Norilsk Nickel Tokenization Case. From Stablecoin to an Asset Tokenization Platform

April 21, 2020

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During the pandemic, you might’ve forgotten or didn’t even notice, the new Norilsk Nickel initiative — a platform for asset tokenization. Its functionality has already been approved by the Central Bank of the Russian Federation, and Vladimir Potanin talked about all the advantages of the platform.

Together with our colleagues from Sputnik DLT, we have taken a close look at the new initiative of Nornickel and would like to share our findings with you.

What are you going to find in this article:
— Norncikel stablecoin: the initiative that never seen the light of day;
— Trying to understand what is Atomyze;  
— Will go over the current concept of the new token;  
— Will go over the regulation of the new token.

From Proof of Concept 1.0 to Proof of Concept 2.0

The words “Blockchain” and “Norilsk Nickel” began to appear together in 2018. Back then, during the growing hype around stablecoins — cryptocurrencies that are tied to the value of some underlying asset. In most cases, tokens are backed by gold (Digix, OneGram, Tether Gold) or by the US dollar (Tether USDT, True USD, Gemini).

Even if you know what stablecoin is, you probably saw only the “boring ones” (gold or currency backed). But there are also some creative initiatives:
Algorithmic stablecoins — the price of a token is determined by the model that performs certain actions with tokens (buying or selling mainly) depending on the market price of the token (Zigzag, Carbon and failed Basis);
Stablecoins tied to company assets — for example, a variety of other stablecoins (Neutral) or bank deposits (Aurora).

While “Golden stablecoins” appeared on the market regularly (more than 20 stablecoins can be found here), tokens backed by other metals didn’t appear on the market on a regular basis. In our opinion, there is one main reason for this — the need to dive into the specifics of the market for a new investor. So, back then Nornickel wanted to enter the new crypto market with the first palladium-backed stablecoin. The initiative seemed to have a bright future but there were several obstacles:  

— Traditional traders already have similar tools for trading futures and metal options with clear regulation and a well-developed infrastructure;
— Crypto investors needed to understand the dynamics of metal prices;
— Regulation.

These obstacles could’ve been overcome by Nornickel but for some reason, the token never entered the market. The focus of Nornickel is now aimed at another blockchain project — a platform for assets tokenization — Atomyze.

What is Atomyze?

In addition to the official press release on the launch of the platform and a bit of a messy article from Bloomberg, there is little to none information on Atomyze. But nevertheless, we tried to collect all the hypotheses, as well as to pick examples of similar solutions for Tokenization that already exist on the market.

In all press releases, we have noticed the ambiguity in the positioning of the metal token. Most likely this is due to the uncertainty in demand, which extends even from the concept of stablecoin. Therefore, Nornickel (and its partners, participants of the pilot project) thought about creating  Atomyze trading platform, the purpose of which is to attract a wide pool of investors in various assets.

Atomyze is positioned as a platform for trading “tokenized assets / hybrid tokens or asset-based tokens”. Few examples of what the platform is likely to focus were collected from the articles published by Norilsk Nickel. But, the analysis of all the initiatives indicates an ongoing search for the right direction.

Which Tokens Will be Offered on the Platform?

Of course, Norilsk Nickel doesn’t plan to abandon the idea of metal tokenization. It’s hard to guess now which tokens exactly will be offered on the platform but we are inclined to believe that the “Palladium token” will be a representation of the obligation from the contract for the supply of goods.

The final buyer will be able to present it to receive the metal, while investors will be able to hold the token as a derivative. Norilsk Nickel is going to tokenize 3 metals: palladium, cobalt, and copper. The future demand for tokens is projected by availability for a wider range of investors. However, on the first stage, access to the platform will be granted to corporate clients only.

Hybrid Tokens
There are several examples given in Bloomberg’s article, however, they don’t look that bright, such as ski passes or plane tickets. In the real world, such cases are not very scalable. Token issuance is available on many platforms for a long time. The question is rather how to legally structure the use of the issued token and is it worth it to integrate with the blockchain if the ski resort or the airline is able to track ticket status in its centralized database?

Real Estate
Quite large cases for real estate tokenization already exist on the market and it is seen as a very promising direction, due to the ability to attract small investors in large projects, and then share profit with them.The first successfully completed case of Real Estate Tokenization (albeit with 4 investors) was in the “crypto valley” of Switzerland — Zug. In 2020, the Red Swan real estate marketplace tokenized US real estate for $ 2.2 billion through its platform and opened registration for the presale. The Dutch platform Dusk Network is going to tokenize the existing business of another company engaged in maintaining the register of shareholders of real estate in order to optimize already established processes.In fact, all these cases are structured as the issuance of tokenized securities or Security tokens for an asset held by a company or operator. Therefore, we proceed to the next tool.

Financial Instruments
Atomyze is positioned as the investment platform. Norilsk Nickel probably plans to achieve its key goal by using the tokenization of securities. Similar platforms already exist on the market — Desico, Neufund, Securrency, Securitize and, of course Tokemomica. All of these companies issue tokens-identifiers of securities, mainly shares. Investors pass verification on platforms and have the opportunity to purchase a token or enter into the share capital of a company created for the purpose of tokenization.

Bonds as an object for tokenization are also of interest to banks: Santander (Spain) 2019 $ 20 million bond, World Bank has already issued two tokenized bonds — $ 81 million U.S. in August 2018 and another $ 33.8 million U.S in August 2019, Bank of China $ 2.8B in December 2019 and South Korea is planning to issue it later this year. Does the new platform plan to compete with all these platforms? Probably yes, so it will face the same restrictions that slow down other players on the tokenization market, namely ambiguous regulation.

Will Atomyze Influence Regulation?

Despite the fact that the company opened a legal entity Tokentrust AG in Switzerland, and the platform was approved by the Russian Central Bank, it is not yet clear how each token transaction will be structured (will it fundamentally differ from previously implemented cases?).

Most likely, most tokens will fall under the category of securities or security tokens, which will attract the attention of all regulators. Currently, all platforms issue real shares first and then use the token as a third-party electronic identifier for the ownership of the underlying asset. Such structuring leads to the fact that the accounting system for underlying assets does not change and is not automated. Perhaps a major market player like Norilsk Nickel will be able to positively influence the fundamental changes in the current rules, but so far there have been no noticeable results.

Here is what we know about the regulation of the platform:

In Russia: Nothing can be said before the enactment of the new  CFA law.

In Switzerland:— Tokentrust AG has filed an application to obtain the status of a self-regulatory organization ("SRO"), which is necessary under the Swiss law if the company is working with cash. This is a measure against money laundering.
They are also in the process of obtaining a license to work with securities, in particular, to conduct trading platform activities. Information first appeared in a press release but was  deleted later.

Without the Conclusion

Given that the company has pivoted several times already, it’s hard to predict what it will turn out hard in the end.In general, we see the following picture:The platform will begin to function as an exchange for the purchase of three metals. Buying a token, the user can either resell it or present it to receive the metal.Then the platform will function as a stock exchange for trading various assets. Which ones? It is logical to assume that they should be similar in properties (availability, profitability, delivery time) to metal.The target audience will be those who want to earn. Who exactly? Hard to tell yet.But it’s interesting to see what happens!

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