Societe Generale details how its blockchain unit is tokenizing assets

French banking giant Societe Generale (SocGen) appears to be betting big on blockchain tech and tokenization.

Last week, the bank carried out an experiment with the Banque de France, the country’s central bank, to issue bonds as tokens, and then settle them in digital euros.

The process, known as tokenization, aims to make digital assets — in this case, security tokens — more easily transferable and tradeable. The goal: to improve liquidity, speed up settlement times, and lower the associated costs for parties involved in a transaction.

SocGen issued roughly $44 million worth of tokenized covered bonds as security tokens in the experiment. The tokens were fully subscribed by the bank, which simultaneously paid the issuer — in this case, Societe Generale SFH, the covered bond vehicle of SocGen. The payment was made in digital euros, which were issued by the Banque de France on a blockchain.

A Banque de France spokesperson told The Block that the blockchain was built by the central bank’s "in-house blockchain team" and is a "private internal blockchain." 

The spokesperson further explained that the internal blockchain "made it possible to preserve the confidentiality of the transactions" in the SocGen experiment.

As for SocGen, the experiment illustrates how the bank has scaled up its digital transformation, Jean-Marc Stenger, CEO of Societe Generale Forge, told The Block. It would help build "more integrated, efficient, safe market offers to our clients and improve our cost basis," said Stenger.

Societe Generale Forge was originally an internal startup — one of the 60 internal startups selected from a SocGen intrapreneurship program, before becoming a new business for the bank — according to Stenger.

Key takeaway and plans ahead

Stenger said that SocGen's key takeaway from the digital euro experiment was that it was the “first clearing of a real security token in euro CBDC [central bank digital currency] worldwide.”

He added that it opens the way "to an integration of cash and security on the same technological layer, and thus to improvement in markets infrastructures and processes."

“It is a key milestone for blockchain to take off as a regulated and industrial product,” he said.

This is not the first time SocGen issued a security token. In April 2019, the bank issued a covered bond worth about $110 million as a security token on the Ethereum blockchain. But that one was cleared in government-issued euro rather than a digitized one. The digital euro used in this round allowed the bank to make clearing "100% digital native,” Stenger told The Block.

Notably, SocGen is working on similar projects, said Stenger. He noted that the bank has also applied to the Banque de France’s public experiment program, “in which we’ll propose to move even farther.”

The Banque de France launched the program in April, saying it aims to explore the potential of digital currency in the "clearing and settlement of tokenized financial assets." Applicants had to submit applications by May 15. The central bank will conduct interviews next month and will select ten applicants on July 10.

Tokenization - the future?

Some in the financial industry see tokenized assets, especially private market securities, as potentially more efficient and more accessible.

“By tokenizing private market securities, i.e. creating a digital wrapper of these on a shared IT infrastructure that is globally accessible, issuers can distribute their offering globally and reach many more eligible investors,” Luc Falempin, CEO of Europe-based tokenization solutions firm Tokeny, told The Block.

“Compliance is coded into the securities themselves, ensuring that every investor respects the rules of the offering. As we look longer term and as the tools are built across the full lifecycle, there will be an improvement in liquidity as it becomes easier to discover assets on this network,” Falempin added.

Tokenized fiat currencies, or CBDCs, might also help governments and central banks distribute public benefits to relevant parties more easily, especially during times of crisis, said Falempin. “CBDCs would bring huge benefits as policy tools as central banks could create digital identities for every company and send funds directly to these parties. You can’t do this with fiat currency without the use of expensive third parties or significant delay,” he said.

Tokenized currencies can also help private companies with business-to-business transactions, Paul Brody, global blockchain leader at “Big Four” consulting firm EY, told The Block. It could “radically reshape the world of B2B transactions. Companies spend enormous sums on validating information before making payments, fully digitizing that process can enormously speed it up,” said Brody.

Both Falempin and Brody believe more institutions will tokenize assets in the near future. Falempin said Tokeny is working with “several types of financial institutions” and that this year the firm has already tokenized more than $27 billion worth of assets.

Brody said there are “quite a few” banks involved with EY and the firm audits “over 130 banks and other companies that are doing blockchain and crypto-asset transactions.”

While more firms will look to tokenize assets, Brody doesn’t expect blockchains to disrupt major financial markets any time soon.

“I don’t foresee the wholesale migration of existing stocks, bonds and other financial services onto blockchains. The cost and risk of making such a major change is high and most financial institutions and their regulators are likely to take a cautious approach,” he said.