🤝 Security Token Prime Insights: 3/11/2024

Exclusive Intelligence for Security Token Prime Members

March 11, 2024

Summary and Key Takeaways

1. Hong Kong Monetary Authority (HKMA) Sets Up Project Ensemble

Hong Kong Monetary Authority (HKMA), the region’s central bank, has been active in digital assets for years. HKMA has now set up official infrastructure to implement solutions “that will facilitate seamless interbank settlement of tokenized money.” The Project Ensemble announcement details its role as a wholesale Central Bank Digital Currency (wCBDC) after its multiple rounds of Research and Development associated with the digital Hong Kong dollar (e-HKD).

Within Project Ensemble there are multiple subsets. One of these initial focuses is the test of tokenization and settlement associated with ESG verticals and value-adds including green bonds, carbon credits, aviation supply chain, electric vehicle charging stations, and other treasury financing. It seems like jurisdictions and central banks across the map have announced “tester CBDC” trials - the market is still waiting on something tangible with that regard. Project Ensemble is aligned to meet that assuming the sandbox stays on target for its late 2024 live launch.

2. SBI Digital Announces Switzerland and Asia cross-border Structured Products

SBI Digital Markets (SBIDM) announced a collaboration with Switzerland’s CAT Financial Products (CATFP) as a structured products tech platform and issuer. The two groups are now exploring synergies doing what they do best - CATFP issuing digital structured products and SBI tokenizing and finding distribution of these digital products. What’s very unique and holds strong potential here is the Switzerland-Asia blend. Swiss regulators have been very forward looking from a DLT and tokenization perspective, even recently enabling newfound decentralized finance (DeFi) interactions. Asia as a whole, with an emphasis on Hong Kong, Singapore, South Korea, and Japan, holds plenty of firepower and has even seen the industry’s largest digital green bond issuance to date ($756 million)

As interesting context, Deutsche Borse’s D7 digital securities infrastructure platform has been heavily used for structured products, touting a reported 15,000 issuances since its Q3 2023 public push. These structured product issuances have been tailored for issuance efficiencies in a relatively low-margin field, proving the ability to shave basis points off of the process for the necessary parties involved.

3. Security Token Advisors Publishes Quarterly Report with Blue Water FinTech: Executive Letter

The tokenization of real-world assets (RWAs) solidified itself as a digital asset vertical that’s here to stay in Q4 2023. There have been an unprecedented number of new ‘real-world asset protocols’ crossing into the decentralized finance (DeFi) ecosystem and garnering the attention of native crypto investors. Simultaneously, institutional and heavily-compliant platforms became arguably more active than ever with more and more respected deals.

On-chain asset-backed securities marched to over $12 billion to close the year on the backs of infrastructure vehicles like Provenance Blockchain and Figure achieving $7 billion, with Stellar and Liquid Mortgage tallying their own $5+ billion of assets serviced and reported. Money markets and treasuries peaked around $850 million collectively - an extremely impressive number considering capital flows into these products are pretty organic from Web 3.0 firms and funds, exploratory money managers, and individual investors alike. Even closer to that coveted $1 billion mark that very well may be breached in Q1 2024 with the addition of institutional-grade offerings like Hashnote’s US Yield Coin (USYC) and Ondo US Dollar Yield (USDY).

As projects move out of proof-of-concept and pilot stages, we’re starting to see some quantifiable savings, benefits, and externalities with regards to digital systems. As you’ll read in the Key Takeaways, this tokenization technology is already offering raw cost savings and meaningful labor savings, reducing time spent on redundant tasks and therefore reducing the need for some of this excess labor. This shouldn’t shock anyone; after all, that’s what new technology overlays do. The important takeaway is that the industry is actually nearing the point of seeing these savings, and now focusing on where the commercialization will begin.

Lastly, it’s exciting to see the breadth of projects being actively explored and the recurring names in the tokenization space. Citi. UBS. JP Morgan. Apollo. WisdomTree. Wellington. HSBC. Goldman Sachs. Coinbase. Regulatory organizations and spearheads like the Monetary Authority of Singapore (MAS) and Hong Kong Monetary Authority (HKMA) are also involved to equivalent extents as the service providers. All in all, this quarter established an even more robust ecosystem to power the next leg of capital markets, and we seek to cover as much of that as possible within this publication.

Notable Market Headlines

Institutional Activity

STM Data

This week Security Token Market decided to share two data charts, reflecting on-chain treasury products by protocol from our recently-published STM Monthly Report: February 2024.

Notable shifts contributed to the February decline in market cap. The Maple protocol experienced a drastic -57.14% drop, decreasing from just over $24 million to around $10.5 million. Its two products, Cash Management Pool (USDC-SPL) and Maple Cash USDT1, had distinctive market caps. Maple Cash USDT1, for instance, decreased from over $12 million in January to $50 by February’s end.

While Franklin Templeton — Benji Investments remained the leader with a market cap exceeding $324 million, it dropped over $8 million from January. Ethereum and Stellar continued dominating as the preferred blockchains for tokenized treasury products, with market caps of $346.7 million and $328.5 million, respectively.

For more charts and insights around February’s secondary market activity take a read through STM’s Monthly Report where we have meticulously tracked over 525 security tokens spanning across 29 marketplaces and 11 blockchains.

Sections include:

👉 Key Takeaways

👉 Asset Class Breakdown (including newly onboarded institutional debt)

👉 Marketplace Spotlights

👉 On-Chain Treasury Products

👉 New Tokens and Announcements

Security Token Prime is Made Possible Thanks to Our Enterprise Partners

The Security Token Advsirs team unveiled its most recent quarterly report: State of Security Tokens 2023 - Q4. This was personally my favorite of our reports database and arsenal thus far for a number of reasons. First, the STA team was able to publish this with our own advisory client Blue Water FinTech as the sponsor. BlueWater already has a tremendous footprint in the mortgage industry, offering its FinTech solution to 500+ mortgage and loan origination companies, pricing, trading, transferring, and quality controlling assets all in one portal. The next wave of Blue Water’s model is to distribute mortgage-associated cash flows via compliant tokens. One of the key features within this process is the fact that mortgage assets are so difficult to obtain in the primary marketplace, requiring extensive licensing and regulatory abidement. It’s not like wrapping an accessible asset in a token and calling it tokenizing - rather, BlueWater’s play here will actually usher in a newly accessible quality asset to a range of investor profiles all throughout the tokenization ecosystem and associated groups.

For those who have paid attention to our quarterly reports, we actually kicked 2023 off with Provenance Blockchain as our Q1 report sponsor. As detailed heavily in the Q4 report, Provenance Blockchain and Figure’s Home Equity Line of Credit (HELOC) originations and securitization placements have solidified some serious capital numbers behind them achieving $7+ billion in aggregate sizing. It’s nice to see things come full circle over the course of 2023 with a client that will likely add to and accelerate that existing traction in a complementary manner.

The datasets and visuals are also becoming richer as the reports go on, with a major nod to our data arm Security Token Market. As the tokenization and real-world asset space continues to expand, verified and asset class agnostic data aggregation will be key for staying on top of the industry. The STA team is always hearing murmurs from marketplaces and trading venues about upcoming listings and activities; it’ll be STM’s duty to help share the trading and portfolio constructions opportunities that arise within this space to as many asset managers, trading firms, quant funds, and family offices as we can.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

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Recent Recordings

  • Platform Spotlight: Block Time Financial (Recording Link)

  • 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,

So much happened last week and more is coming so I will keep it brief. Instead, take the time to read Peter’s latest report as you are bound to learn something no matter how deep you are in this industry.

I’m also excited about all the changes happening to STM.co. Not only are we adding more and more data sources every week, now we’ve got more friendly ways for you to read and interpret market activity. Keep an eye out for more features. 👀

As always, we look to be your one stop for all things tokenization. Let us know what else you’d like to see in our research, on Security Token Prime and/ or STM!

Happy tokenizing,
Herwig
CEO, Security Token Group 
@tokenwig

Herwig’s Pick: Credora

Kyle’s Pick: Estate Protocol

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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