24.05.2022 Finance Tech

Luc Falempin: "Luxembourg is the place to tokenise your assets"

Launched in 2017, Tokeny provides all private market securities issuers with modular and enterprise-grade solutions to issue, manage and transfer tokenised securities on the public blockchain. Built and developed by industry experts and forward-thinking practitioners, Tokeny is the technical enabler that bridges the gap between blockchain and finance

With their technology, issuers can automate processes, enforce compliance, and take full control of their digital securities on shared ledgers. Tokeny provides a complete and efficient experience to its investors while reducing compliance and administrative costs and improving asset liquidity. Tokeny will participate in ICT Spring, the Global Tech Conference, in Luxembourg on June 30th and July 1st.

Before this main event, we asked a few questions to Luc Falempin, the CEO and co-founder of Tokeny:

1. Luxembourg has been recognised as the European hub for investment funds for a long time. For a couple of years now, Luxembourg has been positioning itself as a pioneer in digital asset development within the financial market. You said it yourself, “Luxembourg is the place to tokenise your assets”. 

  • How do you explain that Luxembourg is becoming a market leader in tokenisation? 

As a Luxembourgish company, since our creation back in 2017, we have been involved in the development of this new industry from an early stage. We now have a complete ecosystem in Luxembourg to bring tokenisation projects from ideation to creation. In addition, the blockchain-friendly regulatory framework makes it a suitable jurisdiction for asset tokenisation, and multiple projects have been launched here, including real estate, private equity, funds, and debt projects: BlocHome, TokenChampions, WeInvest, Finimmo, Digibrixx,…

  • Would you say that the Luxembourg legislation around asset tokenisation is innovative? 

Yes, it is innovative. Luxembourg was one of the first countries to recognise blockchain technology as an infrastructure for financial markets. On March 1st, 2019, Luxembourg law was explicitly amended to allow the registering and holding of dematerialized securities using DLT. A couple of years later, Bill 7637 entered into force on January 26th, 2021, allowing native issuance of dematerialised securities on blockchain networks.

Since then, securities issuers can tokenise their assets on a blockchain with regulatory clarity in Luxembourg, as long as compliant rules are enforced throughout the entire life cycle of the digital securities.

2. If the Luxembourg regulator is innovative, what about Europe? At the beginning of March, Europe rejected an amendment limiting PoW cryptos such as Bitcoin during the MiCA (Markets in Crypto-assets) vote. 

  • Could you please give us a bit of background on MiCA regulation?

​​​​​​​The MiCA regulation was developed to help harmonise blockchain technology and digital asset regulation at the EU level. It ultimately protects inventors while preventing market manipulation, terrorist financing, and other criminal activities. The draft is in the advanced stages of negotiation, and the next step is the “trilogue” negotiation between the EU Commission, Council, and Parliament to make the final adjustments before the regulation enters into law.

  • What are the consequences of rejecting the PoW amendment and the outcomes of a legislative harmonisation across EU member states for the crypto industry?

​​​​​​​Proof-of-Work (PoW) is a consensus algorithm that secures blockchain networks by requiring network members, often referred to as ‘miners’, to use powerful computers that solve an arbitrary mathematical puzzle to validate transactions and generate a new block on the chain, ensuring the security and integrity of the network. To encourage miners to participate in doing this, miners get rewarded with the cryptocurrency of the network when generating a new block, such as Bitcoin for the bitcoin blockchain.

The rejection of the ban was a relief for European players. Because PoW provides the highest level of security among all consensus methods. A ban on PoW can significantly affect Europe’s competitiveness in the field, leaving European users and players to rely on non-European entities to secure the blockchain networks, undermining the sovereignty of European players.

3. As part of our global conference ICT Spring, Farvest, the event organiser, is joining forces with the artist Sumo, the metaverse pioneer in Grand Duchy Mathias Keune and the LHoFT to offer participants a unique dive into the world of NFT.

  • What is the difference between a security token and an NFT? 

NFTs are for commerce, while security tokens are for investments. Divisibility, fungibility, and legal status are the three key differences between these two types of digital assets.

A non-fungible token (NFT) is a unique digital certificate. Technically speaking, NFTs are pretty simple and they cannot impose many rules on their smart contracts. The main issue with NFTs is that wallet addresses are the only ownership link between tokens and holders. This makes ownership tracking very difficult because wallets are not legal identities, so anyone who knows the private key can manage the token. Therefore, it is impossible to identify the NFT owner properly, as several people may know the key. For example, if a hacker accesses your wallet’s private key, the hacker becomes an owner as well.

Also, the ownership of the underlying assets is not guaranteed. There is no way to validate the authenticity and ownership of the underlying assets. In most NFTs, the content is linked in the token, but hosted somewhere else. If someone accesses this hosting service, he can remove or change the content.

Security tokens, on the other hand, are permissioned tokens, enabling encoded rules, automated compliance, and fractionalisation. These tokens guarantee the holder’s ownership through digital identities, and the underlying assets are secured as issuers enter a legal relationship with the token holders.

The added value is that blockchain provides a shared and immutable ownership register database. By using sophisticated software, such as the T-REX Platform, to issue, manage and transfer security tokens, traditional securities are modernised. This enables faster, cheaper, and compliant transfers in real-time while reducing costs and allowing larger financial inclusion.

  • Will NFTs replace tokenised securities?

​​​​​​​No, they will not. As explained in the previous question, they are completely different digital asset classes. When it comes to individual collection and community engagements, NFTs will play an important role. They have the potential to allow creators to interact with their supporters and fans directly.

However, if artists or asset owners want to fractionalise the ownership of an asset through tokenisation, or give legal guarantees, they must issue tokenised securities. These tokens have to be divisible and, more importantly, they become digital securities with a legal claim to co-ownership, providing financial rights and legal protection to their holders.

Tokenised securities need to comply with existing regulations. For this purpose, peer-to-peer transfers ought to only occur between eligible investors. To ensure that, it is extremely important to issue permissioned tokens and tie the token ownership to the digital identities of holders.

4. Launched in 2017, Tokeny is thriving. You raised more than ten million euros. You count more than 50 customers. And your team quadrupled in less than five years. 

  • How do you explain this success?

​​​​​​​We have a fantastic team. Each team member is committed to our mission—to make the financial world open, accessible, and efficient for everyone. When everyone shares the same vision and commitment, you can achieve great things.

  • Is Tokeny the future Luxembourg Unicorn?

​​​​​​​We are a software company, so everything is possible, even in a short period of time. The tokenisation market is predicted to reach 24 trillion USD by 2027, according to HSBC. Our solutions have been well-recognised by institutions and governments, and we have tokenised billions of dollars of assets. With the commitment and skills our team has, we can become the “Intel for blockchain” to address this market by bridging the gap between blockchain and finance for institutions with our technology.

5.  Luc, you are an entrepreneur. So to finish on a more personal note this interview, what are the qualities that define a successful entrepreneur? 

For me, an entrepreneur must have three major characteristics: persistence, curiosity, and decisiveness. As a leader of a company, these qualities allow entrepreneurs to navigate the whole team to transform ideas into a fully operational business and turn challenges into opportunities. In addition, it is critical to be able to build a team where each team member complements each other so that each individual’s talents can be maximised. With this, the company and the individual can grow together, ultimately leading to success.