De Gaulle Fleurance launches its Digital Transitions Observatory: on-chain finance, new trends, new markets, new business models.

De Gaulle Fleurance presents its first Digital Transitions Observatory, with contributions from ADAN (association of Web 3 professionals), ANJB (Association Nationale des Juristes Bancaires) and HEC. The 1st edition is devoted to on-chain finance, its market, trends and business models.

Link to the Observatory

This observatory is taking place in a context where new European regulations, such as MiCA (Markets in Crypto-Assets) and the Pilot Regime, are redrawing the contours of on-chain finance.

With the rise of blockchain technologies and the increasing integration of crypto-assets in traditional investment models, this Observatory offers an insight of the impacts of these revolutions for both traditional players and new players, and more generally of the on-chain finance market, particularly through developments in the fields of crypto-assets and stablecoins, decentralized finance (DeFi), and the challenges linked to the tokenization of assets or financial instruments in sectors as varied as real estate or energy.

Key Figures of the Observatory

• In 2024, 12% of French people held crypto-assets (vs. 8% in 2022 and 10% in 2023).
• The capitalization of crypto-assets reached over $2,600 billion, compared with nearly $107 billion for decentralized finance (Coingecko, May 2024). According to a BCG report, tokenized finance could be worth between $16,100 billion and $68,000 billion, depending on several scenarios.
• 56% of Fortune 500 executives are working on projects related to blockchain, payments, crypto-currencies and Web3 initiatives.
• In France, 112 Digital Asset Services Providers (Prestataires de Services sur Actifs Numériques (“PSAN”)) have been registered and one PSAN has been licensed (SOCIETE GENERALE – FORGE) for the provision of digital asset services by the Autorité des Marchés Financiers (AMF).
• In Europe, over 11,000 entities have been authorized to provide crypto-asset services.
• On June 30, 2024, the MiCA regulation came into force for stablecoin issuers, providing a homogeneous Europe-wide regulatory framework for digital finance.
• The ACPR issued EME approvals to Circle and SG FORCE on July 1, 2024, making them the first fully regulated global players to comply with the new MiCA framework for EMT issuance.
• At this stage, no actor has yet taken advantage of the Pilot Regime to develop projects for the tokenization of financial instruments, but several projects are underway.

The convergence of traditional and blockchain finance

“By working closely with regulators, companies and market players can build an ecosystem where innovation and compliance go hand in hand, paving the way for a new era in global finance,” 

Anne Maréchal, Partner at De Gaulle Fleurance.

The Observatory identifies an inevitable convergence between traditional finance and on-chain finance, with traditional financial actors such as banks and asset managers becoming increasingly interested in digital assets and the tokenization of financial instruments.

Traditional financial institutions are beginning to offer digital asset management services, and some are exploring the possibilities offered by blockchain to automate processes such as the settlement-delivery of financial instruments. This convergence is paving the way for the gradual integration of crypto-assets into traditional investment portfolios, strengthening the global digital finance ecosystem.

For their part, new blockchain actors are broadening their offer, and are increasingly taking an interest in the traditional finance sector. This rapid evolution can be explained by several factors. On the one hand, the increasing regulation of crypto-currencies and digital assets is making them attractive and prompting these players to collaborate with established financial institutions to comply with new legal requirements. On the other hand, banks and investment funds, aware of blockchain’s potential to improve the efficiency, liquidity, fiability and transparency of transactions, are showing increasing interest in partnering with these companies.

This reconciliation enables blockchain pure players to benefit from the infrastructure, and credibility of traditional institutions, while bringing major technological innovations to the financial sector. This convergence heralds a profound transformation of finance.

“On the on-chain intermediated finance market, PSANs (digital assets services providers) have historically been pure players. But over the past few years, traditional banking and financial actors have been getting in on the act, notably by registering as PSANs with the AMF. Fintech companies are also seizing on crypto innovation. The decentralized on-chain finance market, on the other hand, is being built exclusively by new players,”

Faustine Fleuret, President of Adan.

“It seems simpler to us for a traditional actor to complete its offering by becoming PSAN/MICA compliant than vice versa. Nevertheless, the fact that “crypto” pure players wish to gradually expand their offering is entirely logical, a fortiori if they anticipate increased competition from traditional players”

Céline Haye-Kioussis, President of ANJB and General Counsel of Groupe BPCE.

Tokenized green energy: a new frontier for sustainable investments

“The tokenization of carbon credits and ESG data via blockchain represents a major innovation in the fight against climate change and the promotion of sustainable development. This technology offers numerous advantages, notably in terms of transparency, traceability and data verification, while also enabling value to be created, on more liquid and accessible markets for carbon credits and other environmental assets,”

Sylvie Perrin, Partner at De Gaulle Fleurance.

One of the promising sectors analyzed by the Observatory is the tokenization of energy assets, particularly in the field of renewable energies. Thanks to blockchain, it is becoming possible to fragment ownership of energy assets (e.g. a solar or wind farm) into tokens, which can be bought and traded on decentralized platforms. This innovation enables a greater number of investors, including private individuals, to finance green projects, while improving the liquidity and transparency of these markets.

A particularly innovative example is the tokenized carbon credit market, which uses blockchain to certify and trade carbon credits in a transparent and traceable way. More and more companies are turning to this type of solution to offset their carbon footprint and meet growing demands for environmental responsibility.

Towards clearer and more harmonized regulation

“The crypto-asset ecosystem is at the heart of a major regulatory turning point. The players who can and will take the lead in complying as quickly as possible with MiCA and other associated European regulations will probably be the large winners in the coming years”

believes Cyril Tour, partner at De Gaulle Fleurance.

The Observatory focuses on the evolution of crypto-asset regulations in France and Europe. The PSAN status, introduced in 2019 by the PACTE law, and the MiCA regulation, applicable from 2024, aim to supervise market players while supporting innovation. These regulations ensure investor security while promoting the emergence of a competitive market on a European scale.

“These [legislative] changes will lead to a massive transformation that will have a real impact on the crypto-asset market in the European Union, strengthening its competitiveness in the field of digital assets,” 

notes Julien Le Goc VP, Enterprise Risk Management at Circle.

With the set-up of the European Pilot Regime in 2023 to regulate the tokenization of financial instruments, companies can now test blockchain-based market infrastructures, while benefiting from temporary exemptions from the application of traditional financial regulations. This transition period is crucial to validate technologies and processes before generalizing their use on a large scale in the future.

“Regulation helps clarify and guarantee the legal status of these tokens and the ownership rights and transactions recorded on the blockchain,” 

analyzes Bruno Biais, professor at HEC Paris.

Link to the Observatory

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