InvestaX has announced the outcome of ‘Project e-VCC’, which examined the technological, legal, and practical feasibility of tokenising the Singapore Variable Capital Company (VCC) using a blockchain native structure.
Through this proof-of-concept (PoC), industry participants were able to determine the lifecycle and workflow processes for efficiencies gained using an e-VCC, and the key considerations for potential tradability of such e-VCC securities on exchanges like InvestaX.
The project also explored VCC fund shares issued directly on either a permissionless/public blockchain or a permissioned/private blockchain. It also compared the benefits of a blockchain native security token design (“one-tier”) as opposed to a tokenised security (“two-tier”) design.
Globally recognised UBS, State Street, PwC Singapore, and CMS brought together practical industry insights across the fund value chain, and in particular, where the use of Distributed Ledger Technologies (DLT) could enable new market opportunities and operating models. The Tezos Foundation and Hashstacs Pte Ltd. (STACS) provided support as public and private blockchain protocol providers, respectively, for the PoC.
InvestaX was awarded the PoC grant in September 2020, which provides funding support for experimentation, development, and dissemination of nascent innovative technologies in the financial services sector. The PoC grant is part of the Financial Sector Technology and Innovation (FSTI) scheme under the Financial Sector Development Fund administered by the Monetary Authority of Singapore (MAS).
InvestaX is a digital securities investment and trading platform licensed by the MAS for offering end-to-end solutions for the issuance, trading, and custody of digital securities for real estate, private equity, and other alternative investments.
InvestaX is an early pioneer in the use of blockchain technologies, and works with both issuers as well as investors to use DLT to develop technology-driven investment vehicles and products to reduce costs, increase efficiencies and transparency, remove friction, and facilitate secondary market trading in private capital markets.
“We are thrilled to have collaborated with UBS, State Street, CMS Holborn Asia, PwC Singapore as well as our blockchain partners Tezos and STACS on this groundbreaking initiative to bring efficiencies to the fund investment and management industry,” comments InvestaX’s CEO, Julian Kwan. “These funds in the real estate, private equity, and venture capital world, typically suffer from a lack of liquidity, high barriers to entry, and are burdened with paper-based processes that add to the costs of this competitive industry. By tokenising the VCC, we hope to support Singapore’s ambition of becoming the world’s fund management center as well as the hub for capital markets innovations.”
The PoC determined that in a one-tier approach, record keeping of fund interests, traditionally done by a transfer agent, can now be executed via DLT.
Matt Nortcliff, Partner and Head of Funds (APAC) at law firm CMS, said, “This is a timely and important project and we were delighted that InvestaX invited us to contribute our funds, tech and VCC expertise to the POC. With the ever-increasing pace of digital disruption, the law often has to play catch-up; this is both a challenge and an opportunity for Singapore. Projects such as this POC are tremendously important in demonstrating that embracing and championing tokenised fund structures can be a positive step for Singapore and the asset management industry at large.”
Project e-VCC also led to the conclusion that there is nothing explicit in Singapore’s existing laws prohibiting the issuance of blockchain-native securities. Such securities would come under the purview of digital tokens that constitute capital market products and be regulated under the Securities and Futures Act. However, the potential application of stamp duty was identified as a hurdle that must be addressed in order to enable the secondary trading of e-VCC shares.