Italy launches a sandbox platform allowing the tokenisation of investment alternatives for institutional and retail investors
Linklaters Milan is tax advisor to the first Italian end-to-end platform for the issue and placement of security tokens of investment alternatives for institutional and retail investors (the Security Token & Alternative Investment Sandbox or STAI) promoted by CeTIF, Reply and Fondazione Cariverona. The project is designed and developed in the context of a sandbox process, a collaborative and controlled test environment, open to insurance companies, banks and corporates with the participation, as institutional observers, of Banca d'Italia, IVASS and Consob.
The potential of tokenisation
Tokenisation is the process of issuing a security token via blockchain that digitally and legally represents a real asset. By creating digital assets to represent physical assets, tokenisation has the potential to transform the financial market by enabling physical assets to be owned by wider global pool of investors. Because of their digital nature, security tokens may not only represent ownership of traditional assets like publicly traded equity or bonds, but also traditionally illiquid assets like private placements, real estate, or fine art.
Tokenisation in fact increases the liquidity of traditionally illiquid, non-fractionable assets like real estate; security tokens can be more easily traded than the underlying assets themselves, potentially reducing risk for investors. For investors, this means increased democratisation and the ability to diversify one’s portfolio with access to previously unavailable assets (for example tokenisation of real estate allows a single property to be owned by thousands of investors). The investment process becomes more streamlined and digital reducing costs.
The global perspective
The global tokenisation market is growing rapidly and size is expected to reach $5.8 billion by 2026, rising at a market growth of 20.4% CAGR during the forecast period (Source here). Similarly, Alternative Investment is a market with a strong growth worldwide (ACGR forecast +9.8% at 2025) and in Italy it exceeded 45 billion Euros in 2019 (Source here).
At global level, we are seeing the launch of various projects aimed at using DLT and security tokens, including the integration of security tokens into the security value chain, such as Polymath, Swarm and the Italian companies Blockinvest and WizKey.
The Italian STAI project
The first type of asset class to be tested in the STAI will be Real Estate, which in Italy has reached a market cap of over 7.89 Trillion Euro (2020).
The platform will allow originators (real estate asset owners) to completely or partially divest their assets (by enabling fractional ownership) and the advisors/placers (retail and investment banks) to expand the offer - since fractionalization dramatically reduced the investment threshold - structuring and placing security tokens with institutional and retail investors who, in turn, can diversify their portfolio by accessing a new, more transparent market.
Thanks to Blockchain/DLT technology, the solution also facilitates the onboarding phase (Know Your Customer) compliance by design, simplifying and speeding up all processes (reconciliation, compensation and transfer of security tokens between the parties) and reducing time and costs (dematerialization, shared repository, verifiable and transparent among ecosystem subjects).
With effect from October 2021, the STAI will be available to test issue and placement of security tokens in respect of real estate underlying assets. The platform was designed with a view to scaling up, so subsequently it will also become operational for other types of asset classes such as: credits, private equity/debt, venture capital, ESG rating, works of art and collectables.