Clearstream is one of the two European International Central Securities Depositories (Euroclear being the other). A Central Securities Depository, CSD for short, is responsible for the custody of securities that trade in the markets or over the counter. A CSD is responsible for the administration of a security – for example a dividend paid by a stock or a reorg of a bond issue. They therefore play a central role in the financial system’s value chain.
Today, Clearstream holds custody of assets over $15 trillion in value. Let that value sink in for a moment. That’s $15,000,000,000,000 – 15 followed by 12 zeroes. It is naturally a behemoth when it comes to size and importance in the financial infrastructure not just in Europe but globally.
One big advantage of Clearstream over other local CSDs is its ability to hold a variety of assets – it can hold Swedish bonds and German equities both with equal ease for investors. This is especially attractive to global banks and hedge funds, who can use the services of Clearstream for a global portfolio.
It is with this background that we’d like to delve into the importance of crypto-asset based financial instruments that can settle in Clearstream. The largest global banks, custodians, and financial institutions participate in an economy where the likes of Clearstream are central to their investing models. Therefore, wouldn’t it be great if you can somehow trade, say Bitcoin, at Clearstream instead of going to say a shady exchange like Bitfinex? The financial industry certainly thinks so, which is why it is still hard to find them actively involved with the crypto markets, even though there is a lot of money to be made in these markets.
Enter CyberTrust. The company is doing exactly this – allowing global banks, hedge funds, and other financial institutions to gain exposure to crypto as easily as they would gain exposure to German bonds. This is done via a clever legal structure that is tax protected via Dutch foundations, and which takes the help of a non-operating SPV, which enables the issuance of an Exchange Traded Note.
One pre-requisite for this entire structure to work is the creation of an ISIN – International Securities Identification Number. This is required for any security that trades in such international markets and settles in a CSD like Clearstream. For example, Apple has an ISIN of US0378331005, which uniquely identifies Apple to the market participants. No other financial instrument in the world has the same ISIN. Similarly, if you’re going to trade crypto with the help of Clearstream’s custody services, then you need an ISIN, which can be a challenge.
However, the CyberTrust team already has an advanced application for this, and will likely get it approved even before the ICO is finished! That’s great news not just for banks but also CyberTrust investors. Each time someone creates this SPV to trade Bitcoin or Ether, they need to make use of CyberTrust’s token, which is what gives it value. The more assets it holds, the higher the value of the token will be.
This is one of the few crypto projects that is building bridges to the existing financial system rather than naive talk about disintermediating them. If this appeals to you, check out their website and read the whitepaper.