of is that tokenization has a major potential in the
which only approximately 8’500 are listed private markets value chain, as opposed to the
companies. This means there’s 3’000× more private listed capital markets. The former is mostly paper-
companies than listed ones. based, it can take weeks or months to transfer
shares of a private company, while the latter,
All companies in the world must have share capital. A despite what some believe, is pretty well
lot are very tiny (2-3 people shops) ones with a stable standardized and works relatively well (see Figure 2
shareholder base (think, your bakery next door) and below). Figure 2 analysis below compares traditional
do not need to perform much financial activity or private (paper-based) securities with tokenized
have their shares digitized. However, many others securities and listed securities.
need to grow and attract talent: they need to finance
themselves through capital increases or through Tokenization could open worlds not imagined yet to
debt securities. They may also need to put in place private assets in a similar way to how the internet
employee incentive plans (shares, stock options, and e-commerce transformed many industries over
etc.). the last two decades. Over the next few years,
buying or selling shares of a private corporation
According to Eurostat, a sizable pool of 177’000 should be as easy as buying a book on Amazon for
4
companies qualify as high growth. We believe that (i) the technology exists and (ii) regulation exists as
tokenization can be helpful for a fair share of said the next section shows. See Section III that
companies. describes main benefits.

Figure 2: Comparison of securities cases

4 Companies with at least 10 employees at 100% annual growth

© Taurus - all rights reserved 6

 3. Regulatory framework overview
Tokenization of assets is not possible everywhere in the world, yet. However most financial centers are increasingly
adopting a clearer regulatory framework with respect to digital assets. Issuers must make sure that the country or
jurisdiction they are incorporated in recognizes ledger-based securities in their law. See Figure 3 below for a high-
level overview of key financial centers and their respective regulatory frameworks in relation to digital assets at large.
5
Germany: the German electronic securities act, which entered into force in June 2021, reformed the German
securities law. It allows - among others - the establishment of a new form of electronic securities, that can be
booked on a Crypto Securities Register which is another name for distributed ledgers. In addition, Crypto
Securities Register services are a financial service subject to licensing obligations. Several of Taurus’ banking
clients are considering applying for this license;
Luxembourg: The law of 1 March 2019 had already recognized the possibility to hold and register book-entry
securities in securities accounts through DLT.6 The law of 22 January 2021 allowed for lux-based dematerialized
securities (listed or unlisted) to be issued on distributed ledgers. On February 20, 2023, Luxembourg chamber
voted Law Project 8055 that transposed the UE Pilot regime in local law and further clarified the above.
Switzerland: was the first Tier 1 financial center in the world to provide a clear regulatory framework related to
digital assets and tokenized securities (see below)

Figure 3: Direct correlation between regulation clarity and financial institution digital asset penetration

Focus Switzerland DLT framework

Switzerland was the first Tier 1 financial center to provide a complete DLT-compatible framework. In 2021,
the DLT act entered in two packages.

February 2021: article 973d of the Swiss code of obligations expressly August 2021: Market infrastructure law recognises a new type of
recognizes ledger-based securities and defines the corresponding DLT infrastructure, the fourth type of infrastructure. Stock
securities ledger requirements. 7 exchange, MTF, OTD, and DLT infrastructure. Article 73a defines it
the following way:8
H. Ledger-based securities
1 A ledger-based security is a right which, in accordance with an
agreement between the parties: 1. DLT trading facility is a commercially operated institution for
a. is registered in a securities ledger in accordance with paragraph multilateral trading of DLT securities whose purpose is the
2; and simultaneous exchange of bids between several participants and
b. may be exercised and transferred to others only via this the conclusion of contracts based on non-discretionary rules and
securities ledger. which meets at least one of the following criteria:
a. It admits participants in accordance with Article 73c
2. The securities ledger must meet the following requirements:
paragraph 2 letter e.
a. It uses technological processes to give the creditors, but not the
obligor, power of disposal over their rights. b. It holds DLT securities in central custody based on uniform
b. Its integrity is secured through adequate technical and rules and procedures.
organizational measures, such as joint management by several c. It clears and settles transactions in DLT securities based on
independent participants, to protect it from unauthorized uniform rules and procedures.
modification.
c. The content of the rights, the functioning of the ledger and the 2. The criterion of a commercial basis is deemed satisfied by an
registration agreement are recorded in the ledger or in linked independent economic activity pursued on a permanent, for-profit
accompanying data. basis.
d. Creditors can view relevant information and ledger entries, and
check the integrity of the ledger contents relating to themselves
without intervention by a third party.

3. The obligor must ensure that the securities ledger is organized in

accordance with its intended purpose. In particular, it must be ensured
that the ledger operates in accordance with the registration
agreement at all times.

5 https://www.bafin.de/SharedDocs/Veroeffentlichungen/EN/Fachartikel/2021/fa_bj_2107_eWpG_en.html
6 https://www.cliffordchance.com/insights/resources/blogs/talking-tech/en/articles/2021/01/luxembourg-law-recognises-the-use-of-dlt-for-the-issuance-of-dem.html
7 https://www.fedlex.admin.ch/eli/cc/27/317_321_377/en
8 https://www.fedlex.admin.ch/eli/cc/2015/853/en

© Taurus - all rights reserved 7

 III. Tokenization: process and operational aspects

The present section gives the reader that is considering tokenization a step-by-step booklet to successfully tokenize
any type of asset, in compliance with applicable laws and regulations.

1. Why tokenize - benefits of tokenization

There are a wide range of benefits in tokenizing securities, depending on the point of view taken.

Electronic, programmable and disintermediated format: the transfer of securities is instantaneous and features can
be programmed directly in the security (whitelisting, freeze, unfreeze, destroy and recreate, etc.)
Instant booking and settlement: it means issuers can book their securities with Banks (if they wish to) and settlement
Simplified trading: thanks to electronic trading, issuers can easily provide liquidity to their shareholders or
employees, potentially 24/7.
Price discovery mechanisms: are significantly improved assuming the issuers admit for trading their securities with a
regulated marketplace
Costs: financial and operational costs remain reasonable, with in addition the cost of annual reports, as required to
admit securities for trading on a regulated marketplace. For the avoidance of doubt, a company admitted for trading
on a regulated market place such as an Organized Trading Facility (as defined in Swiss law) remain private
companies. These costs are therefore a fraction of what listed companies are required to produce.
Public transparency: the price to pay to be traded in a regulated marketplace is to accept that financial statements
be disclosed.

See below the analysis analysis of the Capital Markets and Technology Association:

Benefits of tokenization - adapted from the www.cmta.ch

Legal aspects: The tokenization of shares increases the Tokenization allows them to open their capital to
level of certainty that the acquirer of such instruments investors by different means and through different
can place in the fact that it will effectively be recognized channels, such as regulated digital platforms. So far,
as their legal owner. The holder of a tokenized security investors had few options to invest in those companies
cannot transfer that instrument twice. The buyer of such and had easy access only to public companies listed on
instruments can consequently be confident that the stock exchanges. Tokenization thus could contribute to
seller actually owned the transferred securities. This is a the modernization and democratization of finance, by
significant difference with traditional uncertificated making investment simpler and more accessible to the
securities (like, for example, the shares of a company for average investor. See last section for a use case where
which no physical share certificates have been issued). Qoqa Services limited raised CHF 1.2mn in 19 minutes
With a traditional uncertificated security, the transferee from its customer base. Note also that a company with a
only acquires a legal title to the transferred instrument if poor business model and business results will remain a
the transferor had such legal title itself. This is generally poor company even if tokenized.
difficult to establish. Doing so requires evidence of an
uninterrupted chain of assignments between all the Cost savings: Tokenization may also reduce
persons who owned the instrument from the moment it operational and financial costs, for companies and
was first issued. Often, evidence of such an investors alike. Acquiring and transferring tokenized
uninterrupted chain of assignments will be missing. The shares is direct and immediate, when transferring an
buyer will then only be in a position to hope that the uncertificated security may take weeks if not months:
seller owned the transferred securities. With a tokenized Faster execution of transactions, being potentially
security, the buyer has certainty on the subject, and a matter of seconds.
Swiss law recognizes the legal title of the token's Fewer intermediaries, thus reduced associated
acquirer to the associated security. costs;
Tokenization further allows companies to
Financing models: As mentioned in Section II above, automate certain contractual tasks and corporate
tokenization enables non-listed, private companies to actions, via smart contracts such as the CMTAT
leverage new financing and investment models. token.

© Taurus - all rights reserved 8

 2. Asset universe eligible for tokenization

This tokenization process is not restricted to equity So far, investors had few options to invest in those
shares. It can work for assets including commodities, companies and had easy access only to public
real estate, debt, structured products, funds and also companies listed on stock exchanges. However,
art pieces, as well as certain forms of intangible assets there are fewer than 300 such companies, whereas
such as ownership rights or content licensing. Switzerland counts approximately 600,000 SMEs.
Tokenization thus contributes to the modernization
Regardless of the asset class, tokenization increases and democratization of finance, by making
the level of certainty with which a holder is effectively investment simpler and more accessible, notably
for retail investors.
recognized as legal owner. Potential buyers can be
confident that the seller actually owns the securities put
Tokenization will enable increased liquidity as
for sale. This is a significant change compared to
assets are fractionalized instead of being
traditional uncertificated securities as the transferee
concentrated. Investors will therefore also benefit
only acquires a legal title to the transferred instrument
from reduced lock up periods especially in assets
if the transferor has such a legal title itself, which may such as art and real estate considered to be highly
be difficult to establish. You may have to establish an illiquid.
uninterrupted chain of assignments.
Tokenization enables non-listed, private companies to Traders will additionally benefit from cheaper and
leverage new financing and investment models. It allows faster transactions simply because there are less
them to open their capital to investors by different intermediaries (more automation) and these
means and through different channels, such as online markets operate 24/7.
exchange platforms.

3. Tokenization 6-bullet point check-list

Before tokenizing assets, the following check-list can help. Make sure that you have a positive answer for all items:

Check 1
In my country of incorporation, ledger-based securities or equivalent are recognised by law

Check 2
Tokenization provides benefits to my business and/or shareholders and/or employees

Check 3
I have a law firm that is knowledgeable about tokenization

Check 4
I have a certified technology partner that can help me throughout the process

Check 5
I have a financial institution that can book the securities for my investors, if needed

Check 6
Smart contracts: there are standard smart contracts, audited, and recognised in the market

9
Taurus can support issuers in 4 and 5. As for point 6, CMTA's CMTAT token framework is the de facto
national standard in Switzerland and can be a good base for other jurisdictions to start with.

9 https://cmta.ch/standards/cmta-token-cmtat

© Taurus - all rights reserved 9

 4. Tokenization process: Equity capital raise

This section provides a step-by-step walkthrough of the tokenization process for a capital raising exercise under
10
Swiss-law. It leverages the CMTA standard for tokenization of shares. Other less complex exercises (without
tokenization) are a subset of the below process. For tokenization in other jurisdictions (see Section II above), make
sure you are advised by a knowledgeable law firm.

1. Legal preparation: adapt articles of incorporation so 3. Preparation of investor materials: this is needed
that they include ledger-based securities as a valid only if the issuer raises funds. As regulation is
form of securities. Define a tokenization regulations technology neutral, this step should be the same
to be enacted by the Board of Directors (see CMTA whatever the type of security is (ledger-based or not).
standard)
4. Board resolutions and regulations: Based on point 1
2. Preparation of smart contracts: identify audited above, the Board should minute a decision to
smart contracts that incorporate regulatory tokenize the shares in-line with its articles of
requirements related to ledger-based securities. In association and tokenization regulations.
Switzerland, use the CMTAT standard. Elsewhere, use
your local jurisdiction’s standard. In the case there is 5. Admission for trading - preparation: Taurus runs its
none, the CMTAT is a good starting base. Make sure own FINMA-regulated organized trading facility. The
the smart contract is accepted by the financial issuers should open an account with the trading
institution you are planning to work with if any. platform.

Figure 4: Tokenization process: equity capital raise and admission on T-DX.com

10 https://cmta.ch/standards/standard-for-the-tokenization-of-shares-of-swiss-corporations-using-the-distributed-ledger-technology

© Taurus - all rights reserved 10

5. Tokenization process: Smart contract management

Understanding smart contract technology is not necessary if (i) you have industry standards at your disposal and (ii) a
technology partner by your side. It is important to make sure that once the smart contract that represents your
security has been issued:

Issuance: The smart contract has been issued properly, using an enterprise-grade solutions. In particular the
private key representing the smart contract address should be at all times protected for you risk of being
hacked if not done properly;
Custody and asset servicing: this point is overlooked in the industry by many people, including some that aim to
be tokenization experts. A smart contract representing a security typically includes numerous features (or
functions) that a cryptocurrency does not have. Therefore custody of tokenized securities is way more than just
protecting private keys and allowing transfers, mint, or burn. For example:

Transfer restriction: such a function enforces Mint: this function creates new units of a
on-chain certain rules to (dis)allow transfers. A security's token. Note that this may or may
typical mechanism is whitelisting, where the not correspond to the actual issuance of new
list of addresses authorized to own the securities
tokenized asset is defined in advance. Burn: this function destroys units of a
Freezing and unfreezing: such a function security's token
freezes transfers of one or more accounts Corporate actions: split, dividend payments,
(thus preventing transactions) coupon payments, votes, and so on. These
functions allow the issuer to perform
mandatory activities related to a security.

The above means that the issuer must ensure that they are in a position to, or the financial services provider they
worked with to perform asset servicing functions at any point in time. Those capabilities are mandatory for the issuer
or its representative (financial institution) have a fiduciary duty and legal obligations towards the security owners
(shareholders, debtholders).

Figure 5: Smart contract lifecycle example

Figure 5 shows a simplified lifecycle example of tokenized securities smart contracts on the left hand side, and the
key activities that need to be performed on the right hand side. Taurus has built a full suite of products and services
that allows issuers and financial institutions manage ANY tokenised assets (equity, debt, structured products) and
perform asset servicing duties automatically with zero line of code.

© Taurus - all rights reserved 11

6. Trading tokenized securities

Tokenizing private assets is good. Being able to trade on a regulated platform is great. This is why Taurus decided to
apply for a FINMA license to provide an independent secondary market to its banking clients, issuers and investors. In
April 2021, Taurus launched Taurus T-DX platform, one of the first regulated marketplaces for tokenized assets in the
world.

Attention points
Issuers cannot list their securities in cryptocurrency exchanges (i.e., Coinbase, Bitstamp, Kraken,
Binance, and so on) for they do not have the license to deal with securities.
Private asset owners cannot or should not list their securities in a stock exchange, even those branding
themselves “blockchain”: by doing so, a company de facto performs an IPO, and lose its private
company status.
Therefore, go with an OTF or DLT license in Switzerland, or the applicable license if your country is in
the European Union

a. Switzerland
The Swiss regulatory framework allows issuers to admit for trading their securities, for example, on organized trading
facilities (OTFs) and still keep their private security status (i.e., not listed, no IPO). Figure 6 below compares
cryptocurrency exchanges, OTFs and stock exchanges from a regulatory perspective.

Figure 6: Crypto-exchange vs. OTF vs. Stock Exchange

b. European Union
For the time being, trading tokenized securities in the The DLT Pilot Regime establishes the conditions for:
European Union was in a legal no man’s land. The EU 1. Permission to operate a DLT market infrastructure
DLT Pilot regime solves partially for this problem. The EU and exemptions (art. 4 to 8),
DLT Pilot final version was enacted on 23 June 2022 and 2. Limitations on the DLT financial instruments that can
entered into full force on 23 March 2023. The be admitted on trading and settled on the DLT (art.
permission to operate DLT market infrastructure in 3), and
accordance with the Pilot Regime is by essence 3. Cooperation between the DLT market operator,
temporary (limited to a period of up to six years) and will competent authorities and the European Securities
be periodically reviewed by supervisors. and Markets Authority (ESMA) (art. 9).

© Taurus - all rights reserved 12

With regard to the point 1 above, authorized financial such as shares and bonds that are not liquid.
institutions (investment firms, market operators, central Conditions are the following as per article 3 paragraph
securities depositories or CSDs) are allowed to request 1:
permission to operate a DLT market infrastructure under
the Pilot Regime. Furthermore, as the access to the Pilot Shares, the issuer of which has a market
Regime is not limited to incumbent financial institutions capitalization or a tentative market capitalization
as per the regulation, new entrants also have the of less than EUR 200 million; or
possibility to do so. Convertible bonds, covered bonds, corporate
bonds, other public bonds and other bonds, with
The DLT Pilot provides a legal framework for the trading an issuance size of less than EUR 500 million.
and settlement of transactions in those crypto-assets
that qualify as financial instruments within the meaning In addition, the aggregate market capitalization shall
of Directive 2014/65/EU ("MiFID II"), hence true digital not exceed EUR 2.5 billion at the moment of admission
securities. For the other crypto-assets that do not qualify to trading, or initial recording, of a new DLT financial
as financial instruments (such as stable-coins, e-money instrument.
tokens and utility tokens), the dedicated regulatory
framework at EU level (MiCA) will apply. We believe that it’s going to take a few quarters to
see the first truly operational DLT-ready infrastructure
In terms of financial instruments that can be admitted to in the EU. In the meantime, EU issuers can admit for
trading and settled on the DLT, and in order to allow trading their securities in other jurisdictions
innovation and experimentation, a DLT securities (Switzerland is an option) provided they have a solid
settlement system is limited to securities, legal opinion allowing them to do so.

Figure 7: EU DLT pilot regime

7. Other relevant considerations

The following aspects are also important from an For which transaction costs are low.
operational perspective. We will cover them indirectly in
Section IV (use cases). The goal of this article is not to compare blockchains
so we will leave it to the reader due their own due
Blockchain platform choice: which blockchain shall I use? diligence, based on their requirements.
You should use reputable and time-tested blockchains
to issue your securities. All else equal, an easy way to Legal partner: while tokenization of assets
answer the question, is to select those for which represent the future of private markets,
tokenized assets standards already exist. For example, in tokenization of assets is more of a legal structuring
Switzerland, issuers mostly rely on Ethereum or Tezos. exercise than a technological one. Make sure you
Then, issuers may select blockchains: surround yourselves with legal experts, that ideally,
That are easy to use: toolkits, user-guides, wallets have had a couple of tokenization experience.
exist Technology partner: same, make sure you select
That have a wide adoption: avoid niche unused players whose products, processes and
platforms organization are securities-ready as opposed to
Whose underlying blockchain does not consume crypto-players trying to surf on a wave they do not
energy: environment friendliness is an increasingly master. A cryptocurrency has nothing to do with a
important criterion tokenized security.

© Taurus - all rights reserved 13

 IV. Reflection on 3 use cases:
Equity, debt, structured products

Taurus has performed today more than 15 tokenization deals in production across different asset classes (figure 8)
leveraging its integrated and modular platform for the issuance, custody, asset servicing, blockchain connectivity and
trading. (figure 9). This section focuses on 3 use cases powered by Taurus’ technology highlighting our practitioner
point of view across different type of assets and issuers, namely:

1 Asset: Equity + Capital raise

Issuer: Mid-cap private company 2 Asset: Structured products
Issuer: Banks 3 Asset: Debt
Issuer: Asset managers

Figure 8: Taurus tokenisation deals overview - not exhaustive

© Taurus - all rights reserved 14

1. Tokenization use case 1: Equity capital raise

Company name: QoQa Services SA (Ltd) Revenues ca CHF170mn

Industry: e-commerce Website qoqa.ch

KEY HIGHLIGHTS
Tokenization to raise capital and community engagement
QoQa Services SA (https://www.qoqa.ch) is a well-known e-commerce platform in Switzerland with ca. USD 170 mn
revenues in 2021 and a 800 '000 strong community of customers, very engaged with the brand. QoQa had been
investing tokenization and ways to engage with its customers for a couple of years.
In Q3 2021, QoQa wanted to tokenize the shares of one of its subsidiaries and raise capital with the support of its
community.
On 20 May 2022, at 10.00pm CET, QoQa launched its fundraising campaign as a time-limited window to its
customers. It managed to raise CHF 1.2mn in 19 minutes from ca. 2’000 investors. 20’000 interested investors were
in the queue.

CAPITAL RAISE OBJECTIVE RESULTS

Target amount: CHF 1.2mn Raised amount: 100% target in 19 minutes

Target investors: Swiss residents Secondary trading: pending project delivery

OVERVIEW

Full tokenization Yes No

Primary market support Yes No

Secondary trading Yes No

Regulated marketplace T-dx.com Others

Token standard used CMTAT Others

Blockchain Ethereum Others

Participation Structured
Asset class Equity certificates Debt products

TOKENIZATION PROCESS
QoQa decided to tokenize part of its capital structure - remember a Company does not need to tokenize all its capital
structure. The core equity of QoQa Brew SA would therefore not be tokenized for the mother company did not need it to
be so and only the part to be raised will be tokenized as participation certificates (shares without voting rights) for
simplicity reasons. Investors will become participation holders of the company, have the same economic rights as the
mother company (i.e., dividends).

Qoqa leveraged Taurus technology suite i.e., From a legal point of view, the fundraising process
Taurus-CAPITAL to tokenize securities, followed all applicable Swiss requirements and was
Taurus-PROTECT for custody advised by Vischer law firm.
Taurus-EXPLORER for the share transfer.
Taurus Investor portal: was used to perform
KYC/AML of investors.

© Taurus - all rights reserved 15

2. Tokenization use case 2: Structured Products

KEY HIGHLIGHTS
Automated Delivery vs Payment of a tokenized structured product transaction
Credit Suisse, Pictet and Vontobel have conducted a proof of concept to issue tokenized investment products
recorded on the Ethereum public blockchain
Taurus’ platform and CMTA’s token standard have been used to issue, book and manage tokenized investment
products
Trades in tokenized securities are settled in fiat currency - the Swiss franc - through a smart contract and Targens'
payment bridge DLT2Pay.
Instruments were traded on BX Swiss, a Swiss regulated stock exchange
The financial industry is taking advantage of the blockchain technology to increase security and efficiency and
reduce complexity

OVERVIEW

Full tokenization Yes No

Primary market support Yes No

Secondary trading Yes No

Regulated marketplace T-dx.com Others

Blockchain Ethereum Others

Token standard used CMTAT Others

Participation Structured
Asset class Equity certificates Debt products

TOKENIZATION PROCESS

Credit Suisse, Pictet Pictet used:

Taurus-CAPITAL for the issuance
Taurus-PROTECT for the servicing
Taurus-EXPLORER for the transfer.

The tokenised securities settlement in fiat

currency (CHF) was made possible by
DLT2PAY - from Targens -, a module that
connects blockchain with the Swiss
Interbank Clearing (SIC)

These securities were traded on the platform of

BX Swiss, a FINMA regulated Swiss securities
exchange. The trades were settled bilaterally on
the blockchain.
DVP: Delivery vs payment smart contract | POT: Payment Order Token smart contract | AT: Asset Token smart contract

The DvP smart contract works as an “escrow account", The POT smart contract is used to monitor the payment of the purchase of the Asset Token (“AT”)

© Taurus - all rights reserved 16

3. Tokenization use case 3: Debt

Company name: SCCF Structured Commodity & Corporate Finance

and Horizon Capital AG

Industry: Trade Finance | Commodities

KEY HIGHLIGHTS
Tokenization of private debt securities at the service of the real economy and renewable energy transformation

SCCF, a Swiss-based trade finance expert founded in 2004, partnered with Taurus to issue a note in the
form of ledger-based securities – a process commonly referred to as "tokenization".
The note was issued to finance a loan to a commodity trading firm active in biofuels. The loan was used
to purchase commodities.
This demonstrates how tokenization can be used to optimize capital allocation and to finance the real
economy in a more efficient way in comparison with the traditional paper-based alternatives.

OVERVIEW

Full tokenization Yes No

Primary market support Yes No

Secondary trading Yes No

Regulated marketplace T-dx.com Others

Blockchain Ethereum Others

Token standard used CMTAT Others

Participation Structured
Asset class Equity certificates Debt products

TOKENIZATION PROCESS

Step 1 - Issuance SCCF issued a 3-month note (“Tokenised Note”) as ledger-based securities using
Taurus-CAPITAL Taurus-Capital. Said ledger-based securities were created using the CMTAT and
recorded on Ethereum mainet.

Step 2 - Trade SCCF’s Tokenised Note was then purchased by Horizon Capital AG.
T-DX The trade was executed through Taurus’ T-DX regulated marketplace for tokenized
securities.

Step 3 - Lending The proceeds of the sale of the Tokenised Note were lent by SCCF to a Swiss
SCCF commodities trading firm active in biofuels.

© Taurus - all rights reserved 17

 Conclusion

Tokenization and digitization of securities have the potential to create new use cases and
markets in private markets. Technology and regulation allow the transfer of shares of private
companies as fast as a few seconds compared to weeks or months in their analog paper
version.

It is positive that an increasing number of financial institutions, especially systemically

important financial institutions, have concrete and important projects in the space. It will take a
couple of more years for widespread adoption to take place. In the meantime, Taurus believes
the below areas represent priority areas to accelerate said adoption.

Continue clarifying regulations in all key financial centers when it comes to recognizing,
transferring and trading ledger-based securities. In particular remove the compulsory nature of
Central Security Depositories and replace them by regulated custodians. Establishing standards
in terms of smart contracts, KYC/AML is also paramount: they will reduce costs and foster trust
from a supply (banks) and demand perspective (issuers). Finally, having on-chain FIAT currency
issued by regulated financial institutions is the key catalyst needed for tokenized securities to
thrive. We believe we will get there and are working with our clients and partners across the
world.

CONTACT
[email protected] https://www.taurushq.com https://www.t-dx.com

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The information and opinions in this article were prepared by Taurus SA (“Taurus”). Taurus or the writer of this article may have significant
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