In order to develop a sophisticated offering for institutional investors, the integrated, regulated bank and the Zurich-based fintech have joined forces. Read the English version of l’Agefi’s interview about GENTWO partnering with SEBA Bank.
This interview with GENTWO’s CEO Philippe A. Naegeli and SEBA’s Head of Asset Management Daniel Kuehne was published by financial magazine l'Agefi on 11 February 2020. The following text is an English translation. Please click here to get to the official French version of l'Agefi.
The expansion of the market for digital assets will largely depend on the development of a sophisticated offering for institutional investors such as financial technology providers, asset managers, and other financial intermediaries. In order to bring such offerings to life, the integrated and regulated SEBA Bank and the FinTech GENTWO, which specializes in the securitization and the structuring of next-generation financial products, have joined forces.
In late November, SEBA announced the launch of the SEBAX crypto money index, for which GENTWO structured the first investment solution, a tracker certificate. By offering a highly secure and transparent financial product aimed at the most demanding institutional investors, SEBA and GENTWO intend to strengthen confidence and broaden knowledge in the field of digital assets generated on the Blockchain. Further details with Daniel Kuehne, Head of Asset Management at SEBA Bank, and Philippe Naegeli, CEO of GENTWO.
L’AGEFI: How did GENTWO and SEBA come to work together?
Philippe A. Naegeli (GENTWO): SEBA and GENTWO have complementary missions and a shared vision of the future of digital assets. While SEBA aims to securely bridge the gap between traditional and digital finance in a compliant manner, GENTWO specializes in securitizing both bankable and unbankable assets. Thus, GENTWO is helping to bring more assets into the market and making them liquid.
As a result, the partnership between SEBA and GENTWO was a perfect fit and it was logical to come together and pool some of our core competencies. Together, we can expand the horizons of the emerging digital asset economy in a secure and compliant manner.
L’AGEFI: We read about the securitization of SEBAX in the news. What does it mean?
Daniel Kuehne (SEBA): SEBAX is a highly secure, dynamic, risk-optimized index with broad market exposure to the digital asset market. It is issued with a tracking certificate, meaning that although it is a digital asset, it can be rigorously benchmarked like a conventional security. This is the first financial product that takes advantage of the collaboration between SEBA and GENTWO.
However, this is just the start of a much larger project. GENTWO has built an issuance platform for us that offers security-as-a-service, which will enable others to release many more investment products through SEBA in the future. The possibilities are almost infinite, as these products can potentially encompass all assets in both the digital and traditional financial worlds.
L’AGEFI: Will GENTWO be the securitization agent for all of these crypto products in the future and will SEBA by the issuer?
Philippe A. Naegeli (GENTWO): Our collaboration is built to last. The issuance platform we have built is designed to meet both the current and future needs of the financial product market. We regard this as the foundation on which many new innovative and exciting financial products can be built.
SEBA will not be the issuer of these products – through our partnership with GENTWO, we will play an enabling role.
L’AGEFI: There are currently many cryptocurrencies in existence (~1500), but not all will survive in the long term. What percentage do you think will prevail?
Daniel Kuehne (SEBA): I very much agree there will be a massive concentration in the market and a large percentage of cryptocurrencies will not survive. I personally think that the overall market capitalization will encompass around 20 “blue-chip” cryptocurrencies. There will be a significant survivorship bias in the sense that new cryptocurrencies will enter this group while others will drop out. When the dust settles, there will probably be 20-30 significant cryptocurrencies, followed by a very long tail.
L’AGEFI: SEBAX excludes stablecoins and privacy coins. It is clear that the lack of transparency of privacy coins (such as Monero, Zcash, Dash…) makes them unsuitable for institutional-grade products. But why exclude stablecoins as well?
Daniel Kuehne (SEBA): As stablecoins are pegged to fiat by definition, their upside potential is very limited. Thus, it would not make sense to include such assets in our investment universe.
L’AGEFI: Is SEBAX targeted more towards short traders or also to strategic long-term or buy-and-hold investors (besides miners)?
Daniel Kuehne (SEBA): SEBAX is clearly targeted at investors rather than traders. SEBAX is a beta play, meaning that it is a sensible investment for everyone who believes in the potential of the cryptocurrency market – whether that is based on a tactical or longer-term perspective.
L’AGEFI: I understand that an unlisted tracker certificate was launched. Was it structured by GENTWO Digital?
Daniel Kuehne (SEBA): That is correct. We have recently launched a tracker certificate on SEBAX in collaboration with GENTWO. The goal of the index is to bring the same rigor we know from traditional institutional indexing to the crypto world. That means low fees, minimal tracking error, daily liquidity, and best execution in addition to the highest standards of institutional custody.
L’AGEFI: What were the specific requirements for the structuring of the investment solution that GENTWO was tasked to perform for the index?
Daniel Kuehne (SEBA): We wanted to have the most transparent structure available, with the least risk for the investor. We chose to create an off-balance sheet SPV structure that would hold all of the coins physically. In this scenario, there is virtually no issuer risk for the investor.
L’AGEFI: As an underlying asset is SEBAX also suitable for (open-end) ETFs and ETPs or other derivatives and/or structured products such as AMCs or futures?
Daniel Kuehne (SEBA): The beauty of SEBAX is that it can be packaged in any form – whether that is an ETF, ETP, index token, etc. The issuer does not necessarily need to be SEBA. We see ourselves as a platform where the client can choose which structure best suits their needs.
L’AGEFI: Does GENTWO focus primarily on products targeted at asset managers who have their own end clients? Does GENTWO also plan to issue products targeted directly at end-users (such as retail investors)?
Philippe A. Naegeli (GENTWO): GENTWO is a B2B service provider and has no plans to target retail investors. We build securitization platforms for our partners, enabling them to issue new kinds of assets. These institutional businesses tend to be financial intermediaries in the secondary market such as banks, brokers, asset managers, and family offices.
By bringing previously unbankable assets into the market and making them liquid, we aim to open up new investment horizons. However, it will always be our business partners (and not GENTWO directly) who will deliver the resulting services and products to the end client.
L’AGEFI: What do you see as the main barriers to the adoption of crypto assets by institutional investors?
Philippe A. Naegeli (GENTWO): When accessing digital assets, there is a huge difference between private and institutional investors. Typically, institutional investors expect to be able to easily access assets in financial markets, but in the case of digital assets, this has not been the case. On a practical level, this is due to a lack of a compatible infrastructure within the established financial system. In addition, a general lack of trust and understanding of digital assets is also a highly important factor. Finally, large-scale institutional investors tend to be more cautious about digital assets than private investors because they are much more exposed to regulations and legislation.
Daniel Kuehne (SEBA): SEBA is addressing these challenges on all fronts, by building the infrastructure to bridge the gaps while establishing an educational arm to demystify the underlying technology. In addition, as SEBA is licensed by FINMA, institutional investors can access these assets in a compliant manner.
Philippe A. Naegeli, CEO
GENTWO and GENTWO Digital
Daniel Kuehne, Head of Asset Management