#Data management & #Blockchain - Track - Blockchain : crypto corner PwC worked with Société Générale on the emission of a covered bond on the public blockchain Ethereum, which is open source. We will describe this project and introduce the concept of Security Token Offerings (STO) in order to emphasize the various related opportunities.

1. Blockchain
tokenization at
Société Générale
Paris Open Source Summit,
December 10th, 2019

2. PwC
Sommaire
1. Why STO’s ? 03
2. STO’s ecosystem 07
3. Focus on stablecoins 10
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3. Why STOs ?

4. A new way to issue an asset : the token
TokenizationICO – Initial Coin Offering
ICO stands for “Initial Coin Offering”. This involves creating
tokens and distributing them to investors in exchange for the
original digital token of the network (such Bitcoin or Ethers and
exceptionally trust money). This is one of the main use cases
for virtual currencies.
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Why ? Business practices ? And for individuals ? Quid of the tokens ?
ICO/STO (or “token sales”) can be
used in the creation of
decentralized networks and/or as
digital means of raising funds by
issuing a token in exchange for a
crypto-asset or existing currencies
($, €…).
Companies use ICO/STO as an
alternative to traditional tools for getting
more capital, and also to benefit from
increased liquidity for the funds raised.
Optimizing collateral management is
also an opportunity.
Both individuals and companies
generally purchase ICO/STO
tokens for investment purposes,
to ensure access to a specific
service or to obtain other rights
related to a token.
Once issued, these crypto-
assets can also be traded on a
secondary market.
We speak of tokenization when an existing liquid (financial
security) or illiquid (real estate asset) asset is deployed on a
blockchain and represented as a token in order to improve the
negotiation and transfer processes of the asset. The issuance
is called “Security Token Offering” (STO).
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5. Tokenization opportunities in various fields
There are many possible products in the form of tokens, including :
 Share of mutal funds
 Share of a real estate investment fund
 Asset-backed security (stablecoin)
 Physical asset (gold, silver…)
 Digital asset (computing power…)
 Insurance contract
 Smart grid (energy)
 Non-fungible “collection” tokens, especially for video games or luxury products.
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Tokenization, as a way to optimize financial assets trading mechanisms
(liquidity, traceability, automation, speed)
Benefits of tokenizing private securities:
 Make them potentially evolve from the Low Liquidity/High Cost-Effectiveness quadrant to the High Liquidity/High Cost-Effectiveness
quadrant.
 Tokenized private securities can be more easily traded on the secondary markets without the administrative burdens of traditional
private securities, and can potentially have more liquidity while maintaining their cost-effectiveness.
 The tokenization of private securities has the potential to unlock billions of dollars in value, given that the asset categories within the
private securities market are massive (in the trillions), and that the illiquidity discount can be as high as 20-30%.
 Another challenge is the automation of corporate actions (dividend payment…)
 Has the potential to significantly reduce costs, increase speed of settlement, and improve security.
Public Securities
Private Securities
TokensHigh
Low
Liquidity
Low HighCost Effectiveness
More liquidity

7. STOs ecosystem

8. The development of STOs requires the emergence of a dedicated
ecosystem
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Market infrastructures dedicated to STOs are still being developed, by start-ups but also with projects such as Bakkt, which is financed by ICE
(Intercontinental Exchange). The following issues are emerging:
Primary market: Secondary market: KYC:
Post-trade processes
& Audit:
 The development of dedicated
platforms for the issuance of an
emerging token (Tokeny,
Thesaur.io,…) considering the
French issue of custodian bank
for issuers.
 Projects (Securitize, Harbor,…)
for a marketplace on secondary
are being developed, with pending
applications requests.
 Also, animators and especially
dedicated market makers are
positioning themselves.
 Reliable and efficient, on which
historical players (Onfido) are
already positioning themselves.
 In particular, there is a Microsoft
project dedicated to digital
identity.
 Automated and standardized
post-trade processes to ensure
simple management of the issue
as well as its exchange and
regulatory reporting.
 The question of registry
management
 A reliable and adapted audit to
secure the actors on the link
between blockchains and real
assets.

9. Societe Generale – Security Token Offering with PwC
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 Societe Generale issued the first covered bond offering on a public blockchain :
On 18 April 2019 Societe Generale SFH, a subsidiary of Societe Generale Group, issued EUR 100m of covered bonds
(“obligations de financement de l’habitat” or “OFH”) as a security token, directly registered on the Ethereum blockchain.
OFH Tokens have been rated Aaa / AAA by Moody’s and Fitch and have been fully subscribed by Societe Generale.
PwC was the blockchain advisor of the project.
This operation is the first pilot project developed by Societe Generale and Societe Generale FORGE, one of the 60
internal startups launched via the Internal Startup Call, the Group’s intrapreneurial program. This startup experiments
disruptive business solutions using blockchain technology to develop new digital capital market activities.
 Advantages of issuing bonds on the blockchain :
For Societe Generale, the live transaction explores a more efficient process for bond issuances. Many areas of added
value are predicted, among which:
- product scalability;
- reduced time to market;
- automation of title events, thus better transparency;
- faster transferability and settlement;
- it proposes a new standard for issuances and secondary market bond trading;
- and reduces cost and the number of intermediaries.

10. Focus on stablecoins

11. An emerging challenge: the stablecoin
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A stablecoin is a representation of an underlying asset (US$, gold,…) by a token or crypto-currency on a blockchain.
Several projects are in progress:
Tether
Tethers exist on blockchains using the Omni Protocol and as ERC20 tokens. Tether initially
supports US Dollars (USD) and Euros (EUR).
Controversy:
1) USDT has long-faced accusations of being under-capitalized  up until very recently
(November 2018), Tether refused to disclosed their banking relationships (Deltec Bank in the
Bahamas).
2) On April 25th 2019, the New York Attorney General’s office said the team behind crypto
exchange Bitfinex, who shares a parent company with Tether (iFinex), used funds
(collateral) from Tether to cover up $850 million in (alleged) losses.
JP Morgan Coin
It was announced by JP Morgan in February 2019 as an institution-to-institution service. It
runs on a permissioned blockchain variant of Ethereum called Quroum.
Gemini was founded in 2014 by the Winklevoss twins. The Gemini Dollar is a stablecoin
running on Ethereum that attempts to maintain a value of US$1.00. The supply of GUSD is
collateralized by US dollars held at State Street Bank. Users can buy and redeem GUSD
through several platforms including Gemini exchange.
The U.S. dollar deposit balance is examined monthly by a registered public accounting firm, in
order to verify the 1:1 peg, and all reports are available on the Gemini website.
Facebook Coin
Facebook is planning to launch a full payments network and in discussions with firms like
Uber and Sportify. Facebook is seeking up to $1 billion in investments in order to back a
stablecoin that will be associated with the payments network. Launch estimated in 2020.
Gemini