Assistant Professor Dr Angelo Aspris, who specialises in market microstructure and digital asset markets, focuses his research on both traditional and emerging financial markets, including equities, derivatives, cryptocurrency and DeFi protocols.
Speaking on Clearway Capital Solutions’ latest podcast, Aspris discussed the growing demand for digital assets, their potential efficiencies and the current regulatory gaps.
“Clearly there is a demand for holding digital assets and so the managed investment community are hammering the door saying give us some guidance, give us some rules by which to operate, so that we can meet that demand,” Aspris said.
“The benefit here is that it can improve accessibility to assets. If you’ve got assets that have previously operated in opaque environments with opaque structures, by having this on-chain and off-chain asset platform that pairs these assets together, you can increase that accessibility.
“What we might see from tokenisation is a change in processes in which managed investments operate – the way that you communicate with your unit holders, and the way in which the operations are managed can become more efficient.”
Aspris explained that tokenising financial and real assets could significantly improve accessibility for use within managed investments.
“If you’ve got assets that have previously operated in opaque environments with opaque structures, by having this on-chain and off-chain asset platform that pairs these assets together, you can increase that accessibility,” he said.
“You’re essentially creating an investment environment where you have digital native and digital non-native assets and they can co-habitat in this which is quite useful for the managed investment space - because you’ve got a broader scope of investments.”
He said tokenisation could reshape how managed investments operate.
“The way that you communicate with your unit holders and the way in which the operations are managed can become more efficient.
“If we incorporate smart contracts for example, we can streamline a lot of the labour-intensive processes and you can also improve transparency of those processes.”
Incorporating smart contracts into capital calls, income distribution and settlement processes would greatly increase efficiency, according to Aspris.
“In this environment, you simultaneously settle with payment – we again remove another source of friction ... You’re improving capital efficiency by having those funds that are tied up in transit for a shorter period of time.”
Smart contracts, he added, can also broaden access to new investor classes.
“With the underlying asset, you find with some assets that you’re transacting in quite large lot sizes,” Aspris said.
“When you’re dealing with smart contracts and tokenised assets, assets that may have been prohibitive to, let’s say, a group of retail investors, you can now have an environment where you are fractionalising those assets, which means these investor groups that couldn’t transact in these large lots now have the ability to do so – that from a portfolio perspective can create a much more efficient portfolio.”
He said tokenisation could also reduce compliance and administration costs by reducing the need for manual oversight. However, the biggest efficiencies, Aspris believes, lie in capital efficiency gains.
“The money is tied up into settlement for a shorter period of time. What that means is the money is working for you.
“Instead of having T+1, T+2 settlement, you’ve got instantaneous settlement. That money doesn’t sit in transit, that money can be used to generate additional income. It’s that capital efficiency for me that is the real value add.”
Aspris said the blockchain’s shared and immutable nature could also benefit managed investments.
“That clarity and transparency is something that is useful and beneficial to the managed investment process,” he said.
He also highlighted the importance of addressing key legal and regulatory issues surrounding tokenised investment products, warning of the risks introduced by new technologies.
“The underlying asset obviously has its own inherent risks, but we’re introducing a risk layer on top of that when you tokenise the asset – how you deal with wallets, seed keys, smart contracts, how you deal with public and private addresses,” he said.
“Those that have the responsibility of managing portfolios have to deal with this new class of foreign risks.”
Aspris said these risks can be managed within Australia’s current regulatory framework but warned that the country must keep pace with global developments, referencing the GENIUS Act in the US and Markets in Crypto-Assets Regulation in Europe.
“If we take a leaf out of what’s happening in Europe and the US, we will have to eventually develop a separate framework that deals with crypto assets – that is a direction that we’re going to have to go in.
“If you’ve got managed investments and you’re dealing with investments across different jurisdictions, you want a harmonious environment to be able to operate in. You don’t want one where you’ve got this regulatory arbitrage going on, because that isn’t something that is beneficial to the participants in this market.”
Australia will soon need to consider regulatory sandboxes and experimental settings to balance efficiency and integrity, according to Aspris.
“To a certain extent, Australia is playing the wait-and-see game. There was a while where digital assets were not the flavour of the month and the regulators almost dropped all those conversations – those lines of conversation almost fell to the background.”
It comes as Australia’s financial regulator issued a major update to its digital-asset guidance, with ASIC publishing a revised version of Info Sheet 225 on 29 October, clarifying when digital asset products and services would be considered financial products under the Corporations Act.
“The risks will always be great when the technology is evolving so quickly and so the frameworks therefore need to be a lot clearer,” Aspris said on the podcast released the day prior.
“If we move away from these traditional assets and move into an area where there are multiple chains that now start to evolve and you’ve got interoperability issues, you need more specific, more nuanced regulation.”
The most significant potential risk, he said, could come from liquidity mismatches between underlying and tokenised assets.
“If you compound liquidity mismatch with redemption issues, that can result in widespread systematic risk.
“When you’re dealing with real estate assets, you can very much end up in a situation where you have this opaque not-very-liquid market off-chain, but on-chain ends up being quite liquid – then you have all sorts of issues that emerge.”
Aspris said there is good reason to expect a significant acceleration of tokenisation in the near term.
“There’s quite significant efficiencies which means that we should really be exploring this change and embracing it with more gusto than perhaps we have in the past.”
Meanwhile, Clearway Capital Solutions noted that tokenisation could significantly transform the role of business development managers (BDM) in funds management.
Managing director and principal Dennis Mothoneos said BDMs have traditionally focused on building relationships with gatekeepers – including consultants, advisers, platforms and institutional investors – and communicating a fund’s investment strategy and value proposition.
“As tokenised investment products become more common, the job will require a much more deeper understanding of technology. Business development managers and distributors more broadly will need to confidently explain not just what the fund invests in but how tokenisation works and that would include the basics of smart contracts, distributed ledgers and settlement in a digital context,” Mothoneos said.
