ENTREPRISES & STRATÉGIES — Technologies

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Luxembourg, a market leader in tokenisation


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Already recognised as the European hub for investment funds, Luxembourg is becoming a leader in the development of digital assets in the financial market. For the past few years, Luxembourg has been promoting innovation and adapting its legislative framework to welcome the integration of blockchain at various levels.

The legal developments have triggered trends in the market that are motivating the ecosystem to accelerate the inception of digitalisation and the creation of new blockchain-based services. Although this evolution is ongoing, several financial institutions (including some well-known banks) are working at becoming the pioneers of the sector by adapting their internal processes and service offerings.

Although public attention is mostly drawn to payment tokens or cryptocurrencies (such as Bitcoin or Ethereum), other forms of digital assets are currently driving innovation onto the market.

One of these trends is the offering of security tokens. Security tokens allow issuers to raise funds more efficiently and give them access to a larger investor portfolio. The blockchain offers advantages such as process automation and reduction of costs. Security tokens are also creating liquidity for certain types of assets such as real estate or artworks and are therefore currently very popular in the financial sector.

In this respect, the tokenisation of real estate assets is already a reality in Luxembourg. It allows retail investors to benefit from the advantages of the ever-growing real estate market in Luxembourg regardless of the size of their savings.

Although public attention has largely been drawn to payment tokens (such as Bitcoin), there are other kinds of token that are currently driving innovation in the market.

Although public attention has largely been drawn to payment tokens (such as Bitcoin), there are other kinds of token that are currently driving innovation in the market.
Aurélia Viémont

Aurélia Viémont ,  Senior Counsel – Banking & Finance,  CMS

Indeed, another market trend gaining in popularity is the use of non-fungible tokens or NFTs. As one-of-a-kind verifiable tokens, they are usually linked to the direct ownership of distinguishable assets that are minted and traded in the blockchain. Used mostly in the gaming sector, NFTs are expanding into other areas such as works of art, music, concert tickets, loyalty points, etc.

The technology has the capacity to be used in a multitude of ways. Utility tokens are another instrument to take full advantage of use cases. They are issued by businesses to give access to services or products. Their main purpose is to grant the right to perceive a specific service provided by their issuer only. However, utility tokens may also be listed on crypto exchange platforms, with their price determined by the offer and demand.

The variation of forms of digital assets raises questions as to their qualification and hence the applicable legal regime. More information on this topic is available on CMS Luxembourg’s second article on digital assets, which will be published shortly.

Overall, blockchain and digital assets are also having a crucial social impact. They bring together parties that would otherwise never have been connected. For instance, NTFs and utility tokens may be used to create a community between parties exchanging such tokens in a specific micro-ecosystem. Blockchain and digital assets further democratise the world of investments by enabling certain investor classes to be actively involved in projects.

Blockchain and digital assets further democratise the world of investments by enabling certain investor classes to be actively involved in projects.
Aurélien Hollard

Aurélien Hollard,  Partner – Head of Investment Funds,  CMS

They offer an access to the financial market free from major barriers or intermediaries and thus facilitates smaller projects to be financially sustainable and successful. This is in line with the philosophy of projects with environmental or social impacts amongst others. Their potential is driving businesses and regulators to adapt to this innovative way of making investments and offering services. Whilst progress has been made to position Luxembourg as one of the most crypto-friendly jurisdictions in the European market, in our view there is still a lot to be done.  

This article was edited and coordinated by Julie Pelcé and José Ocana and contains the views of the whole CMS Digital Assets team led by Aurélien Hollard and comprising Aurélia Viémont, Alejandro Dominguez, Sarah Hantscher, José Ocana, Mélanie Poirrier, Arnaud Marquet, Julie Pelcé and Vicente Chapa.