Artificial Intelligence? So 2023. Anno 2024 Web3 and Bitcoin are back.
By Harry Lars Ghillemyn
Something is moving in Luxembourg’s web3 ecosystem. The Luxembourg House of Web3, a not-for-profit association founded by industry leaders and open to all Web3 enthusiasts, was Luxembourg’s quickest-growing online community in 2023. Its members are rapidly increasing and has attracted a few international crypto players to set up shop in Luxembourg. It does so without any government funds. This shows that going forward, for any company or association to grow and flourish, a vibrant community, combined with sound governance and distribution channels is key. The Luxembourg House of Web3 is doing this by integrating Web3 features into its governance.
Web3 envisions an internet underpinned by new technologies, primarily comprising blockchain (a secure, decentralized ledger system verifying transactions without a central point of failure), smart contracts, which are self-executing embedded in code on the blockchain, and digital assets like cryptocurrencies and NFTs, which represent various forms of value exclusively available in the digital world. From a governance perspective, token-based economics facilitate peer-to-optimize collaboration and decision-making. It defies a single point of authority, instead utilizing distributed ledger technology and consensus mechanisms to give users a direct stake in and control over platforms and applications, enabling open, participatory, and community-driven governance structures.
Uniting the Web3 community
The decentralised and participative governance and collaboration is the most interesting aspect to me. It is also the aspect that is the hardest to successfully integrate. It requires a lot of education from members and project owners, as well as trust in the “system” (the governance rules or application used). One of Luxembourg’s main forces is to be a small and agile country where business, governance and policy can be discussed in integrated industry groups that are sector-specific, although technology agnostic. ABBL, ALFI, LuxReal and LuxCMA are some prime examples. In the same vein, The Luxembourg House of Web3 unites the Web3 community, whether professional, institutional or the broader public, and has as its objective to work hand in hand with other established players to add digital assets and Web3 adoption where relevant.
We are starting to see the first successful use cases of decentralised community cooperation. In 2024, Le Hibou Orange led by Thibault Pasquier, was launched where the French-speaking crypto community finds its luck en français, s’il vous plait. Le Hibou Orange is part of the Luxembourg House of Web3 community, although with its own rules and regulations, customs, leaders, public and finances. Another example of decentralised collaboration is the integration of the emblematic bi-weekly Bitcoin Meet-Ups organised by Yves-Laurent Kayan from Asymkey into the Luxembourg House of Web3 offering whereby those meet-ups keep their distinctive “Asymkey” touch. Off-Chain Luxembourg, led by Sorin Cristescu and Wilson Gomez, collaborate on more technical topics with the aim of integrating bankless features within the ecosystem.
Communities can only thrive when they have the right tools. The Luxembourg legislator is steadily providing the building blocks for the Luxembourg financial industry to thrive, at least in tokenisation, by implementing three “Blockchain Laws”. Tokenisation is the process of converting rights to an asset into a digital token on a blockchain which can represent real-world assets like property, art, or commodities, or intangible assets like shares of a company or points in a loyalty program, making it easier to trade and manage ownership digitally through a secure and transparent ledger system. The 2019 Blockchain 1 Law updates Luxembourg’s securities regulations to recognize DLT systems for the holding and transfer of securities, affirming that such transfers are considered account-to-account transfers. The 2022 Blockchain 2 Law further amends dematerialized securities legislation, permitting authorised issuers to utilize DLT for issuing and converting these securities. The 2023 Blockchain 3 Law introduced the possibility to hold securities accounts as well as register and transfer securities using technologies such as distributed ledger technology.
Untapped potential
One of the main untapped potentials of Web3 adoption in Luxembourg is the engagement by its massive funds industry, ranking second in terms of assets under management on the global stage. Therefore, the Luxembourg legislator has introduced draft legislation to boost Blockchain technology in the funds industry (the so-called Blockchain 4 Law(s)). This new proposed law sets forth guidelines for asset digitalization and tokenization on blockchain platforms, aiming to establish Luxembourg as a premier hub for tokenization and digital assets within the European Union.
In the context of fund management, tokenisation involves issuing cryptographic tokens that represent ownership or rights associated with assets. Luxembourg’s market participants could be expanding tokenisation to include security tokens, which are digital reflections of ownership in funds, offering the potential to democratise investment by fractionalising ownership and providing liquidity to assets typically regarded as non-liquid. The adoption of DLT promises increased operational efficiency through automated processes, reducing time expenditure and costs delivering a transaction process that is more efficient compared to traditional systems, known for their slower pace and complexity. Data integrity is also enhanced with DLT, allowing consistent datasets to be shared amongst various participants.
The implications of DLT for regulatory compliance, governance, and supervision are substantial. Luxembourg funds are incorporating regulatory requirements directly into their tokens, simplifying the otherwise extensive Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures.
Tokenisation and transparency
Tokenisation also redefines investors’ access to funds as direct interaction with the network node could bypass traditional platforms, delivering a level of efficiency beyond conventional methods. This enhancement not only improves fund management but also widens the diversity of investors engaged with Luxembourg’s growing fund sector. Tokenisation has significantly shortened settlement times, moving from the T+3 to a T+0 settlement cycle, consistent with the swift nature of modern financial markets. This enhances the appeal of Luxembourg’s investment vehicles to an international investor base.
Additionally, tokenisation improves the transferability of fund units. By converting these units into tokens, they become more readily tradable in secondary markets, unlocking liquidity and value previously restricted by traditional trading limitations. Transparency is critical for investor confidence, and tokenisation contributes positively in this regard. Security tokens provide transparent ownership records and encapsulate a token holder’s rights, offering investors and managers clear insight into the associated rights, obligations, and ownership history.
The successful transition of Luxembourg’s fund industry requires bold and visionary entrepreneurs, as well as first-time movers. Always at the forefront of market developments, we may applaud the launch of LuxSE SOL by the Luxembourg Stock Exchange providing a dedicated section for security tokens representing debt financial instruments. Many of the first tokenised debt issuances have been supported by Société Générale where Laurent Marochini does an excellent job. We are proud of STOKR, a young virtual asset service provider set up by Tobias Seidl and incubated by the LHoFT, that in no time become one of the global leaders in security token issuances. The arrival of Realiz, the RWA tokenisation platform will certainly be a welcome complement to the finance stage. We may also applaud the collaboration between 6 Monks (6M), the first Luxembourg Authorized AIFM specializing in crypto-asset and web3 funds, and Swissquote Bank Europe, the only local bank offering digital asset custodianship, to provide a full range of services for fund initiators.
This collaboration creates a one-stop solution for crypto fund promoters, merging AIFM expertise depositary, custody, and brokerage services to streamline crypto fund management. We are excited to see what the Olky Pay Web3 wallet will bring in terms of DeFi, whereas Chainecos, the group of companies launched by successful trader Thibaut Royer, has a dedicated Blockchain Academy fostering crypto trading & investment education by the larger public. Specialised players such as Konju headed by Nazim Morera focused on reporting and valuation services for crypto assets, Sub7 Security from Tomas Marty in respect of digital assets security, and Niamkey Kouame’s Servichain for inclusive decentralised finance, and APIDNA to name a few, nicely complement the ecosystem. An army of crypto savvy advisors ranging from Baker Tilly, Deloitte, Ernst & Young, Financial Opportunity Services, Philippe Noeltner from A&O or Nadia Manzari stand ready to assist them.
This is such an exciting time, with various collaborations between various players – big and small – building Web3 products together. This healthy cross-pollination is what made Silicon Valley big and what makes us a fraction like it.
