Japanese-based financial assets broker Daiwa Securities (NASDAQ: DSECF) has unveiled plans to begin the exploration of security tokens on a publicly distributed ledger, taking a different path from its close competitor, Nomura (NASDAQ: NRSCF).
In a recent report, Daiwa Securities set the ball rolling by underwriting 22.6 billion yen ($153 million) in security tokens backed by real-world assets ahead of a Proof-of-Concept (PoC). Daiwa Securities says choosing public ledgers allows it to improve transparency and interoperability for the asset class.
The company says it will explore the offering in collaboration with Web3 infrastructure firm Gincon and its subsidiary Fintertech, testing the use of digital collectibles known as soul-bound tokens (SBT). Sources say the PoC will be focused on studying the technical and regulatory risks associated with public chains before launching the pilot.
During the PoC, the trio will use SBTs as an added layer of security for investors, requiring investors to show proof of SBT ownership before purchasing or reselling security tokens. Operating as a non-transferable, non-fungible token (NFT), the SBTs prove that an investor has undergone relevant anti-money laundering (AML) checks and ensure a potential transaction participant is duly authorized.
While the idea seems foolproof in theory, the PoC will focus significant attention on preventing the theft of SBTs by bad actors.
Another challenge the PoC faces is issuing digital asset loans by Fintertech, Daiwa’s Securities subsidiary. Experts argue that it is an anomaly for the subsidiary of a regulated firm to give digital currency-backed loans, citing examples leading to the collapses of Celsius (NASDAQ: CELH), Voyager Digital (NASDAQ: VYGVQ), and BlockFi.
The firm’s shares have since surged 9.3% in November amid whispers of a foray into securities and a net income climb by a staggering 52% in Q3.
Nomura’s consortium poses challenge
Daiwa Securities faces an uphill climb in its attempt to roll out a security token offering, given the first-mover advantage of Nomura’s BOOSTRY.
Besides being issued on private ledgers, BOOSTRY has gained support from key Japanese ecosystem providers and received regulatory green light from financial authorities.
Daiwa Securities will have to grapple with Progmat, MUFG’s STO (NASDAQ: MUFG) platform, with backing from several Japanese commercial banks, including SBI (NASDAQ: SBHGF), Mizuho, SMBC, and Sumitomo Mitsui Trust (NASDAQ: SUTNY).
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