UBS, State Street, and CMS jointly explored the potential of tokenization of the Singapore VCC structure (Project e-VCC)
Singapore-headquartered FinTech firm Hashstacs Pte Ltd (‘STACS’), focused on unlocking value for the financial industry and enabling Environmental, Social, and Governance (‘ESG’) finance, supported InvestaX as industry collaborator in their Proof-of-Concept (PoC) for tokenization of Singapore Variable Capital Companies (‘VCC’). Project e-VCC, led by InvestaX, UBS, State Street, and CMS, involved examining the technological, legal, and practical feasibility of tokenizing the Singapore Variable Capital Company using a blockchain native structure. Hashstacs Pte Ltd (‘STACS) and The Tezos Foundation were selected as private and public blockchain protocol providers respectively for this global first initiative. Through this proof-of-concept, industry participants were able to determine the lifecycle and workflow processes for efficiencies gained using an e-VCC by the relevant stakeholders (i.e. fund manager, fund administrator and investors), and the potential key considerations for tradability of such e-VCC securities on exchanges like InvestaX.
The project also explored VCC fund shares issued directly on either a permissionless/public blockchain or a permissioned/private blockchain. It also compared the benefits of a blockchain-native security token design (“one-tier”) as opposed to a tokenized security (“two-tier”) design.
Globally recognised participants UBS, State Street, and CMS brought together practical industry insights across the fund value chain, and in particular, where the use of Distributed Ledger Technologies (‘DLT’) could enable new market opportunities and operating models. STACS and The Tezos Foundation provided support via their live DLT platforms and domain expertise.
As a permissioned protocol, STACS provides an enhanced-Ethereum permissioned blockchain designed with a highly modular architecture, with additional features built directly at the node level to enhance processing capability and optimize enterprise access control. Utilizing the Solidity programming language for smart contract development, which is interoperable with other Ethereum-based enterprise blockchain protocols, STACS is able to support the use of well-established standards that are compliant with the industry for asset tokenization.
Benjamin Soh, Managing Director at STACS, said: “As a leading fintech firm in Singapore, STACS plays a key role in unlocking value for the financial industry via our live industry-wide DLT platform for Asset and Wealth Management, End-to-End Digital Securities, and Enhanced ESG Finance. This is a meaningful project and STACS is thrilled to be a technology partner of InvestaX and various partners in the VCC industry, to contribute our DLT solution expertise in ensuring the project’s practicality, scalability, and interoperability.”
Julian Kwan, CEO at InvestaX, said: “We are thrilled to have collaborated with UBS, State Street, CMS Holborn Asia, as well as our blockchain partners Tezos and STACS on this groundbreaking initiative to bring efficiencies to the fund investment and management industry. These funds in the real estate, private equity, and venture capital world, typically suffer from a lack of liquidity, high barriers to entry, and are burdened with paper-based processes that add to the costs of this competitive industry. By tokenizing the VCC, we hope to support Singapore’s ambition of becoming the world’s fund management center as well as the hub for capital markets innovations.”
Project e-VCC also led to the conclusion that there is nothing explicit in Singapore’s existing laws prohibiting issuance of blockchain-native securities. Such securities would come under the purview of digital tokens that constitute capital market products and be regulated under the Securities and Futures Act. However, the potential application of stamp duty was identified as a hurdle which must be addressed in order to enable secondary trading of e-VCC shares.
A full version of the public report of the PoC, which was awarded the PoC grant in September 2020, under the Financial Sector Technology and Innovation (‘FSTI’) scheme under the Financial Sector Development Fund administered by the Monetary Authority of Singapore (MAS), is available here.