Most RWAs are not real assets: what “real” actually means under EU law

Transcript

So, hello everyone. I'm Roman Lantier from Dog Go. CPTO at Dog Go. And I will start with the only question I have in this talk. It's who holds the RWA here? In the room. Yes some. >> [laughter] >> But do you know what you hold exactly? So, what do you know what is the right of you handle with the the owning of of this RWA? Maybe not. >> [laughter] >> And what's the the question of the talk today? So, I want I want to start with a product which was been launched last year at at HCC. It's what about it it was about

tokenization of stock markets. And I won't name it, but you you will recognize it. If you read the because there's a local local documentation who come with stock markets tokenized tokenized stock market. And when you read this documentations, you you see three things. first thing is that when you buy the product, you don't own the shares. So, that's main point because you just are holding some like receipts of the asset, but not the asset himself.

The second thing is the risk. I say if the intermediary go bankrupt, it says that you lose your investment. So, you are you don't get back your assets. You are a creditor like any office supplier of this intermediary. And the last thing it's it's surprising, but it's here. It's a token in non-transferable. So, you can buy it, sell it, but you cannot transfer. So, one of the basics of the blockchain is not enabled.

And so, I spent 10 years in blockchains, but last 2 years in in finance regulated finance. And uh one of of the the surprise I have it's uh what real means. I means that's real world assets. And what is real in the in this case? Maybe there's one question that we can root to the register. So, the source of truth. If you have stakeholders on a company, you have a list of of the owners of the shares of the company. So, that is a source of truth because this is legal enforcement of the shareholding.

And there's only um two answers to this question, who is on the register? The first is intermediary. So, when you buy something, let's say tokenized asset on Robinhood, you buy something from Robinhood and Robinhood in the in the other side buy an asset through custodian with DTCC because if if yeah, if they want to buy Apple shares, it's US shares. So, they buy through DTCC with a custodian.

And the custodian manage a name on uh Apple shareholders with Cede and Co. And for the little story, Cede and Co was created like 50 years ago because before it was written on the paper. But with the volume, you know that every company has to move the shareholders on papers and it was impossible. So, the custodian appears and they put one name for every stocks you buy through a broker and so on in US. As it appears as Cede and Co on on shareholders on the US stocks.

And so, what you see it's you have three layers of of before your ownership. And basically, it's replicate what you see on TradFi. You go to a broker like in France I know Boursorama or something like that to ask for to to buy from stock markets. And this broker go to a custodian and custodian buy shares and have this his name on the on the shareholders of the of the company. So, that's not a web3 problem, but just a TradFi problem. And the second answer is to have you on the register, of course.

Like if you are in a small startups, you have shares on these startups. You are on the shareholder list of these startups. You don't have a broker and a custodian and so on. So, you have no intermediary, no nominee, it's just you. And so, most of what we call RWA now are just receipts. So, maybe it's more 90% of RWA now it's are the receipts. And what I think we have to go it's a real ownership on chain because we can have that.

And yeah, until recently there was no path to to have this ownership directly on chain. But but has changed. When I started in this in this finance regulated finance field, I was focused like many others on the PSAN and MiCA stuff. So, on ramp and off ramp and stablecoin and so on. But at the same time, EU issued a regulations in 2022 called the DLT pilot regime. It was a terrible name, but a very great idea.

The idea is first time on the major jurisdiction is that the blockchain it's the the main legal record for for securities. So that's you have no copy, you have no it's not a mirror, no real ownership. It's a real ownership. The source of truth. And what it brings it brings two things. Three things, sorry. The first thing is direct legal ownership. So, if you are if you have this token on your wallet, you can go to a court. Illegally, it's recognized as you as the owner of this this asset.

The second thing is the right that execute themselves. As you are the owner on chain, you have all the right that come with the with the asset. So, voting rights, dividends and so on can can be bring to the on chain and that is legal. And the third thing is a bankruptcy remoteness. So, even if the intermediary who has sold you the asset initially disappear and go bankrupt, as you are on the registry, you are you have the asset directly on the on your wallet. You are you still have the the asset. So, the asset is no more the platform. You have you have the asset directly.

And on that way, you know, United States as as usual has gone faster on the receipt way so level one. They have the volume, they have users and they have the headline. You I think you have heard about BlackRock build tokenized funds. That was huge news of of tokenization. And so, they did they did go very fast. But in EU in new Europe, we have built the legal path to real ownership with with this recommendation.

And now we have six company who have this this pilot regime agreement. So, the one in gray because they are they have not the full scope [snorts] of the DLT pilot regime because this it's cover settlement and and trade. And but you have also Lease in France and you have Securitize with US company who are just coming last September in Spain with the agreement. And the good thing is what we see it's expanding the pilot regime in last December, the EU Commission has proposed to raise the cap. So, now it's 6 billion for each company and it will become 100 billion by by by company. And also they extended to

any financial instruments. So, it's it's a pilot regime who's becoming a system for now. Or soon. To get back to to how it works with this pilot regime, in TradFi and in receipt form of tokenizations, compliance lives in the venue. Like if you go if you want to buy stocks, you go to a broker so a platform and you go to all these onboarding stuff. And after this onboarding, you can buy the and sell the the token.

If you go to another platform, you have to go back and make the same thing again. Where they have their own KYC, their own onboarding form and you have to make it again to be able to to have the token. So, the compliance rule is on the platform side. And so, if any of the platform don't want you, you can't do anything with the token. There's another way to to operate now with ERC 3643. It's a standard open standard like in the in Ethereum world. You know EIP and ERC because you maybe you know ERC-20 of course.

Stablecoin the norm behind a stablecoin. The idea of 3643 it's to manage identities on chain and manage compliance directly on the token. So, no more on the on the on the operator way, but on the operator sorry uh place, but on the token directly. But, uh how it works is that when you use this token on an operating transaction in blockchain uh it will go through a direct regular operation and on transfer, it will check that the recipient and the sender are eligible to transfer this token. That's all.

And as it living the asset and it's ERC-20 based you can use it in any DeFi protocol that's enable use ERC-20, so a lot of these. And and if you don't have to change something to be compliant because the compliance lives in the token directly. So, if you if you use I don't know swap with someone who is also eligible in this token, there's no problem. So we spent the first half of this talk removing intermediaries from the ownership.

ERC-2633 remove the last one with a compliance compliance wall and with this you have all the building piece for a compliant token regularly and open to DeFi. And so, that's a missing piece between DLT pilot regime, so the legislation and the functioning market. So, now we are at the 10 years of tokenizations. It brings a lot of good things like faster settlement, cheaper transfer, 24/7 markets all you you see with the the US stocks and so on.

But there's still a problem with the ownership. There's the same ownership structure that you have in TradFi, so you still have layers of before your ownership on the asset. So the the DLT pilot regime for the first time ask another question. The question before it's how do you make the whole system faster? So, the faster settlement, the 24/7 market and so on. But, the last question what is what is the investor is the owner?

So, it's a a It's a what we build at Dogonow. We are on the financial infrastructure who is building on the Ethereum mainnet on open standard on compatible with with DeFi ecosystem and anyone can build on it and we just wait for the regulation from ESMA to to be able to to issue it. And I want just to finish the last on ownership so that's we don't need more tokens where there are there are already many, but what we need is real ownership on that.

Thank you. And we have the room for any question if you want. I maybe one question. Do you Do you and how do you use this standard ERC 4633? I'm sorry. This one how do you practically use this standard at at Dogonow? Um we use because we use that as a base token, so the this this standard implies some some rule on it.

One of the rule is to issue the token, put the the rules on the token, so who who can hold it if you have a KYC and so on. We help also to make the KYC and make identities verified to to be eligible to buy this token. So, we make all these things as a platform around these tokens. But after as I said, you are the owner of the token, so you can use it as you want. Just like you made like ramp on for the token. And what kind of product do you propose today?

For now we can't because we are not regulated. So, now we are building and we are waiting. We are we are working actively on the on the regulation to have the agreement as soon as possible to be able to issue that. Okay. So, thank you.