đŸ€ Security Token Prime Insights: 1/15/2024

Exclusive Intelligence for Security Token Prime Members

January 15, 2024

Summary and Key Takeaways

1. Libre Protocol Launches Fund Tokenization Platform with Brevan Howard & Hamilton Lane as Clients, Nomura / Laser Digital as Backer

Nomura’s digital assets unit Laser Digital and Brevan Howard-backed WebN group finally unveiled the Libre tokenization platform that’s been living in stealth mode. The initial launch is coming to market on the Polygon (MATIC) blockchain with a Brevan Howard hedge fund and Hamilton Lane credit fund product to start sometime in Q1 2024. Libre CEO Avtar Sehra stated, in regards to compliance, “It's not just about adding KYC and AML in the form of a single flag stating whether a user is whitelisted or not. It has to have a lot more nuance to match the right user to the right instrument and a lot of factors come into play: what instrument are you actually issuing, and who can actually hold that? How can it be marketed and to what type of investors in which jurisdictions?”

Beyond that, he hopes to offer collateralization and portfolio management via separately managed accounts that rebalance driven by smart contracts before the end of 2024, which may be an interesting value proposition to RIAs and wealth managers that struggle to tap into existing tokenized product infrastructures.

2. UBS Tokenize Quietly Goes Live

WIth no pomp and circumstance, UBS Tokenize went live on the investment bank and asset manager’s flagship website, noting support for “opportunities across origination, distribution, and custody, initially focusing on tokenization of bonds, funds*, and structured products.” This launch came after the firm covered different use-cases over the course of 2022 and 2023, with some of its initiatives including:

  • $400 million digital bond issuance with SDX in November 2022

  • $28 million structured note with Bank of China International (BOCI) in June 2023

  • Tokenizing a Variable Capital Company (VCC) in Singapore in October 2023

  • Cross-border repo with SBI and DBS in November 2023

UBS has the opportunity to leverage its tokenization technology & workflows alongside with its pre-existing licensed and financial entities. Keep in mind, UBS Wealth Management is host to $3.4 trillion in assets after the Credit Suisse acquisition in 2023, making it ripe for tokenized product distribution into willing wealth management clients and specialty groups. While Citi has been proving the concept of tokenization-to-client distribution out thus far (i..e Citi Token Services to HNW clients and BondbloX bonds to HNW clients), UBS has the tracking roadmap to begin competing and following suit.

3. Deutsche Boerse Fully Acquires FundsDLT with Blue-Chip Client Base

After working with the blockchain-based tokenization and fund administration platform FundsDLT for over a year as an investor, Deutsche Boerse completed a 100% acquisition of the company with approval from Luxembourg regulator CSSF. Seeking to operate FundsDLT within Clearstream Fund Services, Deutsche Boerse’s post-trade infrastructure provider, it will remain a separate division in Luxembourg in order to retain its aforementioned license. Presumably, FundsDLT’s services will better enable Clearstream’s D7 Digital Market Infrastructure to service private funds and bonds across buy-side and admin clients.

FundsDLT achieves its goal of reducing fund admin and distribution fees “through automation by sharing funds data in a permissioned fashion between the asset manager, distributor and client investor. This enables real time cash reconciliation and operates via APIs which supports SWIFT messaging.” The service notes clients like Azimut, Standard Chartered, and BNP Paribas, among aforementioned infrastructure users.

4. RSRV Hotel Marketplace launches on tZERO Infrastructure

From the owner and originator of Aspen Digital, responsible for one of the more successful real estate security token offerings to date (St. Regis Aspen, AspenCoin), comes a new hotel marketplace venture, RSRV. A collaborative effort alongside tZERO and Science Ventures, two security token issuers themselves and tZERO a prominent Intercontinental Exchange (ICE)-backed tokenization broker-dealer and alternative trading system, the hotel ownership platform enables accredited investors to purchase equity in luxury and lifestyle hotel properties and obtain exclusive benefits like bookings, discounted or locked-in rates, and VIP events.

Tokens will eventually likely trade on the tZERO ATS, after the required 12-month lockup period (or 6 months if certain Rule 144a criteria are met), by which they would then be available to retail investors onboarded to the tZERO ecosystem. Hotels and resorts can tap into RSRV as issuers as well, with the promise of raising equity rather than costly mezzanine debt, although digital securities can take on different investment instruments so issuers may have some creative flexibility with the final structuring and covenants. Lastly, RSRV is powered by the Tezos (XTZ) blockchain, thus bringing another channel to that ecosystem in the competitive Layer 1 real-world assets space.

5. WisdomTree Prime Expands to Model Portfolios

WisdomTree Prime has officially been live for roughly 6 months now, after its beta launch in January 2023. The investment app powered by the Ethereum and Stellar blockchains has only offered WisdomTree-sponsored 1940 Act Funds to date, although in early January 2024 it listed its first 3 model portfolio funds that leverage allocation insights from the firm’s Economic Advisor Jeremy J. Siegel. The three Asset Allocation funds are shown below and investment holdings and strategies are available on the WisdomTree Digital Funds page. Technically, WisdomTree is the adviser of these funds with a sub-adviser agreement; the market is still curious if WisdomTree will host purely third-party products on WisdomTree Prime, or if everything will be in some way, shape, or form under the WisdomTree Inc. umbrella.

Notable Market Headlines

Institutional Activity

STM Data

This week’s graph shows last month’s trading price and volume fluctuations for the Republic NOTE, which listed on INX ONE and became available to INX’s retail and accredited investor base on December 6th, 2023. Considering Republic’s track record of bringing investors and issuers together through its $2.6 billion raised across 2,000 issuers, it wouldn’t be a surprise if the NOTE listing brought active market participants to INX’s ATS. 

That being said, Republic’s deadline to acquire INX has been extended to February 2024, and it’ll be interesting to see how that impacts both the NOTE’s trading activity and even more so the INX token.

About $NOTE:

Each Republic Note is a unit of Class B limited liability company membership interests in digital form issued by Republic Core LLC.

Republic was one of the first platforms to leverage Regulation Crowdfunding for private companies to raise capital from retail, non-accredited investors. They have a venture portfolio of 750+ private companies and assets. If any of them sell, offer dividends, or have any other liquidity event, the profits generated go towards a pool to be distributed to the Note holders.

Republic Note Holders receive dividend distributions from the Dividend Pool each time it reaches a threshold amount of $2 million. In the event of a dividend distribution, each Republic Note entitles its holder to a pro-rata amount from the Dividend Pool, after operational transaction fees have been deducted. The dividend distributions may be made in USDC stablecoins.

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The pressure is on the existing tokenization broker-dealers and platforms that have been at this for 3-5 years now. UBS Tokenize quietly launching and Libre coming to market, already having conversations with issuers in the STA network and pipeline means they’re firing out the gate, hard. I sound like a broken record, but the industry’s hindrance is not the technology or the user interface - it’s the distribution channels to serious capital. Where are the integrations with BNY Mellon, State Street, Fidelity, Northern Trust, etc. to unlock that base layer of trillions of dollars in custody? These newer institutional platforms will have less struggle with that, either because they already have those integrations inked or because they are the distribution themselves - like in the case of UBS.

Issuance technology will more or less become commoditized as many banks and sell-side firms begin offering their own services to clients. The real value proposition to fund managers and asset owners is placing products and raising capital. Anything short of that is shifting responsibility to the issuer themselves, and that’s a very tough sell unless geared towards corporations with millions of loyal customers and social media followers, frankly.

As the New Year is in full swing, the STA team urges startup tokenization providers to focus on product distribution channels to RIAs, family offices, wealth managers, and even private banks as best as they can. It’s way easier said than done, but likely the best use of company resources as product distribution and capital placement is THE differentiating factor in the industry at the moment.

Peter Gaffney, Head of Research at Security Token Advisors

Upcoming Success Network Events

  • Weekly Industry Updates Breakdown - Tuesday January 16th at 3:30pm EST

  • Office Hours with Security Token Prime - Thursday January 18th at 11am EST

  • Weekly Networking Happy Hour - Thursday January 18th at 4:30pm EST

  • Powers Hour: Breaking Down the Bitcoin Spot ETF Approvals - Thursday January 25th at 11am EST

Recent Recordings

Hello members,

We’ve got a lot of great news riding into this new week. Seeing Larry Fink essentially go on a media tour to promote tokenization using the BTC ETF news is making waves in the crypto community and certainly Wall Street, who’s been coming around on all this for a while now. We’ve seen BlackRock work with JPM Onyx’s Tokenized Collateral Network which could serve as a hint. I don’t suspect they’ll launch their own chain but it can’t be ruled out. One thing seems for sure, we can expect more news from BlackRock making moves in the tokenization space soon. 

Regulators around the world have caught up on the different tokenization use cases and are green lighting capital markets projects left and right. This year we can expect these sandboxes to release a lot more trials, launch platforms, and technology to support onchain finance infrastructure for their respective economies around the world. 

Meanwhile we’re seeing Reg A+ deals get approved, WisdomTree launching more digital funds, RealT doesn’t stop listing new properties week after week, the big banks and fund managers continue to announce initiatives, in some cases even including rating agencies as we discussed last week.

The genie is out of the bottle for tokenization (RWAs) and it’s going to get exciting to see this market cycle underpinned by BTC’s upcoming halving. Strap in!

Happy tokenizing,

Herwig
CEO, Security Token Group 
@tokenwig

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