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- 🚀 The Biggest Month in Security Token History
🚀 The Biggest Month in Security Token History
March's updates from the STA team
Security Token Advisors
March 01, 2022
In this month's edition of The ReCap we'll be covering:
Industry News: Incumbents Entering the Security Token Space
Real Estate News: Figure Technologies Marketplace & Real Estate Derivatives
Vendor of the Month: Inveniam
Advisor Spotlight: Peter Gaffney, Head of Research
Client Spotlight: TreeBR
Crypto Corner: Ask a Token Advisor tomorrow at 12pm EST
Fun Fact: U.S. Public vs Private Fundraising
But first...
Welcome back to the second edition of The ReCap!
February was quite the month for the industry, with 3 new players being approved to trade 'digital asset securities’ (BSTX, Gemini, Symbridge) just in the US alone. And as the world continues to become fascinated with NFTs, the use cases for security tokens rise with it. People are connecting the concept of tokenization beyond image rights into real estate, sports team ownership (see Broncos DAO) and intellectual property rights.
At the same time, the old guard is waking up to the idea of blockchain itself. The Luxembourg Stock Exchange launched the SOL - the Security Token Official List - which accepted and listed Société Générale’s Ethereum-based bond from 2020. Meanwhile, ICE invested in tZERO and MUFG announced plans to launch a stablecoin aimed for use in t+0 settlement of tokenized securities. All the while, the SEC continues to enforce securities laws (see BlockFi’s jaw-dropping $100M fine) implying we can likely expect more enforcement actions throughout the rest of the year.
ONE thing specifically was missing last month. Namely, President Biden’s executive order on cryptocurrency. All eyes are on this since its announcement but we’ll have to wait for now as the priorities have shifted towards the Ukraine crisis. Let’s keep what is happening there in our thoughts as this industry mobilizes into its best self. As always, reach out to me with any thoughts, feedback, questions if you have any!
Best,
Herwig Konings
Founder and CEO, Security Token Advisors
The Intercontinental Exchange (ICE) announced in February that they are becoming a significant minority shareholder in tZERO. ICE owns and operates 12 global exchanges including the New York Stock Exchange (NYSE). As part of the investment, ICE’s Chief Strategy Officer David Goone will join tZERO as its new CEO serving on the board of directors. This is a timely announcement as the NYSE filed a patent application for a number of crypto and blockchain-related products and services. These include an online marketplace for trading crypto assets, NFTs and metaverse technology.
tZERO announced on February 23rd that its broker-dealer subsidiary, tZERO ATS, successfully launched support for the clearing and settlement of securities transactions. tZERO’s broker-dealer subsidiaries are now able to independently onboard additional private securities at a faster pace, accelerate the settlement times of transactions on its private security trading platform, and improve the user experience in transferring cash and securities to and from third-party platforms. This will also serve to more easily bridge the gap between crypto and securities trading, as it eliminates one previous third party from the equation.
Securitize announced on February 22nd their acquisition of Pacific Stock transfer, an SEC-registered Transfer Agency. Now with over 1.2 million investor accounts and over 3,000 private and publicly traded clients, Securitize is officially one of the top 10 largest stock transfer agencies in the U.S., as well as the first and only top 10 transfer agent to issue and manage shares digitally.
“This acquisition is a big step forward for Securitize in significantly increasing our ability to introduce new capabilities to more companies”
He went on to say that he expects “significant benefits for both companies and shareholders, particularly Pacific Stock Transfer clients who will benefit from new exposure to capital raising, investment and trading opportunities, as well as the option to tokenize and digitally service their shares.”
The LuxSE announced they will be admitting security tokens BUT will not allow trading just yet. In light of that news, they provided guidelines for the registration of security tokens onto their Securities Official List, and stated that
“only experienced issuers and applicants with a track record can avail of this new service. The guidelines will evolve over time to reflect new legal and regulatory developments.”
Societe Generale (SocGen) has taken advantage of the services immediately, having already listed three security tokens on LuxSE.
Figure Technologies, which is founded by SoFi founder Mike Cagney, was actually an early entrant to the security token space, specifically surrounding blockchain securitization activity. Finding early backing through the likes of Jefferies and WSFS Institutional Services, Figure developed its own blockchain - Provenance - to specialize in real estate related products like HELOCs and Mortgage-Backed Securities, and even completed the largest HELOC-backed securitization ($308 million) in over a decade. While this is still in the process of merging with the existing Figure Marketplace for private investment opportunities, Security Token Advisors sees real estate and its “derivative” products like MBS and convertible notes as one of the most pressing and urgent use cases for tokenization.
Given the volatility surrounding equities and uncertain fixed income environments here in the United States, in addition to the extremely hot housing market since the start of COVID-19, precision around one’s own investment is more in demand than ever. What we mean by that is: Controlling the ownership and use of a Mortgage-Backed Security or an asset in general may be the difference maker during times of uncertainty.
Fractionalizing HELOCs, MBS, real estate debt, etc. will enable investors and owners to more precisely manage their own risk-return profiles as the markets continue to sort themselves out. As mentioned, housing markets across the country have seen unprecedented appreciation over the past 24 months, especially ones in South Florida and surrounding areas of not only major cities, but untapped regions on both coastlines (think Tampa and Scottsdale).
What would happen if these markets slow down or become adversely affected by monetary policy changes and/or consumer forces? Well, having greater flexibility when it comes to assets may act as a hedge against any short or medium-term externalities. This is where what Figure is developing comes into play - fractionalizing real estate derivatives and creating a secondary marketplace for liquidity may be the coveted key to provide asset owners with immediate cash injections without requiring the full sale of an asset, which in turn may enable them to endure any difficult market conditions for a longer period of time.
Tumultuous times can be eased through greater flexibility and precision of asset control.
We’ve seen leverage and overcommitment come to bite people in the back numerous times before. Some of those instances could have been solved or eased with fractional ownership and liquidity capabilities. Rather than getting margin called for an entire asset’s worth of dollars, owners could have perhaps parted with 8% (for example) of said asset to meet the liquidity requirements of the party on the other side of the transaction, and remained as a 92% owner for the time being. This principle has much more power than appears at surface level, and is truly one of the most important pieces of the tokenization ecosystem and economy to come.
As of early 2022, Inveniam had roughly $5.7 billion worth of assets onboarded to its blockchain-based data oracle. More recently, that number is pushing $10+ billion as Inveniam made a strategic investment in European security token issuance platform Tokeny, and continued expanding its breadth across Europe and Asia.
While we tout fractionalization, self-custody, and liquidity as some of the key value-adds through tokenization, a reputable and verifiable data layer is showing its worth more and more with each passing day. As a greater number of security token issuances come to market and reach secondary trading status, investors will need to be protected (per SEC reporting guidelines) and ensure that their prospective investment opportunities are vetted and legitimate. Although security token transactions settle on the blockchain, what is verifying the underlying asset’s data?
Inveniam is focusing primarily on real estate, private credit, and private funds, Inveniam has developed a patented blend of Artificial Intelligence and blockchain record-keeping that will serve to revalue and reverify asset-level data frequently. Currently operating on a monthly basis, Inveniam’s services are set to provide greater confidence to investors AND to issuers, as any future security tokens or tradable assets will be able to perform more in line with the Fair Market Value of the underlying assets. Simply put, imagine Inveniam as the top of the funnel - as assets onboard and verify themselves through Inveniam, transparency and actionable data enable more fluid and efficient tokenization, lending, sales, etc. because assets are “always sale ready, and always token ready.”
Genuinely speaking, this is just the tip of the iceberg and Inveniam has a range of services currently in development and implementation - all of which will likely serve to improve the robustness of the security token industry. They are hosting the Data 3.0 for Web 3.0 conference March 12-14 right here in Miami with a number of key industry players, including our very own Herwig Konings as a notable speaker.
Our advisor of the month this month is the peerless Peter Gaffney, our Head of Research. In my mind, he is the rocket engine powering Security Token Advisors’ trip to the moon. Pete, as he likes to be referred to, is a UM grad (Michigan, not the U, although we both hate the Buckeyes), and a rockstar at research and reporting.
He’s a prolific writer, putting out his Tokenize This column every week like clockwork. Pete is an absurdly hard worker, but is always humble and does everything he can to take care of his clients whether he’s on the clock or not. His work on The State of Security Tokens 2022 was methodical and provided an incredible look at how things are shaking out in the industry. I’m proud to call Pete a friend and thrilled to congratulate him for his selection as Advisor of the Month!
- Adrian Alvarez
This month we'd love to present... TreeBR! 🌲
They are on a mission to protect our planet and are making it possible by making it easy to purchase carbon offsets while leveraging the blockchain's benefits.
What's a carbon offset?
"A carbon offset is a standard unit representing the right to offset the emission of one ton of carbon equivalent (tCO2e) on a voluntary basis. By purchasing and retiring a carbon offset, an individual or organization can offset their own carbon footprint and become carbon neutral."
In TreeBR's case: 1 $TREE token = 1 tCO2e offset
So why the blockchain?
Great question! STA helped TreeBR learn that tokenizing these carbon credits allows for transparency and immutability.
This means that all $TREE tokens sales and redemptions are recorded permanently, making it impossible for them to resold or redeemed again after the first occurrence. The distributed ledger keeps the system honest while the blockchain saves in transaction speed & costs!
How does one invest?
TreeBR offered their tokens on MERJ to both institutional and retail investors around the world (except US citizens). Those tokens will also be trading on the Seychelles-based exchange.
For US investors, there's a separate Regulation D offering and those will be trading on a US-based alternative trading system (ATS).
A refresher on Regulation D:
Regulation D says that an issuer doesn't have to register with the SEC, but they can only raise from accredited investors*
*Accredited investors have a net worth of $1M (excluding primary residence) or annual income of $200K (single) or $300K (married)
TreeBR connects the landowners directly to the capital markets through these tokens. They eliminate the middle-man so the landowners get a bigger piece of the pie and faster, while experiencing the carbon credit markets first-hand on these exchanges/ATSs.
"TREE is the ideal way for Amazon Rainforest landowners to go to market. We think other impact initiatives will follow our direct model. Our ability to go directly to market via a global stock exchange. and provide immutable transparency around he retirement process through a blockchain creates the most value for all stakeholders."
Want to learn more? Click the logo below 👇
As the Head of Consulting at Security Token Advisors, I (Adrian Alvarez) get a lot of questions about tokens, the blockchain, and how they could be utilized as a tool for issuers and investors to raise money. And although every project is unique, there’s a lot of overlap. What we’ve realized is that we end up providing, especially at the beginning, a lot of similar information. In an effort to help educate our community, we’re launching a new webinar called Ask a Token Advisor, the first of which is taking place tomorrow Wednesday March 2nd at noon EST!
Our goal with Ask a Token Advisor (ATA) is simple: we’re letting you drive the conversation by asking questions. If someone else already asked a popular question that you’re interested in, you can upvote that question to prioritize it on the ATA website.
In the webinar, we’ll do our best to answer the most popular questions, and after the fact, we’ll be clipping the video and linking the specific answer to the prior question, building up a library of content based on what YOU want to know about.
And the best part? It’s FREE!
So what are you waiting for? Register right now for tomorrow’s discussion and get your questions answered by the experts at Security Token Advisors.
U.S. Public vs Private Fundraising
When someone goes “public” it just means they are registering their offer with the SEC to allow for public sale. Although this sounds easy, it’s a huge and expensive undertaking, requiring hundreds of thousands of dollars (easily millions in a lot of cases) to prepare for an IPO (initial public offering). However, once you’re through the gauntlet, you have access to liquid, public markets such as the NYSE, NASDAQ, or the latest, BSTX, in the largest financial market in the world.
Private fundraising has the distinct disadvantage of being excluded from this public market. However, in recent years, starting with the 2012 JOBs act and continuing with adjustments to fundraising regulations by the SEC, the private markets are stronger, more transparent, and allow greater access than they have at any time since the founding of the SEC. In order to go “private”, your offering has to fit into a specific “exemption” (meaning they’re exempted from having to register publicly aka run out of money).
Here is a brief summary of some popular exemptions:
