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Banks Want To Be Prepared For The Coming Wave Of Tokenization

Avaloq has just signed a partnership with the startup AlgoTrader. In this interview, Martin Greweldinger, Avaloq’s Chief Product Officer, explains the relevance of this partnership. He also talks about the reason why banks want to offer their clients the possibility to trade blockchain-based products such as tokens and cryptocurrencies.

Avaloq just announced a partnership with the fintech AlgoTrader. Why does a large and established corporation such Avaloq partner with startups?

This is no coincidence, it is part of our strategy. With we have created an ecosystem of fintechs that is growing day by day. It is aimed at fintechs and regtechs that have a very specific offer complementary to ours, and we connect them to banks and wealth managers around the globe. We ensure seamless integration into the Avaloq platform, and we see as a platform where fintechs can directly connect to financial institutions which run on Avaloq. It is a classic win-win situation.

And what was the reason to partner with AlgoTrader specifically?

Avaloq has a strong offer for banks. With our solutions, banks can run their back office but also their client-facing channels. With the AlgoTrader partnership, we strengthen our offer in trading for professionals. If their clients want to trade a financial asset, his bank will route the order to a broker or an exchange. With AlgoTrader, we offer access to the markets for new financial assets such as cryptocurrencies and tokens through a fixed API.

How will this work exactly?

For the banks who chose AlgoTrader as an option, we create an interface between AlgoTrader and our Avaloq software for seamless integration. If clients want to buy, for instance, 1 bitcoin, they enter their order in their online banking. The order gets routed to AlgoTrader through the Avaloq software which will split it up and send it to several exchanges and brokers, to get the best execution price. Then the execution is noted in the Avaloq software.

Avaloq is a large and successful firm. Why did you not just program this kind of software yourself?

We strongly believe in collaborative innovation through our ecosystem and in time-to-market. Besides, the developers of AlgoTrader have been working on this for several years and built up specific expertise. Thanks to this cooperation, we’re now able to offer this topic very rapidly to customers that want it.

Why would banks be interested in this?

There are two main reasons. Some have a client base that wants to buy and sell and store cryptocurrencies with a bank. We already have banks in productive mode. But the second reason is much more important for a very broad set of banks. They want to be prepared for the coming wave of tokenization – basically the shared ownership of assets.

What do you mean by that?

This means that a claim on a financial asset, for example, a building, can be digitally represented by a token, which can then be very easily traded. The technology that powers tokens is the same that underlies cryptocurrencies, the blockchain. And the interest from banks in this topic is very strong because it will allow them to massively enlarge their offering. It’s not just about currencies, in theory, assets like artworks, real estate or other items can also be tokenized.

Buildings have been bought and sold for centuries, why would we need a new mechanism to do this?

No matter if you buy a whole building or an apartment, you’re investing a considerable sum. But tokens can have a very small denomination and represent just a tiny part of the value of a building. This allows you to diversify with small sums but still invest directly. Furthermore, real estate is probably the biggest asset class in the world, but, as said, just one example.

But aren’t many people very skeptical when it comes to this new technology?

We should distinguish the technology from its different applications built on the technology backbone called blockchain. Many products can be built on the blockchain, and cryptocurrencies such as bitcoin are just one example of how this technology can be leveraged. Bitcoin is not backed by any financial asset. This is why tokens that are based on stable assets such as real estate are so interesting as a store of value. Unlike gold, real estate also produces income. Banks have realized that this has a massive potential to change how financial products are built and distributed, and they want to actively take part in shaping and leveraging this growing segment.


Interview by Eugen Stamm for Verve Ventures.

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