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❄️ Crypto Winter Doesn't Apply to Security Tokens
August's updates from the STA team
Security Token Advisors
August 02, 2022
In this month's edition of The ReCap we'll be covering:
Industry News: New partnerships and new rules
Real Estate News: Utilization rights
Wall Street Adoption: BNY Mellon and Goldman Sachs
Vendor of the Month: Assurely
Advisor Spotlight: Parker Hughes
Client Spotlight: Turn Coin
Marketing STOs 101: Crowdfund Marketing Methods
Announcements: Ask a Token Advisor tomorrow at 12pm EST
But first...
Hello and happy August! The crypto industry’s latest market downturn has forced a lot of outsiders to wonder - are security tokens doing OK? Turns out (unsurprisingly so!) that security tokens and crypto have nothing to do with each other than using the same underpinning technology and that one overwhelmingly tends to violate securities laws. Take a guess which one that is!
Here at Security Token Advisors we only see this as a positive force. On one end, the recent advances by the SEC with their landmark insider trading case against Coinbase create an opportunity for existing rulebreakers to enter remediation and become compliant securities, something that we now offer as a service for help with here. On the other hand, the liquidations and interest out of crypto now heads for fairer pastures and safer assets backed by real return profiles. Those that still seek web3 as a benefit will find additional interest in security tokens in general.
You’ll read below that July was an action-packed month for the industry and we don’t expect any of this to slow down despite the usual August Summer slows. Instead, this environment is only going to get more interesting as the regulators make plans and Wall Street prepares for the inevitable blockchain revolution.
Best,
Founder and CEO, Security Token Advisors
By John Pittman AKA "The Token Advisor"
According to a release from the companies, this partnership aims to simplify Alts.co’s investor onboarding process while providing a path to secondary liquidity on an Alternative Trading System (ATS). A listing on a marketplace is said to be in the works.
Alts.co currently covers alternative assets like collectibles, crypto, NFTs, music rights, real estate, and more. Alts.co used Vertalo to support the launch of its ALTS 1 fund in March 2022.
Everyone with an interest in digital assets — exchanges, custodians, holders, issuers, and lenders — should stop now to consider how these new rules will apply to their businesses and whether changes in their practices and contracts are warranted. They should also consider whether the new laws create new opportunities. Learn how the new rules apply to you and your business.
The Proposal is intended to provide clearer standards to identify market participants that are engaged in buying and selling securities for their own account "as a part of a regular business" and that are, as a result, providing significant liquidity in securities markets. Drawing on existing guidance from the SEC and the courts, the Proposal sets out non-exclusive qualitative and quantitative standards to help identify when a market participant's activities would require them to register as a "dealer" under the Exchange Act.
By Alec Beckman
Commentary: Utilization Rights will be a major part of the tokenized real estate ecosystem.
When investing in real estate, typically involve ownership of a percentage of the asset, and dividends based on rental income. Tokenization offers the ability to add another benefit of owning real estate - utilization rights.
The idea is that an owner is permitted to use the property in some way (ex. Think of owning a piece of a hotel or vacation rental and being able to stay there for a few days).
With provable ownership and tokenization / blockchain encouraging gamification and innovation for traditional types of investments, we’re seeing utilization rights being low hanging fruit. In a world where issuers are constantly looking to attract investors, utilization rights are being more commonly considered and implemented.
Human Unitec International Inc. announces that on July 25, 2022, it will launch its BCPE (BlockChain Property Enterprises), a tokenization of global real estate opportunities around the world, beginning with its flagship offerings on the beautiful Mediterranean island of Sardinia, Italy and North American Lake Champlain, New York.
The White Paper for BCPE is underway and details how BCPE works for investors—The Company will link, attach and tokenize real estate properties and services, and each property and its related services/amenities will have a different amount of tokens attached accordingly. Customers will be able to invest, rent or buy TOKENS, which will allow them to secure ownership in real estate, but also the ability to secure rights to exclusive rates, services, amenities and perks through implementation of Web3, creating a seamless revenue stream for HMNU and its network of Real Estate properties and related amenities.
HMNU CEO Kurt Gaensel states, “Our investors will be able to visit the models virtually, and will allow them to feel as if they are at the estate, with the ability to explore and customize experiences in a fully immersive environment. BCPE token holders will have special benefits and utilities including digital, skins, augmented designs, virtual ownership and endless opportunities to showcase their involvement in a beautiful place within the digital and physical worlds seamlessly”.
ELYFI, a DeFi protocol that connects real and virtual assets, announced that it has launched a new US real estate investment product.
The product generates returns by lending virtual currency using bonds of US real estate as collateral. It is possible to buy real estate in fragments. It has advantages such as a high rate of return of 12%, zero platform usage fee, small investment possibility, easy US real estate investment method, and recoverable investment through open markets such as Opensea.
This US real estate loan product is the first decentralized tokenization through ELYSIA DAO LLC, established in Wyoming, USA. As it has been proven that the tokenization of real assets can be decentralized through DAO LLC, various real assets are expected to be tokenized.
Regarding the background of the launch of the product, ELYFI pointed out that compared to the traditional financial market, the digital asset market has a much higher rate of return but there is a high risk of investment because of the unclear source of the profits. To solve the problem, ELYFI has created a business structure that has a high rate of return and a clear source of revenue.
With the launch of this US real estate product, ELYFI announced its plan to enter the real estate market in various other countries.
Goldman Sachs and BNY Mellon have been recurring names on the institutional tokenization front. They’ve already been involved in JP Morgan’s blockchain-based repo network, but are now partaking in more individual activities. In late July 2022, the two firms completed the first security lending deal via the HQLAx blockchain platform. HQLAx is designed to cater towards institutions in implementing blockchain solutions for operations like collateral management and the transfer of products.
The transaction was a 35-day term agency security for hundreds of millions of dollars, per Ledger Insights. The source states that, “The primary purpose of HQLAᵡ is to save money for big banks that have to keep high quality liquid assets (HQLA) for Basel III balance sheet compliance.” With traditional financial plumbing, transactions like these can take days to settle which obviously presents a detriment to the ability for these banks and institutions to maximize their reach in regards to remaining compliant and credit-worthy. That being said, this is an excellent example of one of the key operational value drivers of tokenization - collateral management.
Since the agency security was tokenized via HQLAx, the registry of ownership can simply be modified to properly reflect the proper ownership at any given time. In this case, the ownership would flow from Goldman Sachs to BNY Mellon, who is acting as the liquidity provider (lending Goldman Sachs capital in exchange for the security) for 35 days before liquidating the loan and returning the security to Goldman Sachs. While most people pay attention to the institutions when it comes to crypto trading desks and derivatives, start shifting your attention to the tokenization of assets and products. We have first hand experience that says institutions are doing the same.
For additional plays in the institutional playbook, enjoy Security Token Market’s fourth installment of Tokenization for Institutions: What You Need to Know with digital asset manager Arca, shown below.
Assurely is an insurance company that focuses on providing rapidly-growing companies the insurance protection they need to continue innovating and scaling their business. They are truly the leading insurance group in the rapid growth, high tech industries.
Assurely solves a unique challenge in the capital raising process, especially as things become more digitally focused. In a traditional arms-length deal, directors and key employees of firms involved in transactions and capital raising usually have some form of insurance that protects them against lawsuits or wrongdoings from any dissatisfied investors, assuming the capital raise was conducted properly and compliantly.
In the digital private placement and tokenization markets, these transactions and raises have become more fractionalized and decentralized, making it more difficult to account for insurance of this sort. That’s where our partners at Assurely come into play.
Assurely has developed a specialty insurance product known as Tigermark to protect security token and private security issuers in capital raises, just like they would in a traditional raise. Working with existing transfer agents like Vertalo, Assurely is able to cover issuers and key players in a capital raise to ensure any liability is limited strictly to the issuing entity and scope of a raise rather than backlashing on associated parties.
Assurely is using Tigermark with a few STOs currently, and are partnered with some of the major players in the space to offer insurance to issuers and their investors.
We are so excited to announce our Advisor of the month: Parker Hughes!
One of the youngest advisors at STA, Parker joined the team after graduating from University of Miami with a Bachelor’s in Business Administration.
He has a background of wealth management, asset management, and transition fuel startup with a strong interest in finance as well as computer science. So the transition into the security token industry was an easy one for Parker and a very welcomed addition to Security Token Group.
Parker became an associate advisor just a few months ago and has already made a big impact. He is a research wiz & has spent much of his time helping create our Tokenized Real Estate Education Packages as well as working with clients or helping where he can!
Not only is he making a name for himself in the tokenized real estate sector but he’s also a huge hit with our NFT clients. Parker is a big collector or NFTs and supporter of blockchain communities & has used his own love of blockchain projects to help advise clients on their own collections - from utility to branding his NFT expertise continues to impress clients & the team.
Parker is always creating new and educational content for STA, doing research on the industry and more. Check out the Security Token Advisors LinkedIn Page to stay up to date with the latest in #SecurityToken Industry.
When he’s’ not working hard at STA, Parker can be found trying all the hottest new restaurants in Miami (he’s a secret foodie), inviting the team to lunch or just looking stylish at the office.
Always the first one to the office, he sets the tone for the team everyday.
Welcome to the Team, Parker!
Linkedin: https://www.linkedin.com/in/parker-hughes-🌴-550054157/
This month we're highlighting one of the most unique client-experiences: Turn Coin!
We flew to Cape Town, South Africa and taught Turn Coin how to prepare for a primary global security token offering (STO) for their NFT celebrity investing platform. The platform monetizes on fan interaction, sponsorship, and fundraising. These NFTs are virtual trading cards of talented people which can be created and sold on TheXchange. A 10% revenue-share goes back to Turn Coin holders.
So what did STA do? The full package.
Found attorneys
Chose Securitize as a tech partner
Helped with the landing page
and more!
Check out what Drew Brees had to say about Turn Coin and TheXchange 👇
The internet has changed the way we consume information and living in the Information Age can make it difficult for businesses to get noticed. Nowadays, brands or projects have to be extremely strategic about how to drive consumer actions. When it comes to getting people to spend money, they also need to tell a story people will remember.
But what happens when you want to get investors for your crowdfund campaign? A social media campaign alone might not convert the necessary numbers of investors needed to make a crowdfund successful. This article is going to highlight different methods you can do to create a successful marketing campaign for your crowdfund.
Method 1: Include a banner or landing page on your site
Once the crowdfund is live you want to make sure everyone who visits your company’s page knows about it. Creating a banner an investor can click on that automatically takes them to your offering can generate more eyes to it. Prior to launching, investors can be taken to a page where they can pledge an amount they hope to invest (you’re testing the waters here).
Method 2: Launch an Email Marketing Campaign
This method, although might seem simple enough, can work wonders if you strategize it correctly.
Prior to launching, it is best to create a list of prospective investors for your CF. This is when you want to review your own social circles & connections and make a list of those you can send personalized emails to see if there could be an interest for your offer. You can even tier the investors and personalize the emails in different ways, such as the following:
Investors that have invested in previous crowdfunds or businesses: These investors can usually be expected to invest a nice lump of cash since they might view them as assets. Your email to them should be a personalized email to the CEO of the company. In the email you might want to include specifics about what your company does and its advantage in the market. The call to action should be to schedule a call to explain in more detail.
Clients of your company: Depending on the service or product you offer, these investors' primary reason for investing is because they want to feel a part of the community that they already support. Their email should create a sense of FOMO and use sentiment to describe what it means to be a member of your community (& also creates a sense of status in a community they are already a part of) The call to action should be to invest in the fund.
Method 3: Create an entertaining way to explain your company’s story and history
Storytelling in your marketing can take you a long way, keep this in mind when you are trying to explain your company. Showing a more personalized side of your company can make the investment personal. Show potential investors the real faces behind the company & show that you are more than just another business (this also helps shape the image of the community).
Remember: Make it interesting! No one wants to read paragraphs.
Add photos of your employees & share their stories
Create video series - use short clips to explain your mission and what you guys are all about (they don't have to be perfect! This is where authenticity is important)
Highlight the company and team using captivating visuals
Method 4: Collaborate with like minded companies or other media groups to get the word out about your crowdfunding campaign
The more people see something, the more it stays with them. For this reason, you should make it a priority to be seen on all social media platforms- everyday..Not only should you be active on your own personal platforms, but you should also expand yourself to others.
Here some ideas:
Join podcasts with industries or groups similar to your company’s.
Collaborate with influencers to highlight your company and crowdfund.
Do Twitter AMAs with industry leaders, create a buzz
Look for similar groups in Discords & Reddit and join the conversation. The more communities you are involved in, the more people you communicate with about your project.
These are just some methods that can increase your chances of acquiring more investors for your company. The main takeaway is to be intentional about each strategy and have a set outcome in mind. The more specific and targeted you can make it, the more likely it is to attract the right investor.
Having a plan & staying consistent is the best way to ensure success!
Stay tuned for my next marketing article! Check out my medium page HERE:
If you'd like more information on marketing for Reg CF’s, investor relations or building a community, please send us an email [email protected] !
-Ana the Marketer
Instagram: Anathemarketer
LinkedIn: Anayansy Hernandez
Twitter: anathemarketer
So it looks like there may be nine new additions to the ranks of Security Tokens, at least according to the SEC, who last week filed their first insider trading case alleging crypto assets are securities against a Coinbase manager, his brother, and his friend. Aside from the charges, the case is the first time the SEC has specifically stated that certain crypto assets listed on Coinbase are Securities.
They alleged that the accused traded 25 crypto assets, but stated that 9 of them were securities (they didn’t say why the others 16 weren’t). Here are the 9 the SEC alleges in their complaint, are securities: AMP, RLY, DDX, XYO, RGT, LCX, POWR, DFX, and KROM. There is no word as to whether Coinbase will be penalized for allowing these securities to be traded, but I’d be that’s coming soon.
This goes to show you that whether you’re purposely making your token a security or not, it’s always important to go over the compliance of your token with your local jurisdiction (especially if you’re in the US!) with attorneys or consultants that can point you in the right direction, including yours truly here at Security Token Advisors.
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 👇
