In this episode Matt Ong, Founder of Ctrl Alt, discusses the upsurge and interest in tokenisation, the issue of "sticky capital" and how tokenisation can be a solution, and how Ctrl Alt enabled the first tokenisation of a debt transaction for a UK bank.
Episode Transcript:
Brandon (00:02)
Hello and welcome to the Guernsey Finance podcast, where we bring you interviews with leaders from the global finance industry. I'm going to start again. Hello and welcome to the Guernsey Finance podcast, where we bring you interviews with leaders from the global finance industry, as well as news and developments from Guernsey's financial services sector. My name is Brandon Ashplant and I am head of technical here at Guernsey finance. For those who aren't familiar with Guernsey, the island is a leading global finance centre.
The success of the industry here is underpinned by economic substance, political stability and asset security. And we are committed to the cause of sustainable finance. To find out more about Guernsey's success in sustainable finance, tune into our sister podcast, the sustainable finance Guernsey podcast. Today, I am delighted to be joined by Matt Ong, founder and CEO of Ctrl Alt, a tokenisation
solutions provider, which has a mission to make structuring and investing in tokenised asset classes, cost effective, secure and accessible. On this episode, we'll be discussing the rise of tokenisation, which increasingly seems to be an answer to a liquidity shortage due to economic stagnation and how Matt has went from launching Ctrl Alt in 2022 to more recently launching the world, sorry, the first tokenisation of a debt transaction.
for a UK bank. So without further ado, welcome Matt.
Matt Ong (01:30)
Thanks, Brandon.
Brandon (01:32)
Matt, great to have you on. So, first of all, for those who don't know, just tell us a bit about yourself and how you came to found Ctrl Alt
Matt Ong (01:41)
Yeah, sure. So as you mentioned, I'm Matt. I'm the founder and CEO of Ctrl Alt. I spent most of my career in investment banking, so previously at Morgan Stanley and Credit Suisse, in a very similar space, so structuring alternative asset classes, typically in the hedge fund space for institutional investors. The difference there was that we were using traditional instruments, so derivatives.
whether that's equity swaps, that's notes, whether that's options to wrap all of these alternative assets. And what we do here at Ctrl Alt is we take very similar infrastructure, but we bring that to a new generation of technology. So we use digital assets instead of derivatives as the end wrapper, as the end package. So think about you want to invest in a fund that you have a derivative, you have
know, an equity swap linked to that, the performance of that fund. Instead, with us, you would have a digital asset representing that investment in the fund. And that's what we do. you know, this is an area that I'm very familiar with, I spent my career in. And while I was at the banks, kind of noticed that there was there was a gap for supporting a broader range of asset classes, and also this new technology, namely tokenisation that could be used to disrupt.
that traditional infrastructure at banks.
Brandon (03:11)
And for those who are sort of less familiar with tokenisation as a concept but might have heard a little bit about it in the media, in the news perhaps, just outline in an overview what it actually is
Matt Ong (03:21)
Yeah, sure. It's a good question because tokenisation is a bit of a buzzword and it's used in different contexts and it often means different things to different people. But at its core, tokenisation is simply the representation of any asset through a digital token. And that can mean many different things. That can mean, you know, instead of issuing a share, you issue a token. So imagine you just have a company,
instead of getting a share certificate you get a token for that company representing your ownership in that company instead. But tokenisation also can encompass things like currencies. So if you were to represent the pound as a token that is also considered to be tokenisation and I think that distinction between the different types of tokenisation is really important because again people are talking about different things when they talk about tokenisation.
when you see the headlines here, that can mean something different. You know, as a kind of lighter example, you know, we've seen some some companies and you know, we are very involved in this space as well where you use a token to manage an internal register. And you know, even you know, Heathrow rewards the airport service that they use tokenisation, they use tokens to represent people's loyalty points and what they've accrued. And so
Again, it can mean very different things to very different people and I think the context is really important. In our case, what we are doing is we are representing alternative asset classes, whether that is private credit, whether that is funds, whether that's real estate, we are representing those through Guernsey structures, but in a digital token format.
Brandon (05:10)
It's undeniable that there has been a rise in tokenisation. And as you say, it's become a bit of a buzzword, you know, for many in particular. I think, I think I'm right in saying that Ctrl Alt has reported firsthand this increasing demand from financial institutions looking to utilize its capabilities. Why do think we're seeing such an upsurge?
Matt Ong (05:34)
So I think in my view, we saw a lot of investment come into blockchain technology in the last bull run of the cryptocurrencies. So there was so much interest in different cryptocurrencies and the different blockchains in that period that it pumped a lot of money into it and a lot of investment into infrastructure. And I think more recently what we've seen is institutional support for tokenisation and for blockchain.
You know, Larry Fink of BlackRock has been very vocal. A lot of the big institutions have tokenisation projects, have announced tokenized assets. And it's gone from being a question as to whether tokenisation will be the future to when will it be fully adopted? know, banks have gone past just pilot phases and they are now using tokenisation in -house. know, JP Morgan, a great example of that. But I think a lot of people just don't realise
how much that is actually happening in the background. So I think as we expect, know, institutions, big institutions will lead the way with any adoption of technology. You know, when these big players are interested, it means that the rest of the market follows. And I think certainly since the turn of the year, we've seen massive uptick in demand and interest in tokenized assets
whether that is just people curious as to how they can use tokenisation within their product suites and within their offerings. Whether you've got someone coming to you with a use case for tokenisation already, they've thought it through and they now think the time is right to bring that to the market. But I think positive sentiment everywhere, whether that is again from those institutions or just from signals elsewhere in the market.
have led to massive increases in demand and appetite for doing something like
Brandon (07:32)
Now I mentioned in the intro that earlier this year you launched the first tokenisation of a debt transaction for UK bank, which also just so happens to be the first tokenisation of its kind within the sort of Guernsey framework. Just tell us a bit about this launch.
Matt Ong (07:51)
So this is quite an interesting product for us and where we typically play is as a solutions provider and again, as you kind of alluded to in your introduction. Now, in a lot of financial products, there are already really great solutions out there and we don't look to replace those. What we look to do is try and improve
an inefficiency in the market and provide a solution to someone. So if you take a bank that wants to issue debt and they want to do that to increase their regulatory capital, increase their capital on their balance sheet, that capital is often quite sticky because it needs to be for the bank's stability.
The problem with that is that as an investor, I'm then investing really long term into an instrument with potentially no exit opportunities. So what we presented to the client was an option to keep that sticky capital, but create liquidity on the other side for the investor. And we do that not only through tokenisation, but also through the innovative Guernsey structures that we operate. that's an example of a client having a problem.
There these instruments are particularly attractive to investors because of liquidity problems. And then we can use tokenisation in our structure to solve those problems, which then makes it palatable for investors, it widens their investables. So, a really, really interesting transaction for us, one that we think is going to be really interesting for the broader marketplace, as regulators look for banks to diversify their capital bases.
And also not just banks, know, it happens across industries, you know, you know, where counterparties need to raise capital and potentially sticky capital, which isn't attractive to investors, this could be a solution for that. yeah, we think this is a really innovative and first of its kind type of transaction.
Brandon (10:11)
Hmm. And I have to ask, why Guernsey? Why Guernsey as the sort of domicile?
Matt Ong (10:18)
Yeah, we've looked at many different domiciles across the world. You know, we first needed one that would support our technology. So being able to use tokenisation and have a legal framework for us to use tokenisation. And unfortunately, you know, in the UK, which is our home market, there is no such framework for that. We looked across Europe and we looked across, you know
other traditional fund domiciles, whether that's, you Cayman or BVI or, you know, in the US. And we settled on Guernsey because A, it allowed us to use tokenisation. It's flexible in the way that you can issue instruments, which allows us to use digital assets. The law is very similar to English law.
and it is obviously English language based as well, which means when you're dealing with new concepts and you're building and innovating, it's actually really important that those concepts are well translated, not only for us, but for our clients, you know, if you're dealing in really minute detail and things can get lost in translation, that opens you up to significant risk for both you and your clients.
It's not to be underestimated the importance of working in the same language. It also helps that, again, a lot of our customers are UK based and Guernsey uses the pound, so a familiar currency for everyone to use. There's no FX issues there. And I think the final and potentially one of the biggest ones is Guernsey's a known fund domicile
It has a reputation. That means that when we were to put that domicile in front of investors and say, you know, we use Guernsey, people are familiar with it and they're like, yeah, that makes sense. Whereas some of the other jurisdictions that have frameworks in place for tokenisation, they might not be the most reputable. And so people might be a little bit concerned when you're using one those domiciles. And I think as a result, you know, we've seen
as a result of using Guernsey as well and as a result of it being a significant fund domicile it also means that we've got a lot of service providers, we've got a lot of legal support and we've got a lot of people that are very familiar with fund structures that are experts and they've helped us to build in Guernsey as well. So it's a sophisticated domicile and I think that's important.
Brandon (13:07)
Hmm. And you touched there on the sort of legal, sort of landscape, I suppose here in Guernsey. I mean, for those who are less familiar with that, I'm sure you are more, more than, versed than the average person on this now. But, for those who don't know the exemptions in our lending credit and finance law, obviously considers that tokens and, you know, considers tokens not to be sort of virtual assets. And so therefore they are deemed to be regulated as ordinary securities.
What sort of benefits did that bring?
Matt Ong (13:40)
think there's loads of benefits to that. think the first is just clarity. I think one of the biggest challenges that we have in dealing with tokenized assets and digital assets more generally is that they're dual regulated, they're captured by two separate pieces of regulation. you know, there's this big debate as to, you know, whether they are treated as securities or whether they're digital, and sometimes both. And we've often tried to adhere to both of them. Yeah, what we've seen
in Europe with Mika has helped to add clarity. And I think that's what players like ourselves look for. They look for clarity. We need to know which pieces of regulation are applicable to us because digital assets and tokenisation have really changed the game. They've forced regulators to have a think about these concepts that their existing regulation just didn't cover. people were very quick, regulators were very quick to put things in place
maybe weren't commercial either for digital asset platforms. So I think clarity is number one. And that's what the Guernsey regulator has done there by coming out with those comments. And I think we're also very pro them being treated like traditional securities as well. And that's the approach that we've generally taken across.
all of the regulators that we deal with. That's quite nice because it means that when you're working with lawyers and when we're working with these instruments, they are subject to familiar regulation to us and also tight regulation, which we think is very much applicable. This isn't a registration of a digital asset. is, no, is we treat them as securities. We treat them as regulated financial instruments. And I think that also gives comfort to investors at the same time.
to what they're getting exposure to and that is treated in the same way, for example, as a regular share. So yeah, think clarity for investors, clarity for the players in the space is the most important thing.
Brandon (15:55)
Now on the service provision side, understand that the sort structuring for this was enabled by sort of the local law firm Carey Olson here in Guernsey. Can you tell us a bit about that experience aswell?
Matt Ong (16:07)
Yeah, we've had a great experience with Carey Olson. You know, we were looking for a partner in this because this has never been done before. We've done it in other jurisdictions. So we knew how to tokenize assets. We knew how this should work. And also from my experience and my team's experience, we know how this should look. What we needed support with was how can we make that happen in Guernsey and how can we make sure
integrity of our platform is maintained in Guernsey and can be distributed more broadly. so, as I said, we were looking for a partner to kind of help us find and fine tune that structure and Carey Olson have the perfect partner for us from day one. So, you know, I think they also appreciate the value of something like this.
you know, of leading the way because as I mentioned before, people are talking now as a discussion of when this is mainstream rather than if it will be mainstream. And so it's meant that they've been able to get ahead of the curve and be able to offer, you know, advice on tokenized assets to clients and have that experience in the space, which is really going to set them apart. you know, we spent a really long time with Carey Olson building this. This isn't something that happens overnight.
This is the first of its kind. We are still very early in tokenized assets globally. so while tokenized assets have been done in other jurisdictions, this is market leading. This is very innovative. This is very new. There is a lot to consider with this technology, a lot to consider with the implications for legal and regulatory structures. we definitely needed their support. And yeah, they've been fantastic.
They'll continue to support us with other assets that we bring, other features that we want to bring to the platform. yeah, it's been really impressive working with them. Yeah, can't speak more highly of them.
Brandon (18:18)
Brilliant. Now you of course joined us at Guernsey's annual funds forum in May in London to speak on the second panel session. And you'll probably remember that our moderator, so he's the political editor at Newsnight, Nick Watt, for those who weren't there, asked you about the underlying tech because that's sort of a bit of a misnomer. For those who don't know, and perhaps a little bit more interested in that side of things, could you explain how sort of the actual underlying tech within tokenisation works in practice?
Matt Ong (18:46)
Yeah, sure. yeah, it's worth taking a step back and as I mentioned at the start, tokenisation is the representation of an asset through a token. But what does that actually mean? Now, blockchain, which is the technology piece that enables tokenisation, is essentially just a ledger. It's a record. And it's considered to be immutable because of how the technology works.
It's very difficult for people to hack a blockchain despite what you might see in the media. A lot of those hacks actually happen on an exchange where someone holds something with an exchange and it's the exchange that gets hacked. Blockchains themselves are very, very difficult to hack and that's why they are considered to be reliable sources of truth, a reliable record. So think about a share register.
you if you run a fund or if you run a company, you'll have a register of everyone that owns a share in that fund or in that company. And essentially what we're doing here is we're just putting that register onto the blockchain with the blockchain validating and being that reliable source of truth and being immutable. The benefit to that is that those records cannot be changed.
once it's been put onto the blockchain, that's a permanent record. And the reason why this technology is being adopted is because people like that, people like that certainty and that traceability of ownership that the blockchain can provide. So rather than having a register held on a computer somewhere, it's actually distributed. That's why they call it Distributed Ledger Technology, DLT.
It's distributed. if one goes down, know, there's other others that maintain these records that maintain, you know, that that proof of ownership. So that's that's the technology. The technology is there to do that. And it's it's used in different ways. A lot of people associate blockchain with cryptocurrency. But cryptocurrencies are are considered to be the native token for that particular blockchain.
that cryptocurrency is used to facilitate the transactions or the updates to the register. So in order to basically continue to validate that those records on the blockchain are correct, you need to pay people, you need to compensate people, and that's where these cryptocurrencies come from. So actually, cryptocurrencies are a really small part of what blockchains are in reality.
They're considered to be part of the utility of the blockchain rather than the blockchain itself. And I think those lines have definitely been blurred because of how much speculation has happened at the cryptocurrency level. What we're now starting to see, and again, as I alluded to at the start, is people now trying to uncover the real benefits of the blockchain itself. So taking a step back from the cryptocurrency and speculation and the returns that you can potentially make on the cryptocurrency element
looking at the actual usage of the chain. How can I use this technology in this blockchain? And in our instance, we like it because it's a way to prove ownership. It's a way to record who owns what. The benefit on the flip side of that, a lot of that is efficiency based. So imagine you have thousands of investors and thousands of different structures. It be quite difficult to manage all of
who owns what. If you manage all of that digitally and it's managed on a blockchain, it makes your life a lot easier. A lot of people will be familiar with the registration process for shareholders and how challenging that can sometimes be making those filings with the registrar. This is a way to kind of move away from that and move to a digital version of that that has the same level of reliability, if not arguably more.
than a centralised registrar. So that's the kind of technology.
Brandon (23:04)
Hmm. Turning to sort of the more the liquidity conversation and sort of the economic arguments. clearly, clearly the last few years have been, you know, tough for fundraising and, you know, and managers bringing new structures to the market and so forth. Is tokenisation the answer to these woes?
Matt Ong (23:25)
It's a difficult question and I think liquidity is also a bit of a red herring in this space because it can refer to different things. So if you're thinking about liquidity in terms of a secondary marketplace, that is often something that is discussed as a key benefit of tokenisation. People want to tokenize assets because they can then create a secondary market. That is not the reality.
And a lot of tokenisation platforms probably wouldn't say that, but that's not the reality. We do not have a developed marketplace for a secondary at the moment for all of these tokenized assets. That is just the reality. By simply making investment sizes, tickets smaller, you do not automatically create liquidity. It might be easier to sell that portion because it's a smaller portion. So you've got more buyers that can potentially buy it
But that does not mean that you automatically have a marketplace of people that will be able to facilitate that. If you're thinking about liquidity just from a broader pool of investors, then absolutely. And so if you're a fund manager and you're looking for ways to access a wider range of capital, tokenisation can absolutely be a tool in that suite. Absolutely.
You can bring in capital at a lower price point, know, a lower capital point and ultimately draw more capital into your fund. There are some important considerations to that though and it's worth highlighting the challenges of that. if you have an existing fund and you decide to tokenize that fund, that master fund that you have will still have the same subscription and redemption
So if your minimum redemption size is a million, but you're offering people tokens in a thousand pounds, you would not be able to match the liquidity of the underlying fund to those tokens. So if you offer quarterly redemption, for example, on a million, but someone has a thousand and they want to redeem, tokenisation doesn't solve that problem. You've still got that liquidity gap. And ultimately a lot of the asset classes that we look at are illiquid, like private equity.
You know, it's not easy. a reason why that redemption minimum is a million. know, someone has a thousand, they cannot then go and adjust the fund for a thousand pound redemption because their investment sizes are much bigger than that. So there is a reality that people need to accept around tokenisation.
Some of the ways that tokenisation in the future might be a solution to that is quite interesting. So rather than issuing your fund in a traditional format, if you were to do it in a tokenized format, it means that potentially you will be able to manage the liquidity better. Because instead of having a wrapper on top of the fund, will offer the fund natively in tokenized format, and you'll get some operational efficiencies with that. problem around being able
redeem the underlying assets if there are liquids still remains, but operationally you would be able to deal with smaller tickets into the fund for sure. The other really interesting piece is coming back to the secondaries. Now, while we don't have liquid secondary markets today, everyone is hoping that we will get to the stage to do that. And so we are in really interesting discussions with exchange providers.
to try and provide that venue to provide that optionality for a secondary market going forward. As more more participants enter this market, there will be more participants and greater chances for liquidity. what we're trying to do is bring everyone together.
ultimately a better marketplace for people and a better use case for tokenisation.
Brandon (27:41)
think you touched on it earlier, but just to circle back, what types of investors do you generally see sort of keen to engage with tokenisation at this sort of level?
Matt Ong (27:51)
It's institutional customers that are already investing in alternative assets, I'd say is where we're seeing the most demand. It's an easier sell to them because they're already allocating, they're already comfortable with these assets and then if you offer them a better way to do it, it's a no -brainer. I think what we're also seeing is interest from maybe smaller institutions, smaller institutional investors that might not have the same access.
as the biggest allocators do. And so what we're able to do is bring them assets that they just might not have visibility on or might not able to meet their minimum ticket sizes. So that's where we're seeing the most demand. We think this will continue to evolve as the market evolves. And we're already starting to see that from conversations that we're having with clients across the board.
As I said at the very start, typically things start with institutions and then they will move down the scales. So very interested and very excited to see how our investor profiles develop as we're able to do more and expand who we're able to support as
Brandon (29:04)
just to find a question, coming back to Guernsey, Guernsey has historically been quite popular, with sort of first time managers as a recent founder yourself. What is your most important piece of advice for these sort of first timers, and emerging managers and founders?
Matt Ong (29:23)
think it's picking your partners carefully. You know, you're going to need a lot of support when you come to a new jurisdiction. But also if you're a founder or starting something up, you'll need even more support, right? So I think Guernsey has a fantastic base of providers, whether that's the administrators, whether that's legal support, whether that's accounting.
there's a lot of people to choose from and that can sometimes be daunting. so I what I'd encourage is going out and speaking to people and finding who you think is the right partner for you. that can be on a personal basis, finding someone that, you know, backs your vision and what you're trying to build. And I think that's really important, you know, having partners that share your vision and want to achieve the same thing as you so that you're aligned.
So yeah, I think that's my biggest piece of
Brandon (30:22)
Okay, well thank you very much for your time today Matt. Thanks for joining
Matt Ong (30:26)
No worries, thanks very much for having
Brandon (30:28)
And thanks also to you for listening. If you enjoyed this discussion, we have a backlog of interviews on the Guernsey Finance podcast channel. You can check them out by searching for Guernsey Finance on your preferred podcast platform. We also have links to Matt and Control Alt in our show notes. So check them out to hear more from them. To find out more about Guernsey and its specialist financial services industry, head over to our website, guernsiefinance .com.
We look forward to welcoming you back to the podcast soon, until then it's goodbye from Guernsey.
