According to Kommersant, Russia saw seven placements of digital financial assets (DFAs) worth about 1 billion rubles ($13 million) in April. DFAs are a relatively new type of asset defined in Russia’s “On Digital Financial Assets” law, which came into effect in January 2021. Unlike decentralized cryptocurrencies, DFAs represent “digital rights” to securities or utility tokens and must have an issuing entity.
The majority state-owned Sberbank, Russia’s largest banking institution, and the largest private bank in the country, Alfa-Bank, sold most of the DFAs issued in April. These two banks are among the operators of DFA platforms authorized by the Bank of Russia, along with Atomyze, which specializes in the tokenization of commodities, the fintech company Lighthouse, and the more recently licensed Masterchain.
While the DFA market is still relatively small, experts quoted by Kommersant note that significant projects may be expected by the end of this year. However, most analysts remain skeptical as funds can be raised using existing tools such as corporate bonds. Roman Nekrasov, co-founder of Encry Foundation, which represents Russian IT companies, believes that the DFA segment remains occupied by select large players. Mikhail Uspensky, a member of the expert council of the working group on cryptocurrency at the State Duma, admits that capital markets have dried up for Russian businesses, and many companies are trying to be creative, including by experimenting with DFAs. However, he also points out that issuing digital assets is still mostly a reputational move.
Sanctions and Digital Assets
Unprecedented Western sanctions imposed over Moscow’s invasion of neighboring Ukraine severely restricted Russian access to the global financial markets. As part of efforts to mitigate the negative effects of the penalties, Russian authorities have been taking steps to expand the use of digital assets, including legalizing crypto payments in cross-border trade and developing a digital ruble.
The DFA market in Russia is still in its early stages, but it is expected to grow. Large banks, such as Sberbank and Alfa-Bank, are leading the way in issuing DFAs, but smaller companies are also experimenting with them. Russian authorities are also promoting the use of digital assets as a way to mitigate the negative effects of Western sanctions. However, there are still challenges to overcome. The DFA market is occupied by select large players, and funds can be raised using existing tools such as corporate bonds. Nonetheless, experts are optimistic that significant projects may be expected by the end of this year.