Marketnode’s CEO, Rehan Ahmed, is clear on one thing: Marketnode does not refer to itself as a central securities depository.
“There’s only one CSD in Singapore, by law, and that’s SGX,” he said, referring to the national stock-exchange group. “But…”
But?
“Marketnode is a financial infrastructure firm and asset registry. It’s like a central securities depository. It takes market transactions and makes them efficient and centralizes them.”
CSDs in TradFi
In traditional finance, a CSD provides a register of which accounts own what securities, along with a central safekeeping facility – a ledger-slash-vault – and related asset services, such as administrating corporate actions or subscriptions and redemptions for a fund.
Sometimes a CSD may also operate a securities-settlement system, ensuring securities are transferred and settled by book entry.
SGX, Euroclear and the Fedwire Securities Service are examples of big CSDs that also operate settlement systems. In some markets such as Hong Kong and Australia, the CSD and settlement roles are operated by separate companies that are controlled by the national stock-market operator.
Marketnode’s activities focus more on the classic CSD functions as registry and depository. Its mission is to support the adoption of real-world asset tokenization, which means both providing the data to enable electronic transactions, as well as transforming securities into tokenized form.
So far it’s built a pair of platforms that are compatible with enterprise Ethereum and Polygon chains, using open-source protocol Hyperledger Besu to support related applications.
But blockchain is supposed to allow for peer-to-peer trading and settlement. The blockchain is the register. What’s the point of bringing in a centralizing infrastructure?
New infrastructure
Is this ‘TradFi’ – especially of the ‘Singapore Inc.’ variety – trying to jam a square peg into a round hole? Because Marketnode does look like part of the country’s establishment. It’s owned by SGX and Temasek, the government’s investment arm. This pedigree confers local legitimacy but it’s a long way from the crypto ethos behind blockchain and decentralized finance.
Ahmed acknowledges the point but notes that HSBC led the company’s Series A funding round and gaining a seat on the board. The first tranche of the Series A closed in May for an undisclosed amount or valuation. Ahmed says Marketnode will close a second tranche this month with additional strategic investors, as the company seeks to mutualize the platform and make it look more like an independent commercial entity.
This is part of an overlapping set of institutions that Singapore is nurturing to enable tokenization to go mainstream. Another aspect is Partior, a crypto-fiat currency exchange, also partly owned by Temasek, that is meant to support the onchain representation of cash – which will be key to settling securities transactions in token form.
Marketnode was launched in 2021 to turn old-fashioned documentation into data. Its first platform is called Gateway, which is an end-to-end platform that lets users accelerate workflows and speed up their time to market. It soon expanded Gateway to support the tokenization process.
Its focus on financial instruments has narrowed, though.
Choosing asset classes
Marketnode was originally conceived to support the tokenization of fixed income, and did so across the first pilots for tokenized bonds in the Lion City. The benefits of tokenization are to bring information and transparency to instruments, to encourage a healthy secondary market. If tokens don’t bring additional liquidity to a security, why bother?
But efforts to tokenize long-term bonds have not evolved beyond proofs of concept, at least not for now. Bonds already enjoy a robust secondary market via electronic trading venues; and anyhow, investors often buy these to hold to maturity, not to trade.
One subset of medium-term notes and bonds that could benefit from new sources of liquidity are high-yield debentures issued by Chinese property developers. But there’s little demand right now, as these beleaguered companies face high borrowing costs and deteriorating credit ratings.
Instead, Marketnode is finding demand for its services in two segments of fixed income.
First is short-dated commercial paper. Since interest rates shot up in 2022, stablecoin holders have been keen to find digital assets that can provide a yield. Fintechs such as Ondo, as well as mainstream asset-management companies, have raised about $2 billion of tokenized short-term US debt that can offer tokenholders the equivalent return of a money-market fund.
The second is on the opposite end of the spectrum, in private credit. In tradfi, private credit is opaque, based on bilateral deals, dominated by secretive private-capital funds. Post-2008 capital charges have forced banks to cede this business to the buy side, but their debt-capital-market desks are doing a roaring trade in structured products or lending to private investment firms. Yet this field remains opaque – everything is based on bilateral loans – and its processes manual.
Data for private credit
That’s why tokenization, with the data on terms automated into the token, can deliver transparency. This sets the stage for a vibrant secondary market, driven by the mutual reinforcing phenomena of liquidity begetting price discovery. And because it’s built on blockchain, these tokens can be made programmable.
Ahmed says the opportunities as a market-infrastructure provider are potentially broader in digital assets than in tradfi. A CSD is a CSD. But Marketnode has already stretched from data to tokenization, and from there it could facilitate more connectivity. Marketnode isn’t going to be the venue for settlement – it would prefer to direct such activity to SGX – but by adding value it can help create a different kind of marketplace.
“Private credit is a fragmented market filled with lots of manual processes, which leads to long settlement cycles,” Ahmed said. “And there’s no secondary market for mutual funds or structured products. We can convert data structures into smart contracts, which create programmable tokens. And that leads to asset networks.”
So far there’s a lot of activity in tokenized private credit, which now accounts for about $9 billion of assets, or 75 percent of all real-world assets, according to analytics provider rwa.xyz. (Its figures don’t count stablecoins, which today have a market cap of $172 billion, led by the $119 billion of Tether USDT.)
“Banks are cash-rich and have corporate relationships and large loan books,” Ahmed said. “But their infrastructure is poor.” Marketnode can provide the registry and depository needed to grease the wheels of trading.
FundNode innovations
This year Marketnode expanded its services to appeal to the buy side as well. It launched a funds-servicing platform called FundNode, providing transaction-management processing and record-keeping for private funds and structured products. The company is now expanding FundNode to support private credit, which it hopes to be ready in early 2025.
This is an example of how blockchain finance is providing new services: there’s no central funds registry for traditional mutual funds in Singapore. Nor is there a pan-Asia version that resembles Euroclear, which provides fund administration services for mutual funds across Europe.
But whereas Euroclear serves financial institutions and retail customers, FundNode’s subscribers are mostly digital-asset exchanges, and it doesn’t cater at all to individuals. Exchanges will use it as an asset registry for tokenized funds and structured products.
“FundNode is providing safety, access, controls, and cost efficiency to quality investors, all like a CSD,” Ahmed said.
He believes this infrastructure will support new asset classes, including carbon trading or intellectual property, and not just in Singapore.
“This is a recordkeeping business, which means it’s a data business,” Ahmed said. “If we can serve multiple asset classes with a registry, that makes it easier for clients to tokenize, net, and reduce risk. We can bring CSD-like features to OTC and decentralized market. This is the clearing infrastructure of the future.”
