🤝 Security Token Prime Insights: 1/22/2024

Exclusive Intelligence for Security Token Prime Members

January 22, 2024

Summary and Key Takeaways

1. On-chain asset-backed Securities reach $12 billion with Redwood Trust’s $433 million securitization on Liquid Mortgage & Stellar

Security Token Prime and its contributors, Security Token Advisors (STA) and Security Token Market (STM), spent the better part of 2023 expanding the industry’s thoughts from just real estate to just real estate and treasuries to more. One of the segments we’ve been harping on is asset-backed securities. While Figure and Provenance Blockchain are usually the ones that come to mind, Liquid Mortgage and Stellar should be in the same conversation.

Last week, Liquid Mortgage completed its 14th securitization with Redwood Trust (leading REIT with $13+ billion in assets) worth $433 million. Liquid Mortgage has officially surpassed $5 billion in assets on platform with this securitization. Comparatively, Figure achieved roughly $850 million in on-chain HELOC securitizations in 2023, with the bulk of Figure Lending coming on the origination side (now reaching $7 billion since 2020). Collectively, Liquid Mortgage and Figure are pushing $12 billion in on-chain securitizations and originations, roughly 10x greater than what many readers and analysts in the capital markets seem to think the size of the industry is alone. Updated data sources and insights will be brought to you through this Security Token Prime portal and covered in depth at STM and STA. 

2. Fundraising comes back with $100 million / $1.2 billion valuation on HashKey Capital

HashKey Group successfully completed its $100 million Series A round valuing the firm at $1.2 billion - something that feels like it's been unheard of in digital assets for quite some time now. What’s notable about this is its focus on compliance and compliant products. The firm stated that it will use the funds to “develop its Web3 ecosystem, enhance compliance and expand its product offerings for its licensed business in Hong Kong.” HashKey Exchange received the first crypto retail trading license in Hong Kong in August 2023 and has built its exchange up to 155,000 registered users with a daily average trading volume of $630 million in December 2023.

Per the press statement, “HashKey Group’s core businesses include HashKey Capital, HashKey Cloud, HashKey Tokenisation and HashKey NFT, according to the statement.” We have all eyes on HashKey Tokenization given some of their existing discussions with asset managers looking at crypto ETFs and other products to capitalize on this emerging market. Should HashKey obtain any additional required licensing, issuing and distributing tokenized products is just a stone’s throw away from its current business.

3. Chinese FI tokenizes fixed income fund in Hong Kong

Speaking of Hong Kong, the Chinese financial institution Harvest Global Investments (HGI) has issued the first tokenized fixed income fund in Hong Kong specifically, with tokenization services provided by its own portfolio company Meta Lab HK. Linklaters advised HGI on this transaction and issuance as legal counsel, having already been active in the blockchain-based securities game with EIB, Euroclear, and other blue-chip issuers and infrastructure providers.  The official news of this tokenized fund comes 2 months after its plan announcement in November 2023 noting that the fund will primarily invest in US Dollar bonds and products.

4. New Issuances & Offerings across the Board

The past week was also a strong one in terms of new issuances coming out of the backbone of the tokenization ecosystem - the service providers and platforms that offer this very service. Some of these now active deals are listed as follows:

  • BlockInvest: tokenizing non-performing real estate loans on the Polygon blockchain with 130 Servicing as a securitization consultant and Davis & Morgan as a credit management company

  • Frictionless Markets (formerly DEFYCA): unveiled FX swaps on 8 different currencies on the Avalanche blockchain in efforts to widen tokenized fund access to investors in their native currencies

  • WISeKey International Holding: partnered with The Hashgraph Association to build a regulatory compliant art marketplace on Hedera Hashgraph, known as WISe.Art Marketplace

  • Oasis Pro: launched the closed-end private equity fund Wine Capital Fund with WIVX Asset Management

  • Texture Capital: white-labeling its digital BD/ATS to Ticker Markets for the firm’s new marketplace for PE and VC secondaries

  • *Bonus: Nayms began offerings yield-generating insurance opportunities in the form of tokenized assets on the Base blockchain

Notable Market Headlines

Institutional Activity

STM Data

This week’s graph is a teaser from our upcoming State of Security Tokens 2023 - Q4 report, which shows last year’s growth in on-chain treasuries, real estate, and private credit. Just as the graph displays, tokenized money market funds were a big theme in 2023, growing to over $846 million (up 619% on the year), making a great trojan horse for institutions to understand the technology via an asset they can easily understand. Furthermore, we saw them playing a role in collateral mobility with one of the most notable examples being JPMorgan, BlackRock, and Barclays’ use of tokenized money market fund units to post margin through the Tokenized Collateral Network (TCN). This deviates from the traditional alternative of exiting a money market fund, posting margin, then reinvesting in the fund. For more information, see Onyx Digital Assets head of product Keerthi Moudgal expand on their announcement at our TokenizeThis conference (12:55 - 16:17).

Additionally, treasuries and money market funds are a great alternative to stablecoins for parking cash on-chain. In a recent report Moody’s argues “rising yields on top-tier government securities are drawing the attention of crypto investors, particularly in light of decreased returns on stablecoins and volatile crypto assets.”

Private credit also saw significant relevance at over $484 million (up 57% on the year). This space is notoriously illiquid and requires high investment minimums which we believe tokenization can help. Blockchain technology would solve for streamlined investor onboarding and distributions, saving on back and middle office costs which would allow for an increased number of investors (ie. lower ticket sizes). Hamilton Lane’s Senior Credit Opportunities Fund (SCOPE) on Securitize is a perfect example of this - while they’d typically accept a minimum investment of $2M, this tokenized version only asks for $10K.

Why does this matter? Traditional issuers’ distribution channels are already there, but what if those channels could offer these products  to a wider subset of their clients? Issuers would enjoy faster turnaround time, more investors will be able to participate, and rebalancing portfolios will be more granular for large and smaller investors alike. 

“Private credit is a vertical that’s sat between 5% and 8% in annual yield the past decade and is now pushing over 10%. This is an asset class the banks will pump as a prime product to as many divisions, partners, and clientele as they can in an effort to maximize return potential.” - State of Security Tokens 2023 - Q3 Report

Private credit coming on-chain became increasingly apparent throughout 2023 and we expect it to continue for the foreseeable future. The benefits to both the issuers and investors are undeniable. 

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The STA team is very excited to unveil our Q4 2023 report with the network and the broader capital markets crowd. As mentioned in this newsletter, many in the space seem to think there is something like $800 million or $1.6 billion in on-chain assets (looking at the treasury and credit protocols, respectively). While those are the 2 most commonly interacted with by Web 3.0 firms, DAOs, and even stablecoin foundations (to diversify reserves like we have been seeing with Tether, USDC, and others), one cannot be so narrow as to only assume that’s the market itself.

We’re showing you the asset-backed securities side, which in some cases just acts as a ledger for data storage (Okay) but in other cases acts as the full digital interface for investment banks, placement agents, and buy-side holders to work with (Superb). The industry should take their hats off to Liquid Mortgage and Figure for being the first ones to reach that $1 billion mark each in on-chain assets; we know treasuries are right around the corner to that mark, having actually predicted that billion mark to come before 2023 closed out in our original State of Security Tokens 2023 - Q1 Extended report (missed it by $130 million). It’s a big feat in this industry to reach that 10-figure mark and we still maintain the thesis that all of these fragmented and one-off / pilot $100 million digital bond issuances through banking platforms like GS DAP or HSBC Orion will translate - sooner rather than later - to a singular $1+ billion issuance with the right client. And that, I believe, will also happen in 2024 after a few $200-$400 million projects.

Drop me a note in STP or connect on LinkedIn / Twitter to chat more.

Peter Gaffney, Head of Research at Security Token Advisors

Upcoming Success Network Events

  • Weekly Industry Updates Breakdown - Tuesday January 23rd at 3:30pm EST

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

  • Weekly Networking Happy Hour - Thursday January 25th at 4:30pm EST

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Hello members,

Welcome to all the new faces! How many of us knew that there are over $12B in RWAs alone in just securitizations? Add in equities and we are over $30B in tokenized securities around the world. That’s over twice the size of NFTs!* This is only just the beginning as I expect that number to triple this year, maybe more!

Have you participated in a Security Token Prime virtual event yet? Between Networking Meetups, Office Hours with the team, or special events like this week’s Powers Hour where you can learn from one of the top securities attorneys who previously worked at the SEC, we’ve got something for everyone. Hope to meet you this week at one of them!

Happy tokenizing,

Herwig
CEO, Security Token Group 
@tokenwig

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