Vasily Kudrin, Director at Lybrion, Partner of AO HLB Vneshaudit, spoke at Bosco Conference on a topic of “Capital Market Transformations due to Development of Digital Financial Assets”.

Coherent exposition of the presentation

1. Introduction and Topic Relevance. Currently, the digital financial (crypto) asset (DFA) market remains a specific segment but is gaining attention amid blockchain technology development. It currently lacks clear state regulation, creating both risks and opportunities. This topic goes beyond standard financial conferences, highlighting its novelty and growth potential.

2. Interest from Conservative Investors. Even conservative investors are beginning to explore digital assets in search of new diversification opportunities. The author’s background in risk and corporate governance aids in evaluating this sphere. This direction opens fundamentally new investment models based on blockchain.

3. Fundamental Advantages of the Digital Financial Asset Market. Vasily Kudrin notes that despite high risks, the market offers unique advantages: high liquidity, global reach, and a decentralized nature. These properties enable geographic risk diversification by engaging with assets from different jurisdictions. The emergence of high-quality projects is making the market increasingly attractive.

4. Legislative and Regulatory Matters. The law on digital financial assets (DFA) has yet to be finalized, and existing drafts contain vague definitions and sanctions. This creates legal uncertainty and discourages market participants. There is a global competition among jurisdictions to attract projects, and Russia is currently lagging.

5. Evolutionary Market Challenges. Vasily Kudrin states that the digital asset market is in a stage of evolutionary growth. Key transformation tasks include ensuring transparency, reporting standards, liquidity, and emission control. Solving these challenges is essential for investor protection and the legitimate digitization of traditional assets.

6. Response from Traditional Institutions. States and banks are actively integrating into the blockchain space by issuing central bank digital currencies (CBDCs) and creating hybrid platforms. They are competing with decentralized systems to maintain control. Utilizing blockchain wallets introduces new risks but also offers distinct advantages.

7. Application in Capital Management and Supply Chains. Specialized firms for digital asset management are emerging, signaling the industry’s professionalization. Blockchain is finding practical application in trade finance and supply chain management, enhancing efficiency. These areas are becoming promising for investment.

8. Real Estate as a Core Sector. The management of commercial and residential real estate is considered one of the most conservative and promising sectors for tokenization. In some countries, a depressed real estate market slows this process, but the potential is significant. Tokenization enables fractional investment in properties and increases their liquidity.

9. Agriculture and Intellectual Property. Agriculture possesses substantial tangible assets (land, equipment) suitable for tokenization. Intellectual property and art objects are classic conservative assets where blockchain solves issues of proof of ownership and fractional ownership. Their tokenization opens new investment opportunities.

10. Technology and Commodity Extraction Companies. Investments in technology companies related to IoT and fintech may be viewed as conservative. Major commodity producers (like Norilsk Nickel) are launching blockchain platforms for metal trading and project financing. Platforms focused on junior mining projects also exist.

11. Legislation and Innovative Projects. Vasily Kudrin notes that digital financial (crypto) asset legislation is developing slowly and cautiously, but acceleration is necessary. Many traditional assets have become speculative, increasing their risk profile. Digital assets, in contrast, help implement innovative projects with real underlying value, attractive to conservative investors.

12. Government Classification Challenges. Mr. Kudrin says that polities (states, governments) face difficulties classifying digital assets (e.g., is Bitcoin a commodity, currency, or property?). This uncertainty hinders project development and creates legal risks. The case of pressure on Telegram Network illustrates the negative impact of unclear regulation.

13. Licensing and Taxation. Many countries have begun issuing licenses for crypto (digital asset) activities, creating a safer environment. It is critical for investors to thoroughly understand the issuer and intermediaries offering the assets. Tax regulation for digital asset transactions remains underdeveloped, posing additional risks.

14. Project Risks and Team Quality. High risks are associated with venture projects lacking institutional investor backing. It is necessary to meticulously evaluate the team, project management quality, and the issuer’s financial reporting. A red flag is the practice of covering old obligations with funds raised from new projects.

15. Conflicts of Interest on Platforms. The speaker insightfully notes that cryptocurrency exchanges issuing their own tokens can be involved in conflicts of interest and fraudulent schemes. Investors must understand platform ownership and its role in the issuance process. This creates additional market risks beyond asset price volatility.

16. Financial and Operational Risks of Issuers. Vasily Kudrin notes that key risks include fluctuations in the value of the underlying asset (e.g., real estate) and ineffective cash flow management. Poor management of cryptocurrency proceeds can leave a company without operational funds. Therefore, analyzing the issuer’s financial statements is essential.

17. Analysis of Reporting and Governance. Investors must examine the issuer’s balance sheet, including accounts payable and receivable. Attention should be paid to the management team’s composition, their experience, and incentives. Continuous monitoring of legislation and competitor analysis are also part of risk management.

18. General Project Evaluation Recommendations. Mr. Kudrin says that it is necessary to deeply study on the project team and the legal system of their chosen jurisdiction. The quality of business processes and the asset’s potential impact on its industry should be assessed. Valuable assets are those that generate returns while also developing their niche.

19. Focus on Traditional Sectors and Private Placements. For conservative investments, consider growing junior companies in traditional sectors: resource extraction and real estate. Currently, more attention should be given to private placements, as regulation for public offerings (crypto-IPOs) is not yet fully established.

20. Critical Importance of Legal Documentation. Before investing, one must meticulously study the issuer’s documentation, especially the section describing the rights conferred by the token. If the token holder’s rights are poorly defined or absent, it is advisable to avoid such an asset. In case of doubt, seek expert legal counsel.

About Vasily Kudrin

Professional director and world-class expert in finance, corporate governance and business management with over 20 years of experience in real sector, investments and consulting. Advisory Practice Partner at HLB Vneshaudit, audit and world-class level risk management and business consulting. From 2018 also a Co-founder and Director of Lybrion, an international digital asset development, investment and advisory company.

More than 300 professional projects and educational events in process organization, risk management, internal control, transformation of corporate systems.

Experience in internal audit, corporate governance and internal control in accordance with international and generally recognized standards and recommended practices since 2002 (largest oil company, investment company, retail group, international consulting).

Participated in the boards and working groups of a number of professional public organizations, such as Institute of Internal Auditors (IIA), Association of Certified Fraud Examiners (ACFE). Member of organizations in the field of corporate governance and internal control (Association of Professional Directors (AND), Russian Institute of Directors (RID), IIA), participates in the coordination board of “Debate Club” that deals with innovations in corporate governance, risk management and control.