Open up the $16 trillion market! Nomura accelerates the “construction site” of digital assets[2024 special feature]| CoinDesk JAPAN

As we move toward a society where anyone can buy Bitcoin, major financial institutions around the world are working to develop next-generation business infrastructure with an eye toward a society in which digital financial assets tokenized on the blockchain are exchanged. proceeding.

Nomura Holdings is one such company. CoinDesk, a major Web3 media company, had started its own project before launching its Japanese version in 2019.

Over the past five years, when the crypto asset (virtual currency) market has experienced a “boom and bust” period, Nomura has been building a next-generation business foundation within the company that will lead to the current “digital company.” Hajime Ikeda is the key person leading this digital company.

In 2023, the market was so cold that it was called “Crypto Winter,” but the world’s attention was focused on RWA tokenization initiatives being promoted by major financial institutions in Europe, the United States, Japan, and Singapore. RWA is an abbreviation that stands for Real World Asset, and unlike crypto assets such as Bitcoin, it refers to “financial assets that actually exist.”

In other words, if assets such as real estate, bonds, fiat currency, gold, and renewable energy are tokenized on the chain, the market size will expand to trillions or even tens of trillions of dollars. Boston Consulting estimates that the RWA market could grow to as much as $16 trillion by 2030.

How will the infrastructure, human resources, and tools that Nomura’s digital company has built up function in this new, expanding market? We spoke to Mr. Ikeda about the near future while looking at the current status of major projects undertaken by Digital Company.

Komainu: Mr. Ashley behind the birth of the project

The service that manages financial assets held by institutional investors is called “custody,” and this is the custody business that Nomura first embarked on when building a business foundation for digital assets. In 2018, Nomura launched the project “Komainu” in collaboration with European companies Ledger and CoinShares.

Custody is an essential service for the functioning of current financial markets. For example, the Bank of New York (now Bank of New York Mellon), founded in the 1700s by Alexander Hamilton, the author of the U.S. Constitution, is the oldest bank in the United States and has been providing custody services for the securities of institutional investors for over 200 years. If a bank were to suddenly stop its operations, the U.S. financial market, the world’s largest, would be paralyzed.

How should Nomura respond to digital assets? After many heated discussions within the company, Nomura decided to co-found Komainu. The person who had a major influence on his decision was Stephen Ashley, who was head of wholesale at the time.

Hajime Ikeda, Executive Officer, Digital Company and Marketing, Sales Division, Nomura Holdings

“At that time, there were various opinions within the company regarding digital assets. Many events and problems (including hacking) occurred in society (relating to digital assets). However, the market for digital assets did not grow. “Custody will definitely be necessary,” Mr. Ikeda recalled at the time.

“We started from here and have continued to build on digital assets.”

In North America, JPMorgan Chase, the largest US bank, was recently conducting a pilot project to use Quorum, an independently developed blockchain based on Ethereum, to perform payments and remittances in tokenized fiat currency. JP Morgan sold Quorum to ConsenSys (the developer of the wallet Metamask) in 2020. At the same time, it acquired a portion of ConsenSys stock. Currently, JP Morgan, through its subsidiary Onyx, is developing a project for corporations that utilizes tokens.

In Japan, in 2018, an incident occurred in which crypto assets worth 58 billion yen were hacked and stolen from the crypto asset exchange company Coincheck. A report by the US research firm Chainalysis later revealed that the North Korean hacking organization Lazarus was involved in the incident.

Laser Digital: The world’s giant asset management company on the rise

In 2021, when it was reported that major US investment bank Goldman Sachs was planning to open a crypto asset trading desk, Nomura was preparing to launch Laser Digital. The following year, Laser established its headquarters in Zurich, Switzerland. The three pillars of its business are digital asset management services and trading for institutional investors, and startup investment.

Mr. Ashley, who has been in charge of the wholesale division, has been appointed as Laser’s chairman. This shows how serious Nomura is about this business. To date, as part of its asset management services, it has been operating funds based on Bitcoin and Ethereum, but for custody they have immediately started using Comainu, which they have been developing.

Laser will launch a Japanese subsidiary in October 2023, with Hideaki Kudo, who has been leading digital asset business development together with Ikeda, as its head. Mr. Kudo joined Nomura Asset Management after researching astrophysics and has led the development of financial products.

Laser Digital Japan Representative Director and President Hideaki Kudo

“After the start of Komaine, there was a certain level of understanding within the company about this initiative (laser),” says Ikeda.

“When starting a trading business, 24-hour monitoring is necessary. By supporting Asian time through Laser Digital Japan and starting a 24-hour system, there is a world that will become visible. Should we do something? What can we do? It will become clear.”

U.S. asset management companies that manage huge amounts of funds are also becoming more active in developing financial services that handle crypto assets and tokenized RWA.

One such company is BlackRock, which manages over $9 trillion in assets and has been an early strategic investor in the tokenized RWA space. A typical example is the investment in the American company Circle, which issues the stablecoin USD Coin (USDC), which is linked to the US dollar. In Circle’s $400 million funding round in 2022, Fidelity, a major asset management company like BlackRock, participated. At that time, BlackRock and Circle entered into a strategic partnership.

Additionally, BlackRock has announced plans to list a bitcoin (spot) exchange-traded fund (ETF) in 2023, and has filed an application for listing with the U.S. Securities and Exchange Commission (SEC). If the world’s largest asset management company starts operating a Bitcoin ETF, a huge amount of money will flow into the crypto asset market.

Laser’s workforce is expected to increase to around 100 people worldwide by 2024. Mr. Ikeda emphasizes that by utilizing technology such as blockchain, we can realize the customer journey of digital financial products in areas that cannot be covered by traditional financial services.

“Blockchain, AI,alternative…We are focusing on these three things in the digital asset business going forward.”

What is “alternative”: “Alternative” in English means “alternative”. Assets that are different from traditional assets such as stocks and bonds.

BOOSTRY: Supporting the digital asset market

Japan started developing RWA tokenization earlier than Europe and the United States. Japanese financial institutions, including Nomura, are issuing new asset classes that are tokenized on blockchain-based platforms and are being offered primarily to retail investors in primary markets, with secondary markets such as Osaka Digital Exchange (ODX) We have been rapidly developing an ecosystem that allows for trading and distribution in the market.

This digital asset is called “Security Token (ST)”, and in Japan it refers to assets linked to real estate and corporate bonds issued by companies, and can be securitized and converted into small units by tokenizing it on the blockchain. A society is about to emerge in which many individual investors can trade freely.

For example, a part of specific real estate, such as a hot spring inn popular with inbound tourists, a hotel in Kyoto, or a luxury condominium in Tokyo, can be purchased as a security token. Investors can obtain benefits (preferential tickets) that come with security tokens while enjoying a return of a few percent.

Individuals purchasing financial products may not directly feel that blockchain is being used behind the scenes of the financial product or that encrypted tokens are being traded. In fact, the process of buying real estate security tokens is a much similar experience to buying any other asset class.

The platform for issuing and distributing security tokens was developed by BOOSTRY, a subsidiary launched by Nomura in 2019. Currently, SBI Holdings holds 10% and Japan Exchange Group holds 5% of the company.

BOOSTRY Representative Director and CEO Toshinori Sasaki (right) speaking at Digital Securities Forum 2023

The reason behind the development of ST for individuals in Japan is that most of the personal financial assets, which have ballooned to 2,100 trillion yen, are cash and deposits, and there has been no shift from savings to investment in the past.

Mr. Ikeda said, “The development of security tokens will help bring idle money into the financial market in the Japanese financial world and many companies, revitalize the Japanese financial market, and improve the balance of this country, which is biased towards cash and deposits. There was a strong desire to eliminate the stagnation,” he said, explaining one reason why Japan took the lead in developing tokenized RWA targeting individual investors.

Will Japan’s “sleepy money” be attracted to security tokens after 2024, and some of it will flow into this new digital asset market?

“In a state of deflation, holding cash may be the right investment move to some extent. However, there are signs that the economy is moving out of this economic environment,” says Ikeda. He added, “In a society where consumption and investment activities are becoming digitally seamless, I think a new (investment) environment is being created.I think the major (money) flows will change.”

As the security token market continues to expand, opportunities for individual investors to invest in new digital assets will increase in addition to traditional financial assets. Mr. Ikeda said that in the near future, when individuals are trying to build an optimal asset portfolio, they will need more detailed financial education and investment advice than ever before.

｜Interview/Text: Shigeru Sato
｜Photo: Keisuke Tada