🤝 Security Token Prime Insights: 2/26/2024

Exclusive Intelligence for Security Token Prime Members

February 26, 2024

Summary and Key Takeaways

1. Japan Goes Fully Digital: Rakuten Cash

The cohort of Daiwa Securities, Rakuten Securities, Rakuten Payment, Mizuho Bank and MUFJ are collaborating to issue a corporate bond security token that pays interest in the electronic money “Rakuten Cash.” Tokenized on MUFG’s Progmat platform, the Daiwa Securities Group Inc. 1st Unsecured Security Token Bond issued geared towards individual investors with an initial funding target of 1 billion yen ($6.6 million) and a one-year term as Rakuten Securities’ entry into the tokenization realm. Rakuten Cash (the interest payments) will be made through Rakuten Edy, one of the most popular digital wallet apps in Japan.

2. Rialto Markets brings Digital ADRs to its Secondary Marketplace with DSDC

Digital Securities Depositary Corporation (DSDC) has previously worked with INX to issue tokenized American Depository Receipts (ADRs) on the private blockchain KALYP. In February 2024, DSDC expanded support coverage to Rialto Markets as an SEC-registered broker-dealer and alternative trading system for greater collaboration with US regulatory compliance standards and improved cross-border investment opportunities to potential investors. While the tokenization industry has seen US-based stocks wrapped in a security token and offered to international investors, we haven’t necessarily seen the reverse. These tokenized ADRs will serve to close that gap and bring foreign stocks and companies to United States investment venues in the interim.

3. SDX Removes Bond Borders; Expands to Global Access

Prominent tokenization issuance and trading platform SIX Digital Exchange (SDX) received regulatory approval to open its platform up to global issuances and issuers, rather than Swiss-based firms that it was previously limited to. SIX Exchange Regulation (SER) announced that bonds whose conditions are subject to foreign law can be listed on the SDX in the future, just as they’ve begun setting precedent with Eurobonds. The Swiss market itself, while a great case to prove the technology and feasibility of tokenization, is smaller and local. Opening its platform up to broader European entities will be massive as regions like the United Kingdom, Luxembourg, and Germany have all been accelerating their own industry involvements. Even without its surrounding neighbors, SDX is responsible for marquee digital bond issuances with UBS, the City of Lugano (this month), and more.

4. Another Buyer: Contour Network Acquired by Xalts for Trade Finance

Contour Network is a private blockchain solution that was selected by Citi India for its trade finance Letter of Credit (LC) proof-of-concept in April 2023. That original press release noted “Contour's decentralized global trade finance network has proven that LC processing time can fall by as much as 90%. Under the LC, document presentation usually takes 5-10 days, while for Cummins it was completed in three hours.” As of last week, Contour Network was acquired by Xalts, who seeks to leverage Contour’s aforementioned efficiencies and capabilities to build the “Plaid for Trade” in a deal estimated in the sub-$10 million range. Xalts wants to bring Contour’s existing banking partners (who were also its investors) like Citi and HSBC and match them with FinTechs and Corporates involved in trade finance, all running through Xalts. This is another example of a blockchain service provider acquisition to bolster an existing niche like we have seen on the fund administrator and post-trade infrastructure sides (Deutsche Borse, DTCC).

5. Bitcoin’s Liquid Network finds Support with eNor Securities

In the race for extensive coverage and dominance in the tokenized real-world assets space, the frontrunners seem to be (in no particular order) Ethereum, Avalanche, Polygon, Base, and Provenance Blockchain. Lately, Liquid Network (a Bitcoin Layer 2 solution) has been finding new traction and breath through issuances like the Blockstream Mining Note, Blockstream ASIC Note, and El Salvador’s Volcano Bonds. In terms of capital raised, Blockstream and Bitfinex Securities together have proven out a nice track record reaching $60+ million for the Mining Notes alone.

Within the past week, eNor Securities announced its integration and selection of Liquid Network for its tokenized assets exchange in El Salvador. By joining the Liquid Federation, eNor has the opportunity to partner with or complement the existing traction that Bitfinex Securities has been garnering in El Salvador upon its recent licensing approval, and will begin working in its own niche building up towards a secondary venue.

Notable Market Headlines

Institutional Activity

STM Data

Today Security Token Market is highlighting last week’s trading activity and a top performer. While market caps for both US and non-US tokens remained relatively stable, US volumes saw a 9.56% decrease week over week. That being said, Realio Security Token ($RST) alone accounted for 39.5% of the $201,586 volume, outperforming the other 13 US security tokens tracked on STM.Co. 

Because Enegra accounts for ~$522K of the non-US volume, RST also outperformed all the other non-US security tokens in terms of volume.

What’s unique about Realio Security Token?

$RST is issued as a hybrid security token to represent ownership of the Realio Ecosystem. The Realio Security Token (RST) represents an investment in the platform and ecosystem, offering a revenue stream in the form of profit share. RST token holders can also run a node on the Realio Network to validate transactions while earning block rewards and additional revenues from issuance fees paid out in $RIO.

Keep an eye out for a new feature coming soon on STM.Co! Can you guess what it is? Leave your guesses in the Security Token Prime general chat.

Security Token Prime is Made Possible Thanks to Our Enterprise Partners

Partner Update: REtokens

Led by Tyler Vinson and David Kirschbaum, REtokens is tokenizing their own equity and is accessible to accredited investors at just a $5,000 minimum.

This offering is already over 50% committed and goes live tomorrow, February 27th alongside their webinar at 8:30pm EST.

Fundraising has been coming back across the digital assets space and M&A activity seems steady. We had another example this past week with Xalts’ acquisition of Contour Network, an under-the-radar solution for trade finance and the digitization of letters of credit. There are other trade finance solutions being built underpinned by tokenization, like India-based Vayana with Singapore’s InvestaX. It’s certainly an interesting use-case and one that has a strong element of “follow the money.” By that I mean there’s a solid chunk of reconciling and checking boxes on the status of a letter of credit (LC) - the method of contract transacting in trade finance - and it’s a process that shared distributed ledgers can be very effective with. Once the end-to-end digital system is in place, we expect to see LCs utilized as collateral much like the industry is working to utilize treasuries and money markets as collateral.

Much of this will come down to the base layer blockchain and its associated ecosystem, whether a privately developed and managed network like in Contour’s case with major banks, or a more retail international-driven network like Coinbase’s Base (also integrated and supported by InvestaX).

Peter Gaffney, Head of Research at Security Token Advisors

Security Token Advisors Client Highlights:

STA has elected to spotlight a couple of our advisory & consulting clients here.

Blue Water FinTech - STA is working with Blue Water, an SEC-registered investment adviser and FinTech platform dedicated to Mortgage Servicing Rights (MSRs) and loan servicing with 500+ originators onboarded. STA has been evaluating the tokenization ecosystem on behalf of Blue Water, who is seeking to distribute MSR and associated cash flows to investors as compliant tokens. Blue Water is one of the (if not the) leaders in MSR secondary trades by volume which could contribute to a very notable listing on tokenized secondary marketplaces when the time is right.

Arctic Digital Mining - STA is working with Arctic Digital Mining (ADM) to develop a tokenization platform geared towards Alaskan gold miners under the mission of unlocking the value of in-ground gold deposits via digital securities, and thus bringing utility to unmined gold and precious metals. Targeting a range up to 100 million gold ounces, ADM seeks to bridge the gap between in-ground gold valuations and mined & listed gold (i.e. ETFs and gold-backed stablecoins) through the GiG token. Eventually, we may see price convergence as miners, investors, and users along the value-chain elect to tap into this market directly at the source through the miners on Arctic Digital Mining’s platform.

For Consulting Inquiries or Client Details: please email [email protected] 

Upcoming Events

  • Weekly Industry Updates Breakdown - Tuesday February 27th at 3:30pm EST

  • Platform Spotlight: Block Time Financial - Wednesday February 28th at 3pm EST

  • Office Hours with Security Token Prime - Thursday February 29th at 11am EST

  • Weekly Networking Happy Hour - Thursday February 29th at 4:30pm EST 

Recent Recordings

  • The TradFi/DeFi Hybrid with Maple, Centrifuge and Swarm (Recording Link)

  • Platform Spotlight: REtokens' New Platform with Tyler Vinson and David Kirschbaum (Recording Link)

  • Powers Hour: New SEC “Dealer” Rule Expansion and DeFi Impacts (Recording Link)

Hello members,

In all the years of our reporting I’ve never seen so much activity week after week. We’re seeing the signs of a market that is coming to life. We have more and more offerings being announced around the world every single week; bonds, real estate, equities, funds, nothing is safe (even a warrant was tokenized the other week!). Two driving forces will also make the market explode this year.

The first is money market funds. Stablecoins do everything they can to be seen as money and not securities. This inherently prevents them from giving yield back to customers. In order to tap into an equally liquid version that does produce yield then we are talking about a tokenized money market fund. This is a foundational brick that provides settlement for any onchain transaction, and I believe will see its moment this year and next year to the same tune as stablecoins. Eventually they will have even higher volume as they effectively become the settlement layer for all tokenized securities and possibly some crypto transactions as well.

Now the biggest reason money market funds end up growing is due to RWAs and tokenization adoption. I believe the second driving force will be RealT’s tokenization being adopted by other crypto companies. Though it won’t touch the US market, permissionless trading of equity could become a better form of an ICO that does offer true ownership exposure to end buyers with the same utility of DeFi as crypto assets.

Combine this with the countless number of tokenization platforms and marketplaces still popping up around the world, and we’re soon bound for a market with tens of thousands of products available for investors to buy around the world.

Happy tokenizing,
Herwig
CEO, Security Token Group 
@tokenwig

Herwig’s Pick: Xalts

 Kyle’s Pick: Coreestate

Find out why and more every Monday live at 10am EST on LinkedIn or X/ Twitter. Past episodes available on Youtube or your favorite podcast platform! 

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