Feature: Metals ownership rights could be available for purchase this decade

London — Digital markets and digitization of physical assets, including metals, currently emerging in Switzerland, may gain worldwide acceptance in a matter of some seven to 10 years, according to a financial market expert.

Driven by the wish to popularize palladium and in line with the trend of capital spilling over from the traditional economy into the digital one, Nornickel, the world's largest producer of palladium and high-grade nickel, will be the first industrial issuer of the rights of ownership over its metals, or tokens.

At some point, Nornickel's tokens will be available for purchase on Atomyze, a Swiss platform – still awaiting licensing – that employs Distributed Ledger Technology (DLT) to digitize physical assets.

The innovation goes hand in hand with the rise in digital markets; in order to join them, issuers need tokenization, this very function of transferring rights to assets into digital form.

There is currently no recognized, fully licenced and regulated exchange for digital assets, where security tokens can be issued, traded, paid for and stored end to end, but such platforms are already in the making and due to appear soon, first in Switzerland, the most advanced country in creating respective regulation and infrastructure.

The SIX Digital Exchange (SDX), an offshoot of the SIX Swiss Stock Exchange, is also investing in DLT to make trading of digital assets a reality.

Use of tokens

"DLT will enable clients to issue tokens [tokenize], trade, settle and custody assets more efficiently, as the technology ensures a more efficient use of capital, reduction of operational risk and access to new asset classes that are designed to be new revenue drivers," Rupertus Rothenhaeuser, a member of the management board at SDX, told S&P Global Platts in an interview.

Without disclosing the cost of adopting DLT, Rothenhaeuser said creating a global financial market infrastructure does not come cheap, but the budget is not all. Apart from building the tech stack, regulatory issues are key. "Unfortunately, not all jurisdictions and countries are equally supportive as is the Swiss Financial Market Supervisory Authority (FINMA)," he said. "The Swiss market enjoys a rather supportive open-minded financial market regulator and central bank, both key to such enterprise success."

The adoption time until digital assets, including tokens, become common market practice will take between seven to 10 years, according to Rothenhaeuser. On the surface, it looks like tokens may challenge some established exchange-traded financial instruments. "Futures and ETFs will not disappear overnight only because digital assets (ETFs issued as tokens) arise. The market will decide in the coming years which products and services and when will be replaced by the new technology," he said.

Storage and audit

SDX plans to tokenize plain vanilla bonds and equity first for MVP (Minimum Viable Product). Other asset classes such as funds, structured products and commodities will follow thereafter.

Regarding the prospect of digitizing metals, Rothenhaeuser noted the crucial factor will be providing storage/custody of any physical commodity that has been tokenized, but declined to elaborate further, saying SDX is only at the very beginning of embracing the commodity space.

Nornickel's tokens – to be offered as substitutes for a part of contractual sales of palladium, cobalt and copper – will be backed by regularly audited metals reserves. They have not been issued yet and are undergoing tests involving Trafigura, Traxys and Umicore, according to the Russian company.