In January Moody’s issued the first public blockchain fund rating for tokens issued by Singapore’s FundBridge Capital. The fund tokens were launched using the new Libeara tokenization platform incubated by Standard Chartered’s SC Ventures. This is the third major pillar of SC Ventures’ digital assets strategy alongside two other startups: Zodia Custody launched in 2020 and crypto brokerage Zodia Markets founded in 2022.
One commonly cited benefit of blockchain is that it creates liquidity because tokens enable investments to be made available in smaller denominations. Libeara’s founder and CEO, Aaron Gwak, dismisses the idea that tokenization brings liquidity. “I think human beings make liquidity. I think that technology brings mobility,” said Mr Gwak.
By mobility, he means the ability to pledge a tokenized asset as collateral with another institution. Currently, if you buy a mutual fund from a bank, you have to talk to the same bank to take out a loan against your investment. That’s not the case with open networks.
On the other hand, several banks have launched tokenization solutions based on their own private blockchains. SC Ventures’ stance is the opposite.
“I’m not in the highway building business. I’m in the secure car building business,” Mr Gwak said. “We need to get from A to B. There are two ways of doing that. You can either put yourself in a car and then build your own roads, or you can use the public roads that are available.”
He extended the analogy. “If you use the public rails that way, then you encourage others to build their own way stations along the track, build their own convenience stores or fueling stations, etcetera. And this is the type of evolution that we’re hoping to see.”
Public blockchain with institutional thinking
As much as SC Ventures supports public blockchain, Mr Gwak doesn’t buy into the web3 ethos of reinventing finance. He spent over 13 years with Standard Chartered, including as head of Capital Markets for the ASEAN. Disclosures and eligibility requirements for complex investments aren’t simply a requirement. They are necessary. Capital markets evolved with rules for reasons.
On the other hand, some jurisdictions, such as Singapore, are more progressive. For example, Singapore supports the issuance of tokens without the need for clearing via a central securities depository. Other jurisdictions, such as France, Germany, and Switzerland, have passed laws supporting the use of DLT as the registry for securities.
Regarding the public blockchain issue, why have most major banks launched their own private blockchains? One factor is a perception that regulators aren’t keen on public blockchains, but there’s more to it.
Are private blockchains a sign of hubris?
Alex Manson, the Head of SC Ventures, believes there’s an element of hubris. He acknowledged that he succumbed to similar inclinations in payments in the past in his role as Standard Chartered’s Global Head of Transaction Banking.
“I remember thinking that at times, what would it take to convince all the clients to come to my digital channel? Isn’t that great?” said Mr Manson. However, clients didn’t want to be locked in. They wanted a bank-agnostic channel. Likewise, he’s convinced other banks believe they can achieve scale or even market dominance with their own blockchain networks. However, he doesn’t think that’s viable.
“The ones (networks) that aren’t public today will become public or else will be sidelined and not used very often,” he added.
Another option is consortia. Mr Manson says they make sense where they provide utility across all banks. The key benefit is supposedly quasi-instantaneous adoption. At the same time, the more members there are in a consortium, the more challenging the governance becomes.
Many consortia fail, so consortium participation is a bet by the bank on which ones will win. SC Ventures is a backer of the blockchain payments platform Partior alongside JP Morgan, DBS Bank and Temasek. It also invested in SWIAT, a permissioned institutional blockchain network founded by DekaBank and backed by LBBW.
However, a consortium implies consensus. “Where there’s consensus, don’t expect too much disruption because you don’t move as fast. You’re not going to be as bold. And so I think the consortium led innovations aren’t at all mutually exclusive with the type of ventures we’re building, but they’re very different propositions.”
On the point of disruption, what if a blockchain solution gets sufficient traction to disrupt profitable activities?
Can banks disrupt themselves?
Standard Chartered startups are structured as part of SC Ventures for two key reasons. One is to provide financial discipline. During the interview, both executives repeatedly highlighted that Libeara and all SC Ventures startups are expected to become viable commercial businesses. Mr Manson contrasted that with many institutional blockchain endeavors, which he likened to proofs of concepts or projects.
The second rationale for separate entities is about independence. “We have the latitude to ultimately work in the interest of our shareholder group, but not necessarily in alignment with the business unit that is perhaps more intent on protecting and preserving the status quo,” Mr Manson said.
Business units with cash cows might still participate in innovation and “build a bit of muscle” to know they can handle innovation. But they will do so as followers rather than leaders.
“We at SC Ventures are convinced, and I would say that the bank behind this is convinced that invariably people behaving this way will end up on the losing side of such disruptions,” said Mr Manson.
He believes the winners are the ones who embrace the disruption and aim to accelerate it.
“This is what clients want. It will make you relevant. And if it cannibalizes an existing business, so be it,” said Mr Manson. “Because if we don’t do it, someone else will. And importantly, it forces us to think about what’s next.”
