The Institutional DeFi Security Token ecosystemic project
Linklaters Italy in partnership with Cetif Advisory - the consultancy spinoff of Cetif, Research Centre of the Università Cattolica del Sacro Cuore of Milan, the digital asset direct custody platform Fireblocks and the technical developer Reply to launch the Institutional DeFi for Security Token ecosystem project, with the aim of enhancing the Security Token instrument for the secondary market.
DeFi is an innovative financial trend based on decentralised protocols (enabled by permissionless blockchain technology and smart contracts) that aim to replicate existing financial services in an inclusive and transparent manner. Nonetheless, currently, DeFi services are mainly adopted by retail investors who operate in a natively deregulated environment without protections and are exposed to significant risks. To allow institutional players to engage with this typically unregulated and permissionless environment, platforms are being developed that allow institutions to interact within DeFi in accordance with stringent regulatory compliance requirements.
The Institutional DeFi ecosystem project aims to allow institutional players to operate in this environment in compliance with regulatory guidelines and requirements, while offering their clients financial services typical of the DeFi ecosystem, drastically mitigating security and operational risks and maintaining significant returns, while safeguarding all actors involved.
A survey on the topic of DeFi conducted by Cetif Advisory with leading financial institutions - between June and October 2022 - shows that the utility of DeFi has been actively analysed by respondents for at least a year (81%), is definitely not considered a transitory or overrated phenomenon (81%), and all respondents unanimously agreed that the main obstacle with adopting DeFi is the lack of a regulatory framework.
Confirming their focus on DeFi, almost all financial institutions surveyed believe that not exploring DeFi means potentially losing a strategic advantage (92%). At the same time, 100% agree that DeFi will enable industry innovation and create new financial services, and 92% see DeFi as a tool to create new business models.
The more than 20 institutions surveyed also shared that the most interesting use cases for early experimentation with Institutional DeFi are custody services and decentralized exchanges using Automated Market Makers (AMMs) and Liquidity Pools.
Following the valuable findings from the research, it has been launched the ecosystem project Institutional DeFi for Security Token, a unique initiative in Italy and Europe, involving leading Italian banks, asset management companies (or Società di Gestione del Risparmio, otherwise known as SGRs) and primary financial players, such as AcomeA SGR - Gimme 5, Euromobiliare AM SGR, Banca Mediolanum, Banca Sella, Banca Popolare di Sondrio, Credem, Hype, Intesa Sanpaolo and Mediobanca. The project remains open to other interested financial institutions in the next two months.
Initial co-design meetings are currently in progress with participants of the platform, which will be tested in an ecosystemic and pre-competitive way from September 2023.
Linklaters’ team working on the project includes Alessandro Tanno, coordinator of the Fintech and Digital Transformation Group of Linklaters Italy, Anna Ferraresso, counsel and member of the Fintech and Digital Transformation Group of Linklaters Italy and Giulio Farolfi, managing associate and member of the Fintech and Digital Transformation Group of Linklaters Italy.
Alessandro Tanno commented:
Linklaters Italy is happy to collaborate on this innovative project, the aim of it is of strategic importance to allow institutional players to act in compliance with regulatory guidelines and requirements, drastically limiting risks and maintaining significant returns, while remaining at the same time at the forefront on the market.
