METACO TALKS EP. 33 Embedded Custody: The Shift from Digitization to Tokenization w/ Nitin GAUR
METACO TALKS EP. 21
Blockchain, the Institutional Innovation Barometer w/ Laurent MAROCHINI (SGSS)
Fri, Sep 3rd
Recording of live event
Fri, Sep 3rd
Recording of live event
Our guest for this METACO TALKS episode is Laurent Marochini, Head of Innovation at Société Générale Securities Services (SGSS), based in Luxembourg. Since 2018, Laurent is Blockchain Leader for the Group and founder of the Innovation Lab #LePlateauLUX
Laurent is highly involved in the Fintech ecosystem. He is Co-Chairman of the ALFI (Association Luxembourgeoise des fonds investissements) Working Group Blockchain & Crypto Currencies and Member of the Fintech & Digital Executive Committee, President of the taskforce Blockchain and Crypto at the LHoFT (Luxembourg House of Financial Technology), as well as Vice Chairman at ABBL (Association Banques et Banquiers Luxembourgeois) for the Fintech and Innovation Committee.
Prior to joining SGSS, Laurent has held various management positions in the banking sector in particular in BNP Paribas Securities Services and Credit Suisse Private Banking.
Laurent is a also a highly recognized industry thought leader:
In this episode, we discussed, among others:
[00:02:03] Ecosystems as barometers for innovation;
[00:10:43] Blockchain: the innovator’s dilemma;
[00:14:59] Société Générale’s successes in institutional digital asset management so far;
[00:24:29] Tokenization, stablecoins and how should large organizations grasp with these innovations.
Disclaimer: This is not investment advice.
[00:00:14] Adrien: Welcome to the 22nd episode of Metaco Talks, our series of live conversations with the people making and shaping the future of institutional digital asset management. I am very proud of the people that came to the show so far and of the caliber of the organizations that we presented.
For the story, one of our listeners told us that if you are a tier one institution and you have not yet been to Metaco Talks, then you’re probably not doing much in the digital asset space. I don’t know if this is true, but we certainly hope that many of the other companies and banks working in the field will give us the pleasure of coming and sharing their experience.
This week, I am pleased to host someone who has spent a large part of his career in the field of financial technologies and banking. He’s one of the rare people to have experienced digital assets and functional technology by himself; not just through his employer and the bank he works at, but also personally. He is now at the forefront of innovation regarding blockchain, cryptocurrencies, tokenization, and the related use cases. I would like to welcome Laurent Marochini, Head of Innovation at Societe Generale Securities Services, and Blockchain Leader for Societe Generale Group.
Laurent is involved at the broader FinTech and crypto ecosystem, particularly in Luxembourg, where he’s based and where he owns various roles at The Association of Luxembourg Fund Industry, at Luxembourg House of Financial Technology, and Luxembourg Banker Association.
Laurent, welcome to the show.
[00:01:45] Laurent: Thank you very much. Good morning Adrien, and good morning to all of you.
[00:01:51] Adrien: Good morning. I would propose we start immediately. I would like to start with a very broad question regarding the geography where we stand. Where do you feel that the cryptocurrency market, the ecosystem of blockchain technology, is evolving the fastest? Is it in Europe, or is it in US as it has often been with innovation? Or is it potentially in Asia or somewhere?
[00:02:12] Laurent: Very good question. I’m very happy to be in a tier one bank, Adrien, as you mentioned in your introduction. Thank you very much Metaco for having me today in the webinar. I’m very pleased to be here today with you.
I would say that the continents, the countries, and also the cities, are moving very fast, but at different speeds depending on the different segments. If you are talking about blockchain, as it were, if you’re talking about cryptocurrencies, NFT, and tokenization.
At Societe Generale Security Services, we conducted a survey at the beginning of the year. We have our top asset manager. We’ve got a full ecosystem, so we have a lot of discussion with our partner ecosystem as well. The key takeaways we have for the different continents is the following: in US, definitely, yes, it is going very fast from an asset management perspective and also from a cryptocurrency perspective. We have seen companies like Tesla, like MicroStrategy, having exposure in Bitcoin. We have seen edge funds that are moving very fast now four or five years, doing a lot of things in cryptocurrencies. Now we see traditional asset managers like BlackRock, JP Morgan, Fidelity, that are doing things in cryptocurrency. US accounts for 50% of the funding in blockchain. This is definitely a statement. The US is moving very fast, but especially in the funding in asset management and cryptocurrency. Tokenization is a topic, but it’s not a priority, and it’s not where we see that they are moving very fast.
In Europe, they are quite shy in terms of cryptocurrency. They are waiting for the regulation, according to their statements. We are waiting for MiCA in Europe. The asset managers are also waiting for the launch of a stable coin, because we still need to have a stable coin; the CBDC especially, in the financial institution. I would say that we are quite shy in Europe. By the way, the financial institutions in Europe are moving quite fast in term of tokenization and use cases in blockchain. For or example, is the trade finance, if you are looking to the different initiatives in trade finance you will see a lot of a European players. I would say cryptocurrency is not the priority, but for the blockchain use cases and tokenization it’s going faster.
In Asia, it’s a mix. They are moving in cryptocurrency. Of course not in China, because they banned the Bitcoin. Even if they have done a lot of things, we’ve got things like mining until now. But in China, they are moving fast with digital yuan. In the different countries, they’re doing a lot of experimentation with CBDC. If you remember the different studies, 80% of central banks are moving in CBDC, but it’s definitely a key topic in Asia. I would say it’s a mix.
US are moving fast in a cryptocurrency, in Europe it’s blockchain use cases and tokenization, and in Asia it’s a mix of different types.
[00:05:53] Adrien: It makes a lot of sense. It’s also consistent with what we observe as a company on the market. But if we zoom in Europe, more specifically, you said that cryptocurrencies may not be aware it’s moving the fastest. Is it true for every country? Can you give us a bit more perspective about the differences, if we compare France, Switzerland, Germany, the UK? Are there countries which are effectively moving faster or very engaged into this field, or is it it’s kind of a general slow pace everywhere?
[00:06:23] Laurent: No a slow pace everywhere. For Europe, it depends on your definition of Europe. Who is in Europe? Give me the opportunity to do a focus on the four or five countries that I believe are moving quite fast in Europe. The first one, and the historic one in the world of crypto, and I’m sure that you will be happy to have it, is Switzerland for me. In Switzerland, it’s a very dynamic ecosystem; very crypto-friendly ecosystem, and the crypto valley of Zug, now a long time ago, it was going for Ethereum. Different interesting initiatives in Switzerland. Just to remember that the market capitalization of Ethereum as of today is 450 billion USD. I believe it’s more than the first bank in the world. The valuation of Ethereum is bigger than the first bank in the world. It’s quite amazing.
The crypto adoption in Switzerland is 11%. I believe that 11% of the people in Switzerland are holding cryptocurrency. This is the highest rate in Europe. The regulation in Switzerland is very open.
Also, what is very important for us in the ecosystem is the initiative. I was speaking about Ethereum as a technology, but we have already some successful companies in Switzerland. Of course we have Metaco, but we have also SDX and different others in Switzerland. Congratulations to you, Metaco, and congratulations to all my colleagues in in Switzerland.
What we have observed in Europe is that France is a very interesting country. We have seen with the Plan d’Action pour la Croissance et la Transformation des Entreprises (PACTE – Action Plan for Business Growth and Transformation) law that things are moving quite fast with the different status. So we have the status PSAN (Prestateur Service Active Numerique) in France for the French people. We have seen a lot of initiatives in France, especially just the last one with Banque de France, experimentation with Banque de France. We had some Swiss colleagues in Banque de France, and of course Societe Generale was involved in this experimentation. With eight experimentations, we are leading the pace in France.
Germany at the beginning, I would say they were not really at the forefront of the blockchain innovation. But now, one or two years later, it’s quite interesting that they are moving quite fast. Firstly, because you have Berlin, and in Berlin you have a lot of developers – a lot of blockchain developers and funding in Berlin. But with the recent law, you have the possibility to hold up to 20% in their key pool for the special fund. I don’t speak German well, but you will understand me. There is no choice to move forward in Germany, because now the law says that you can hold up to 20%.
Last but not least, a country which is central in Europe and where I am very proud to work, is Luxembourg. I’m very happy to be part in Luxembourg. We have an interesting ecosystem in Luxembourg, a very small country. We have the first center in Europe; we should keep that in mind. We have regulators, we have the proximity with the government that allow us to do things, that allow us to move forward. We were the first to take a position in Bitcoin in 2014. This is a very interesting country. We have to move forward, but we should still keep the pace because the race is still not finished.
[00:10:43] Adrien: It is absolutely true. Before we jump more specifically about Societe Generale and how your bank has grown over the last years in the field, I just have a last question here. Still about more general things that you observed. You are very much involved, not just in the bank, but also in various associations in Luxembourg on the innovation side. What did you see that we, let’s say within this bubble, are not able to see? You see both worlds at the same time: the banking side and the innovation, a lot of startups, I assume. What did you see as possible trends, as activities and things which are not obvious today?
[00:11:23] Laurent: Indeed, part of the different associations in Luxembourg, as I said, we have moved forward a lot since the beginning around 2013/14 with the first position with the Bitcoin and the regulator. We have built a very interesting ecosystem, and we have also some success story in this field with HQLX, with Funds DLT for the fund, with Tokeny, we have two regulated crypto exchanges.
We have the ecosystem, we have a blockchain, everything is okay. There was a kind of distrust from the banking industry, but now it’s going better because in Luxembourg we definitely need to move forward. We have a new hive, reserve alternative investment funds that have been notarized to invest in in crypto. I would say that the sky is getting better in Luxembourg.
We also have the conviction in Luxembourg and in the different ecosystems, that we have no choice in the future but to work in collaboration with these ecosystems. As I said, it is more than 50 startups and initiatives in Luxembourg. In a digital age, I strongly believe that we can’t build everything alone, and we have to find a way to collaborate with the ecosystems of the different startups. Building something alone in the digital age, for me, makes no sense, because we need to have the time to market, we need to have the efficiency, and we need to be there tomorrow. We need to work with the people who have the specific skills.
For me, digital custody is one of the greatest example of collaborations that banks needs to have. I saw some studies regarding that. For digital custody, if you want to build something alone, you will need to have the specific skills, you will need to invest. You have companies that have already done that, so partnering with such companies is a good way to move forward.
[00:13:49] Adrien: This could have been your conclusion in 15 minutes! I think it’s a great statement.
It is very difficult. I’m not pointing fingers at Societe Generale, because you have been extremely successful in building and innovating, but we’ve also seen many companies on the markets that tried to do everything by themselves, invested a lot of money, and failed to some degree or at least were much slower than they anticipated. It feels obvious that in particular insertions, you want to be close to the innovators, which may not have the structure, the governance, and the financial means to be, let’s say, as safe as a large company like you are, but that have the agility and also the expertise to build things which then can be scaled to completely new environments.
Now, I think it’s a good transition into speaking more specifically about what you’re doing at Societe Generale. I’m not asking you to break any NDA, but there is already quite a few public information and public statements about Societe Generale on the various projects you have engaged into. Would you say that’s Societe Generale is active in the field, or is it all marketing and PR?
[00:14:59] Laurent: No marketing PR, of course. Active, yes. Leaders, I would not say that we are the leaders. But we are very active of course in this field, and have been active since 2014 with the first experimentation. We were one of the first 10 investors in the three initiatives in 2014. We have done more than 40 experimentations since the beginning, so now we are not talking anymore about experimentation but talking about the business model and real achievement and real impact for our clients and for the future.
We have been part of different initiatives, around five teams. The first one is a trade finance, where we believe that blockchain will make sense. For example, I can quote, because we are part of the eTrade Initiative. We are part of CoNGO, which is located next to your office in Geneva. We are doing some experimentation in the digital identity, to secure our digital identity, to transfer the digital identity in a secure way, and also taking a special attention to GDPR. Digital identity is definitely a key topic, and we have launched an internal startup two years ago in this field. For cross-border payments, we have done a lot of things around this topic, with Banque de France, with Lugh, and with JP Morgan’s initiative of JP Morgan, to improve the infrastructure first and afterwards to work also with the different models of a stable coin. It is a type of digital currency, because the payment is definitely a very key topic. We were talking about this topic when we launched the Bitcoin 11 years ago. But now we need to work on a more stable coin for the payment.
The most exciting an interesting sector is definitely the post-trade. We have a huge amount of initiative for the funds. We have worked with businesses, and doing experimentations with France DLT. We have also worked in the US with Paxos. We are live with Paxos in the US for the post-trade US equities. We have launched an internal platform, Societe Generale France.
Yes, we have done a lot of things – I would say more than 20 initiatives in the world of the post-trade.
The last one is the insurance, because thanks to the smart contract, we can also automatize and see new business models. It is very interesting. Yes, we have done a lot. We are very active in the different fields. We have made a lot of internal training, and we work a lot with the executive committee of the Societe Generale to work on the strategy and to prioritize some investments. We have an investment fund of 150 million at Societe Generale, to help us also to invest, because we can have an idea but if we don’t execute our idea then it makes no sense. We have the investment fund with us to move forward.
[00:18:31] Adrien: You mentioned in particular tokenization and stable coins. I think those are two key words currently that are almost buzzwords in the field. But again, I don’t believe you use them just as buzzwords.
Tokenization, you have this very well-known Societe Generale initiative that is working on some implementation of tokenization use cases. What can you say that is on the public domain or not, about the initiative; where it’s going and how relevant it is to the Societe Generale group.
[00:19:04] Laurent: Societe Generale launched in 2018 an entrepreneurship program. So if you have any idea, please submit your idea – any ideas that will have an impact in the future and that will change the way we do business.
We have launched more than 16 internal startups in 2018. They have six months to come with the MVP and the client, because we need to have a client, of course. Societe Generale FORGE was one of the internal startups in 2018. They have made a lot of interesting things. Not experimentation, because it was always live. Now there is a spinoff of Societe Generale FORGE. But is always 100% capital of Societe Generale of course. In terms of achievement, they have done a lot of things in addition to increase awareness of blockchain and tokenization of the capital markets in Societe Generale.
The first issuance of a hundred million in a public blockchain was at the beginning, after they had done a new one of 40 million. But we’ve also talked about digital currency of Banque de France, issuing also 40 million in a certificated product. They have helped to contribute to the launch of a stable coin, the recent one with EIB and also Goldman Sachs.
Yes, in the context of Banque de France experimentation, a lot of things is going to happen. But yes, I am under an NDA. The focus will be done in bonds and certificated products at the beginning, and helping the capital markets to issue a token and have a strong impact in the future, but always in the public blockchain.
[00:21:04] Adrien: This is very interesting. In particular, the last comment about public blockchain, we have, as you can imagine, as an infrastructure provider Metaco is facing very frequent companies that only want to mention private or permission ledgers. This is absolutely fine, but it also sometimes feels a bit like there is an irrational fear of public blockchains, or, we don’t want to touch it even just for trying. It’s interesting that you have favored by default public ledgers.
You also mentioned CBDC. central bank-issued digital currencies, multiple times. I understand that you have an initiative with this. Is such an initiative relevant in the context where there are already plenty of private stable coins? You could say USDC issued by Circle and Coinbase backing it, even algorithmic stable coins in decentralized finance. Do you see a future where stable coins are private; companies like Societe, Generale potential issuing its own token, or where stable coins become real money in the sense that it’s directly issued by the central authorities such as the ECB, the Fed, or the SMB?
[00:22:17] Laurent: What is important is to keep in mind, as you said, you have a different form of stable coin. It can be for the wholesale, which is where we are today. You can also have for the retail. After that you have different forms, and what is very important is also the network of the issuer. It can be a cooperate, it can be nobody (as Bitcoin), or it can be a central bank. This is very important to have in mind all the different elements.
In Societe Generale, we have contributed to the launch of a stable coin in France, the stable coin Lugh. Also in the public blockchain with Tezos, if my memory is working well. We have helped them to launch this stablecoin, and we have a banking partner. We asked the banking partner to safe-keep the equivalent in cash for the stable coin.
This is a very interesting topic in terms of experimentation. We strongly believe and are supportive of all the initiatives related to the central bank digital currency in the field of the wholesale activity. We still work closely with Banque de France, and are supportive of the initiatives of the European Central Bank. We have a working group in Societe Generale that are looking to the different possibilities, but it’s still in an exploration mode.
You were talking about the Circle, DeFi, and so on. We see a lot of things in this field, but we are a bank, we are regulated, and we need to pay attention to all the different aspects. When I was talking about the issuance, of it’s definitely a key point.
[00:24:29] Adrien: It is. A surprising point with CBDC is that it’s been a long time that CDC is seen as a competitor to cryptocurrency. As soon as you have the central bank issuing the money, do you really need Bitcoin? Of course there are various properties of Bitcoin which a CBDC will not equal, but you can argue with that at least as a means of payments, potentially it’s a better tool.
Do you see today that CBDC is competing with cryptocurrencies, or would it be kind of an on-ramp? Or is there a facilitator of the cryptocurrency and decentralized finance industry as a whole?
If I can quickly mention that, I think that’s one of the biggest weaknesses of DeFi today is that you’re kind of in your bubble, working with fantastic tools; but fantastic tools which don’t have great interface with the legacy world or with the outside world. As soon as you start thinking about CBDC in this equation, well, potentially you can only consume DeFi or you can leverage this DeFi technology much more than you do today.
Do you see CBDC as a competition or as a facilitator or something else in the context of the blockchain innovation today?
[00:25:43] Laurent: No, definitely no competition. We need in the world of finance to have CBDC. It’s like having a car without having electricity. We need to have CBDC. What is the DeFi, Bitcoin, it’s a different world. I strongly believe in the potential of CBDC in the world of the capital markets. For me, it’s not a competition; it’s completely complimentary.
[00:26:21] Adrien: I believe it is.
[00:26:21] Laurent: There is place for a lot of actors.
[00:26:23] Adrien: Speaking about these actors that you’re referring to, and you don’t need to name them, but do you see other large players on the markets, whether in Europe or in the US or in Asia or somewhere else, that are today taking similar steps at Societe Generale is, whether it’s with tokenization or more directly with cryptocurrencies or CBDC? Or do you feel that you are kind of unique on the market?
[00:26:49] Laurent: No, we are not unique. I see a lot of companies are moving fast. I don’t like the term ‘competitors’, even if I’m doing a lot of sports. Anyway, the biggest competitors for banks are not the financial ones. It’s the ones that you don’t see today; the invisible competitor. You are not a competitor, of course, but you can be a competitor of a segment of banks.
Coinbase can be a competitor because they are doing a lot of things in the banking world. Gaffer can be a future competitor of banks. The main competitors of Societe Generale in the world of blockchain and as the other, are the invisible ones. Otherwise, I see very interesting US companies. There are lot of US financial companies that are investing. Investing is very important, but you need to execute business cases and have a real impact.
[00:28:08] Adrien: Well, we certainly hope that Societe Generale is leading by example, and that you’ll be making bold announcements over the next few months and few years.
I would like to thank you very much for the participation. It has been an exciting discussion. Potentially, I hope to we’ll have the opportunity to invite you again to the show. Thank you. To our audience today, the next episode will be with Matthias Imbach, CEO and founder at Sygnum Bank in Switzerland. Don’t forget that you can always find a recording of the session on the various channels, whether it’s on Spotify, whether it is on our website, on YouTube.
If you have any questions, please feel free to reach out. Thank you very much all
[00:28:45] Laurent: Thanks. Bye!
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