Jean-Marc Stenger (SG-Forge): "We want to create a bridge between finance and crypto"

You've been running SG-Forge for five years. How did the project come about?

Five years ago, Société Générale's management asked us to innovate. We quite quickly identified blockchain as an excellent area for experimentation. In 2018, the Group agreed to create a subsidiary dedicated to crypto, which at the time was no mean feat!

Was it complicated?

We never felt any particular reticence, but it's not a trivial subject. What we had to do was show that there was an interest, and after that we were supported quite clearly by our management.

Today you're well beyond experimentation...

Today, we're at a stage where there are real use cases linked to blockchain and cryptos, so we need to develop an activity and a business with revenue targets.

What are these identified use cases?

Those obviously linked to the tokenisation of assets with the ability to deploy and issue financial securities from the traditional world on a public blockchain. Today, the financial system is geographically limited. You can't exchange securities anywhere on the planet, whereas a public blockchain like Ethereum makes it possible. Automation through smart contracts also saves a considerable amount of time when issuing assets.

In the near future, what type of financial assets could be tokenised on a public blockchain like Ethereum?

Today, there are many players pushing to apply tokenisation to more illiquid financial assets such as real estate or shares in private equity funds. Personally, I think it will be difficult to do so in the short term because there are too many technical and regulatory parameters to align for these kinds of assets.

On the other hand, assets linked to the bond market, i.e. the debt market, lend themselves perfectly to this, not least because the legal constraints are much less significant. We have already been able for years to offer the same equivalence in terms of rights, duties and regulatory obligations to the issuer and investors between a bond in 'blockchain format' and a traditional bond.

How does this currently translate in terms of the offering for your customers?

Currently, the structuring of a traditional bond takes, in the best of cases, at least two weeks, and during this time the market evolves. Once the bond exists, it has to be placed with investors, with marketing issues limiting the number of buyers.

Thanks to blockchain, we offer a system of standardised smart contracts. We provide the issuer with an interface via which he can play with a certain number of parameters. Once these parameters have been determined, all they have to do is press a button and the issue can be made in a few minutes, with global placement capacity.

What are currently the biggest obstacles to the development of tokenisation?

Undeniably, it's the standardisation of practices on a global scale. At the moment, there are about ten players who are well advanced on this subject. The problem is that each of them, including SG-Forge, has developed its own way of issuing tokens...

In traditional markets, there have been decades of harmonisation of standards. This is one of the reasons why we have chosen to open-source a number of our operational protocols. Finance will remain interconnected, so we need a common language. So we need to have a common language.

Some financial players explain that one of the biggest obstacles to tokenisation remains the need for a settlement currency to buy these assets? Is this the aim of EUR CoinVertible, the stablecoin you launched last April?

This is effectively one of the three main use cases for the stablecoin we have launched. EUR CoinVertible should enable our customers to buy and sell bonds or structured products on the blockchain.

The second use case is cross-border payments, where volumes are growing all the time. We will soon have institutional customers who will be able to start subscribing to this offering to conduct their own experiments.

Finally, we also want to target our EUR CoinVertible to a clientele of crypto investors who, after the turbulence experienced by stablecoins in the summer of 2022, might be interested in having at their disposal a stablecoin structured in a way that we believe is more secure than the other stablecoins on the market.

How is it structured differently?

The big difference is that the reserve asset is not held by SG-Forge but by an external custodian, in this case Equitis. If SG-Forge or Société Générale ceased to exist in the future, the reserve would not disappear. The token holder can go directly to the trustee to claim his share. This segregation of funds does not exist with the other major market players.

Currently, what are your CoinVertible reserves made up of?

Today, the capitalisation of our stablecoin is €10 million on the Ethereum blockchain. At the moment, the reserves are made up entirely of cash. So we're getting virtually no return, but eventually we're going to turn to fairly traditional assets, such as government bonds.

What is the business model for EUR CoinVertible?

It's the same as for most other stablecoins on the market. We are remunerated with the return from the assets in reserve.

The launch of your stablecoin has been heavily criticised by some in the crypto ecosystem because it will only be accessible to players authorised by SG-Forge. Isn't that a problem both in business terms and from a more philosophical point of view?

This criticism is completely normal from the crypto ecosystem, which isn't used to this. But if customers come to us, it's because we offer products that comply with banking standards. We cannot compromise on these points. From a regulatory point of view, we couldn't launch our stablecoin without knowing all the investors who would be using it.

After that, we don't have a fixed position on the subject. We want to create a bridge between the traditional market and crypto. One of our projects is to lighten our listing to make our stablecoin accessible to a wider range of investors. We are in discussions with crypto exchange platforms to do this.

Can we find out the name of the platform?

There will be announcements very soon, but it's a very well-known exchange platform.

Are you going to allow CoinVertible to be used in decentralised finance (DeFi)?

As I mentioned just before, it's not our priority, but for us it's obviously a market and business opportunity. In fact, we're already talking to the biggest crypto custodians about integrating it into their reserves, which could lead in the future to its integration into DeFi.

And on Layer 2?

Not in the immediate future. We've only just launched it, so the question of its arrival on second-layer protocols is premature. On the other hand, for derivative product ranges, it's pretty much a foregone conclusion that we'll go via Layer 2 because we'll need to manage a lot more securities issuance.

Do you have any preferences for Layer 2?

We've pretty much made our choice.

When do you plan to launch this offering on crypto derivatives?

I'm thinking early 2024.

Are you planning to allow retail investors to use your stablecoin to pay?

In the idea yes, but there are still too many constraints in terms of regulation or risk concerning this type of investor.

You are positioning your stablecoin as a settlement currency on blockchain. This is also one of the promises of central bank digital currency (CBDC) projects. Aren't you afraid of being bypassed?

That's a very important question. We've been involved in a lot of MNBC-related experiments. We are currently in many working groups, and things are clear to us: the Central Banks, and in particular the European Central Bank (ECB), will support the existence of stablecoins, but well-structured and regulated stablecoins. There won't just be central bank digital currencies (CBDCs).

In July, you became the first player to obtain authorisation as a digital asset service provider. How did the approval process go?

We had been working on this with the Autorité des marchés financiers (AMF) for over a year. The gap between registration and authorisation is colossal.

Honestly, there are levels of detail requested by the regulator that surprised us. In the conditions for authorisation, there are still some very clear specificities linked to the fact of dealing in crypto. In fact, there are whole areas of the procedure that have never been dealt with in traditional banking activities.

In the end, does it make sense for a banking player to get it first?

I don't feel that the AMF has been more accommodating with us than with others. But it's clear that a banking group like ours isn't starting from scratch. We have hundreds of people dedicated to regulatory issues with a wealth of experience. Obviously, this facilitates dialogue in the sense that we speak the same language.

You have a lot of work to do. How many people are there at SG-Forge and what resources do you have to do all this?

We don't disclose these figures. They are closely scrutinised by our competitors.