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In this month's edition of The ReCap we'll be covering:
Industry News: Raises, partnerships, and tokenized PE funds
Real Estate News: First fully-tokenized real estate property in Miami
Wall Street Adoption: JP Morgan's Tokenized Collaterization Network
Vendor of the Month: Vertalo
Advisor Spotlight: John "Token Advisor" Pittman
Client Spotlight: Arcos Jet
Marketing STOs 101: Marketing vs. Public Relations
Crypto Corner: "Internet Bubble Crash" phase of the blockchain lifecycle
Announcements: Ask a Token Advisor tomorrow at 12pm EST
But first...
Welcome back to The ReCap! Let’s get you your monthly breakdown for May.
What a month for the security token industry. Major financing rounds, new STOs, real estate has become THE hot topic, and IRL conferences are officially back! That’s right, we saw Oasis Pro Markets bring in $27M, ADDX bring in $58M, and little ole’ Security Token Group raise a modest $3M Series A ourselves to expand our efforts in helping the security token industry develop. SPiCE VC also launched a second fund to help invest in more of the sector and the number of STOs has gone up over 200% this month, many of the notable offerings you’ll find below in this newsletter.
I specifically love that one building in downtown Miami is now fully tokenized! We also saw Nemesis announce that a half-billion dollar VC fund will be tokenized and Wall Street acknowledge that over $300 Billion dollars in transactions have occurred on JPM’s blockchain-based repo platform. And of course, Vertalo’s Digital Asset Conference and the Security Token Summit took the main stage as they both brought together hundreds of issuers and providers to learn about tokenization in Austin and NY.
There is a similar feeling in the air as 2018, when the security token industry first caught the attention of the world. This time, the infrastructure has raised billions from institutional backers and spent years deploying this to develop top-tier infrastructure for Wall Street and private markets alike. Things are going to start getting very interesting in the second half of the year. Let’s see how Q2 closes out next month, we’ll always give you the scoop! And also a shout out to the entire STA team, which continues to grow in size, now featuring over 10 brilliant consultants. Be sure to reach out and see if you can benefit from our security token consulting services.
Best,
Founder and CEO, Security Token Advisors
By John Pittman AKA "The Token Advisor"
Security Token Group (STG) is excited to announce the Company’s $3 million Series A round, led by Blue Bay Ventures, including strategic investments from Blizzard Fund (the VC fund of Ava Labs/Avalanche), Exodus, and Miami tech leaders. With the capital committed from its Series A round, STG will also seek to expand on its other business verticals, Security Token Advisors ("STA, securitytokenadvisors.com) and Security Token Capital ("STC, securitytokencapital.com).
A digital asset is a token that represents assets such as a debt or equity claim on the issuer, and thus by default is under the purview of the Securities and Exchange Commission of Nigeria, the regulator said in a new rulebook published in the month of May. The Nigerian SEC’s “New Rules on Issuance, Offering Platforms and Custody of Digital Assets” circular looks to give regulatory clarity to the booming market, which is growing dramatically year on year in a nation of tech-comfortable people.
ADDX, licensed by the Monetary Authority of Singapore (MAS) to facilitate the issuance and trading of digital securities, will list a private equity fund of funds on its marketplace. ADDX has partnered with Fullerton Fund Management, an Asia-based investment specialist, to offer the Fullerton Optimised Alpha Fund – a closed-end fund targeting 8% to 12% in returns per annum over its fund life of seven years. Fullerton is a subsidiary of Temasak, the state-managed investment fund.
Inveniam Capital Partners (Inveniam), and Rialto Markets (Rialto) announced today that Inveniam has made a capital investment in Rialto Markets and will support the burgeoning market with connectivity into its private market data ecosystem. The integration of Rialto into the Inveniam ecosystem will result in Rialto incorporating various components of digital securities data and real-time market data thereby delivering transparency and trust for market participants. Further, having diverse data flow via Ownera, and the industry’s FinP2P open-source routing and settlement protocol that interconnects the private markets seamlessly in a user friendly platform, will give the GPs direct access to better data systems, secondary markets for the exchange of alternative assets, and new novel forms of primary distribution will transform the role of fund administrators. Ownera interconnects asset sources and financial institutions to enable the trade of any digital security, from any source and tokenization platform, using any underlying technology.
By Alec Beckman
I will be at Consensus 2022 in Austin June 6 - June 14. If you’ll be there and want to connect, please email [email protected] so we can schedule a meeting!
Commentary: Crypto to buy equity in real estate tokenized securities - Not Ideal (Thinking about buying equity in real estate tokenized securities with crypto? We advise against it) - here’s why: )
One of the most frequently asked questions when it comes to tokenizing real estate is “is this done in cash or in crypto?” The issuance of a blockchain based security does not mean that you’re limited to the crypto world, but rather, limited to the securities laws in place in a jurisdiction. Tokenization of real estate assets should not be correlated with crypto currency despite both using blockchain technology.
One of the requirements when it comes to compliance is the use of KYC/AML (Know Your Customer and Anti-Money Laundering). In order to accept capital from an investor, an issuer of an asset must prove that an investor is not a bad actor, politically exposed person, someone with access to treasuries, and not investing with illegal money (terrorism, organized crime, among many more).
This means when you consider the sovereign nature of cryptocurrency, many wallets are pseudonymous—meaning the identity cannot be confirmed unless tied to an exchange which runs KYC/AML checks. This means that there needs to be a heavy lift on-chain analysis to determine where funds are sourced from. For securities, it is much simpler from a compliance perspective to accept ACH, CC, Debit, or Wires for payment.
The other consideration is volatility risk. When a security is bought through crypto there needs to be an instant conversion of that crypto currency to avoid the risk of dramatic price change. The fees associated with the payment processors to make sure this can occur, are much larger than the cost of ACH payments. Volatility risk can swing both ways and be positive, but if you are raising capital for a real estate asset, there is no room for error. If the price drops on the crypto asset you accepted before you converted it to fiat, you may not have enough money to purchase the asset you won the bid on.
For this reason you should be accepting ACH payments when raising capital for real estate.
Miami-based HouseBit Corp (HouseBit) and Miami-based International Realty Group (IRG) announced that HouseBit has completed the first fully digital real estate tokenization on a property in Downtown Miami, using cryptographic decentralized blockchain technology.
Using a land trust created under Florida real estate law specifically for the property, the trust issued 1,000 ownership tokens representing proportional ownership in the property and a single Occupancy non-fungible token (NFT), which provides the exclusive right to occupy the property.
Ownership tokens provide holders, as beneficiaries of the trust, with the same benefits as with any other land trust, including the right to proceeds generated by the property. Any disbursements are provided automatically every month in U.S. dollar-pegged coins directly to the wallet of the token holder or can be staked at the option of the holder.
Occupancy tokens provide the holder with the exclusive right to occupy the property for an indeterminate period provided the holder maintains all established monthly financial obligations as well as complies with any property rules and regulations. These financial obligations are the same as with more traditional occupancy models. Also, for the first time in real estate, through the NFT, occupancy rights become an asset to the occupant and not just a series of monthly obligations. The holder of the occupancy NFT can also purchase ownership tokens and therefore benefit from the property’s equity.
Decentralized oracle network Chainlink is set to power a tokenized real estate platform serving the Latin American property market. LaProp will allow investors to buy tokenized shares in various real-world properties, which will yield a percentage of income from rental payments.
LaProp will look to leverage Chainlink Keepers’ node operators’ track records in securing billions of dollars invested in DeFi markets. The decentralized automation service carries out tasks for smart contracts on the BNB Chain and, in this instance, will automate secure rental payouts to token holders.
The platform intends to give retail investors the ability to gain exposure to real estate, which would otherwise be inaccessible due to a large amount of capital historically required to enter property markets.
Chainlink’s ability to handle smart contract functions will see rental payments by tenants automatically distributed to multiple token holders of the given property. Payment terms and schedules can also be edited per property.
CryObo real estate tokenization will allow real estate developers to raise capital at better terms and let the token holder raise appraisals of the tokens and earned income. It provides the opportunity to match public market demand by reaching commercial real estate companies, asset managers, private investors, investment funds, financial consultants, banking institutions, and more. Token holders will get a share in the income generated.
The institutional tokenization setting was dominated by JP Morgan in May through a two-pronged approach:
First, JPM announced their Onyx platform, which is dedicated to digitizing the Repo markets with blockchain technology, surpassed $300 billion in transactions. Onyx was launched in late 2020 and completed its first transaction in December 2020. For those unaware, a repurchase agreement (repo) is a form of super short-term loan in which institutions, usually banks or the Federal Reserve, will sell assets to each other under the agreement that they will be repurchased at a slightly higher price in the immediate future. The repo market is a key facet to credit and collateral management for these banks, and serves to maintain proper risk profiles.
What’s really interesting about the blockchain capability is that transactions are now able to be precise down to the minute. Goldman Sachs joined Onyx in June 2021, and completed its first US treasury bond swap for JPM Coin (tokenized money for internal settlement) in a matter of 3 hours and 5 minutes. This precision is significant because, in some instances, repo interest is charged on a minutely basis beyond the purchase price. The fact that end-to-end transaction times—from repo initiation to swap to repurchase—can be verified down to the minute takes any guessing or balancing out of the question. No longer will parties rely on each other’s calculations, since both parties will have the same answer right there on the recording blockchain.
Next, JP Morgan announced its most recent product rollout focused on collateralization of digital securities (which, if you know me, is one of my favorite value-adds of tokenization). Known as the Tokenized Collateralization Network (TCN), JPM facilitated its first transaction on May 20 with the transfer of BlackRock money market fund shares among two of its entities. This serves as a proof-of-concept that will enable JP Morgan’s investors to pledge a wider range of collateral in real-time (not limited to market hours). Products like mortgages and mortgage-backed securities, real estate assets, private shares, and private fund interests can be used similarly as collateral as the TCN gets built out.
This capability will also likely serve as a bridge between traditional finance and decentralized finance (DeFi) as assets will be seen as like-kind, since they’re operational on the same or equivalent blockchains. Think about DeFi services like Aave, Compound, and Uniswap. Not to say that assets on the TCN will be easy plug-and-plays into these, but an interoperable future between real assets and these DeFi services is certainly on the horizon, which brings all sorts of lending, borrowing, and yield-generating activities to the retail crowd.
Aside from JP Morgan, who is already active in tokenization, we have personally been running a joint video education series with Arca, a digital asset manager and product issuer, to help create the playbook for other big players. Titled “Tokenization for Institutions: What You Need to Know,” Arca, Jonah Schulman of Security Token Market, and myself just released Episode 2 of the six-part series which can be found here covering institutional-caliber infrastructure and developments.
Along the path of tokenizing any offering, an issuer must engage several parties to compliantly execute. One of those parties is a transfer agent and in this newsletter, we’d like to highlight Vertalo!
Vertalo’s platform helps broker-dealers easily have a client-ready cap table with the ability to tokenize any analog shares before or after an offering on either Tezos or Ethereum. Their digital transfer agent connects with ease to partner ecosystem custodial, issuance, and exchange platforms for a tokenizable future and trading capability for early liquidity.
We’d also like to applaud Vertalo on their second Digital Assets And Securities (DAAS) Conference in Austin, TX this past month! Another fantastic event at the Omni Barton Creek with industry leaders, issuers, regulators, and more interested in learning about tokenization.
STG Partner Mike Lingle, STA Head of Growth and Partnerships Alec Beckman, and STM Head of Communications Jonah Schulman were in attendance this year and were delighted to meet so many new AND familiar faces onsite.
Great job Dave Hendricks and team, we look further to working with you as we tokenize the world!
We are so excited to announce the June Advisors of the month: The Token Advisor himself, John Pittman.
John was born and raised in Houston, Tx and graduated from Sam Houston State University with a bachelors in Biochemistry. Post-graduation, he pursued a career in personal training as well as bartending the hospitality industry and made the move to Miami during COVID.
John was introduced to the STG team at the team's residential unofficial hangout Moxies in Brickell, where he was also introduced to the blockchain.
John officially became a Security Token Advisor in July 2021 and has been an integral part of the STA team ever since. Managing most of the team social platforms & creating our content!
He is also a welcomed face on the Security Token Show & his own show Open Tab, where he talks about exciting blockchain projects from people all over Miami!
When John isn’t in the office or behind the bar you can find him somewhere in Brickell with the rest of the token boys! Usually at the gym, on the beach or doing something fabulous in Miami or just spreading the gospel of Security Tokens.
He is always pushing us to be and do better including keeping the entire company on point with their fitness and using his fitness past to not only encourage everyone to be healthy but also training anyone on the team who needs it!
John also reminds us of the importance of having a strong online presence because he is EASILY the most recognizable member of the team (besides the boss of course!).
Thanks for all you do John!
Connect with John:
Security Token Advisors worked with ArcosJet in the Fall of 2021. ArcosJet is a multi-faceted private aircraft company that leveraged blockchain technology to take its business operations into the next technological revolution. While building upon its brokerage and trade-in practices, ArcosJet created the JetSet Smartplace as an NFT-driven marketplace for private aircrafts (components and whole aircraft), that can similarly be applied to yachts and supercars, as in the plans of ArcosJet.
The goal of JetSet is to streamline the manual steps in the supply-chain in order to reduce accounting and marking errors, and instead to provide the most detailed asset-level data through what’s known as NFT metadata. By tagging new components with NFTs, future owners will be able to see full lifetime information on each component, which will not only provide more fair market rates among future sales, but will likely also help improve safety and reduce risk as components age and suffer from wear-and-tear.
Marketing & PR: Understanding The Difference
PR is a communication process; wherein the company seeks to build such a relationship between the company and the general public.
Properly executed PR campaigns can be very powerful. They create brand equity (value) which is essential for a successful STO and ICO’s. Marketing helps connect with your audience by telling a story followers are (or can be) a part of in addition to the problem your STO solves. PR can make your brand and executives true thought leaders, with your stakeholders instantly more interested in your messages.
PR helps more people to know about your brand, and brand messaging has more intellectual depth than a simple ‘invest in us’ or ‘buy our product’.
Marketing aims at promoting, advertising and selling company’s products and services.
The end goal of marketing is usually sales or building an organic engaged community.
A great marketing campaign can drive sales as well as conversions in the community. The reason is obvious: If your company has a more resonant message than your competitors, then people will be more inclined to buy your product. Marketing requires telling a story that your audience can relate to and usually has a call to action. We want to connect/relate with the audience so they associate you over competitors.
Thinking that PR exists to drive conversions in the same way that marketing does is missing the big picture and could be the difference between a successful and unsuccessful STO campaign.
PR a long-term process that drives the credibility/value of your company, the visibility of your executives in addition to your STO.
Key Differences Between Public Relation and Marketing
The process of maintaining a positive relationship and managing the flow of information amidst the company and society at large is called Public Relations (PR). The range of activities that includes creation, communication and delivering products and services of value to the customers, is called marketing.
PR involves the promotion of the organization and the brand. Marketing is the promotion of products and services offered by the company to its customers
Marketing is a line function where its contributions to the company's bottom line is direct (i.e sales). PR is a staff function which assists organizations indirectly in achieving its overall goals and objectives.
PR is earned media, as opposed to marketing is paid media.
PR covers the general public and marketing is geared towards a specific target audience.
Marketing aims at converting shoppers into buyers, i.e.create sales. PR aims at building trust and maintaining a company's reputation.
Public relation is a two way communication and marketing is a monologue activity, which involves only one way communication.
Well it’s happened folks. We’ve officially hit the “Internet Bubble Crash” phase of the blockchain lifecycle. With Bitcoin acting as our AOL, and Terra Luna as Pets.com, the beginning of the building phase of legitimate blockchain is underway.
NFTs are moving towards actual utility, big banks are using blockchain tech for trading, and the world is freaking out that crypto is dead. Just like they did about the Internet, and all that happened was that our modern internet was born (who will be Blockchain’s Google?). So fear not the coming recession, for it is the tool that separates the wheat from the chaff in this industry, and we’re about to get a whole lot of wheat.
ANNOUNCEMENTS:
Ask a Token Advisor
Have questions around tokenization, securities laws, blockchain, STA, or anything Web 3? Great, we have answers!
Join our Head of Consulting Adrian Alvarez and Head of Research Peter Gaffney tomorrow at 12pm EST and ask away on Twitter Spaces. Set your reminder 👇
