🤝 Security Token Prime Insights: 3/18/2024

Exclusive Intelligence for Security Token Prime Members

March 18, 2024

Summary and Key Takeaways

1. Figure Raises $60 million for Figure Markets: One-Stop-Shop Regulated Digital Assets

Figure Technologies has already achieved close to $7 billion in on-chain Home Equity Line of Credit (HELOC) originations, another few billion in HELOC securitizations and placements with blue-chip underwriters like Jefferies, Goldman Sachs, and JP Morgan, and secured deals with traditional private equity firms on digitizing private funds. As of today, Figure officially announced it raised $60 million in the Figure Markets (a subsidiary) Series A round to build out a marketplace that covers nearly all digital assets verticals: cryptocurrencies, tokenized products, stablecoins, and even NFTs. The one caveat - or as we believe is wiser to call it, qualifier - Figure will only deal with specifically deemed non-securities (Bitcoin) or registered and/or exempt securities (Reg D, Reg A, S-1 blockchain-based securities).

To further practice what it preaches, Figure already filed and is in deeper iterations of its publicly-registered stablecoin alternative (Figure Certificate Company). This coin will underpin Figure Markets and set precedent for the filing requirements of anything moving through its rails as Figure already has an Alternative Trading System (ATS) license and will seek to develop a compliant decentralized exchange (DEX) within this solution. Again, the goal is providing traditional and digital asset investors alike with their preferred operational experiences. An interesting quote from Figure Founder and CEO Mike Cagney is, “Many users will be able to invest in a product like Figure Market’s REIT and use that to collateralize a trade in BTC.”

To begin, Figure Markets will leverage the Cosmos-based Provenance Blockchain with expected wrapped tokens or bridging to other Layer 1 blockchains like Ethereum, Avalanche, Algorand, etc. as further regulatory clarity or clear-cut demand shows itself. Notably, Provenance Blockchain has already been used in a range of interoperable pilots including the Project Guardian Wealth Management pilot with JP Morgan, WisdomTree, and Apollo - there should be precedent for future interoperable cases given this.

2. Canton Network Demonstrates 22 Interoperable Tokenization Cases

Canton Network built by Digital Asset and programmed with its Daml language is home to dozens and dozens of institutional users. After its testnet launch almost a full year ago, Canton has now demonstrated a wide variety of programs, applications, and uses for its technology and its power user base in the March 2024 announcement. The Canton Network pilot, “a first-of-its-kind program demonstrating the interoperability of twenty-two independent distributed ledger applications (dApps) in the capital markets domain. The successful execution of over 350 simulated transactions proved how a network of interoperable applications can seamlessly connect to enable secure, atomic transactions across multiple parts of the capital markets value chain. It also demonstrated the potential benefits of using such a network to reduce counterparty and settlement risk, optimize capital, and enable intraday margin cycles.”

The Canton Network itself is a private blockchain solution for institutional and invite-only parties looking to collaborate and improve existing business activities, necessities, and forward-looking applications like asset tokenization, fund registry, digital cash, repo, securities lending, and collateral management. The lineup within the Canton Network Pilot included:

  • 15 Asset Managers

  • 13 Investment Banks

  • 4 Custodians

  • 3 Exchanges

  • 1 Financial Market Infrastructure Provider

Within this cohort of 36 organizations, the 22 applications consisted of five fund registries, five cash registries, three bond registries, three trading, four margin, and two financing apps, to exchange tokenized securities, money market funds, and deposits across applications. Again, the overarching theme of these applications surrounded cost reductions and speed savings when it comes to inter-party transactions on existing business activities. In this case, any upgrades are worthwhile to the member firms and totally doable with a private network, whereas new capital raising and decentralized finance interactions will be the bread-and-butter for public blockchain product issuances.

3. Publicly-listed French Company Metavisio Issues $20 million Bond with Obligate and Polygon

Obligate has been making a strong name for itself with regards to on-chain debt origination. Based in Switzerland, Obligate recently completed its first bond issuance for a publicly-listed company. Metavisio’s $20 million debt raise target (in USDC) will be done in tranches, with the first $2 million tranche issued this past week. Proceeds will be used for expanded manufacturing growth. As a partner of Obligate’s, Credora rated this debt issuance via its on-chain rating engine, with the final mark TBD.

4. IX Swap Launches Onchain Tokenized Portfolios

IX Swap, a Recognized Market Operator (RMO) and Capital Markets Services (CMS) provider in Singapore, launched Onchain Tokenized Portfolios (OTPs) that mimic Key Opinion Leaders (KOLs) and their portfolios within the Web 3.0 space. IX Swap’s goal is to enable a more seamless interaction method between Web 3.0 thought leaders and their followings, thus creating model portfolios per these KOLs activity and behavior. The KOLs themselves will be the issuers on IX Swap’s interface; it is unclear who the initial onboarded KOLs are although given IX Swap and Web 3.0’s global nature, it can range anywhere from niche influencers to some of the largest media and thought leaders in the industry.

Notable Market Headlines

Institutional Activity

STM Data

As previously requested, Security Token Market is looking at trading volume across the 3 main US-based alternative trading systems (ATS) for security tokens: tZERO, INX One, and Securitize Markets. This graph in particular zooms in on the last few years, starting 2021. While tZERO and INX are clear leaders in the secondary market, it’s important to note that Securitize has been instrumental in bringing institutional funds on-chain such as KKR and Hamilton Lane in the primary market. Securitize is currently in the process of bringing their ATS back online to restore trading for their listed tokens.

Back to the secondary markets theme, however, this past week INX saw a new listing: Hashrate Asset Group’s $HAG Token which is now being tracked on STM.Co. HAG is a security token focusing on Bitcoin mining and designed to pay monthly WBTC distributions, with each HAG aiming to maintain a peg to 1 terahash per second of Bitcoin mining hash power. Although trading just started in the middle of last week, we’ll be monitoring it for any interesting trading activity as it picks up.

What else would you like to see from STM in terms of graphs, charts, insights, etc? Reply to this email or email [email protected] to let us know!

Security Token Prime is Made Possible Thanks to Our Enterprise Partners

We are seeing a more robust engine being built by the day within the tokenization space. One of the earlier pitfalls and challenges with issuing products and working to raise capital from people all over the world was “how do we differentiate ourselves and prove ourselves?” In theory, there could be hundreds of residential real estate opportunities open at the same time, all raising $5 to $15 million, all yielding 8-12%, all in similar cities. So how is an interested investor from the West Coast supposed to determine which Midwest investment property to deploy his capital into if they all look the same in a saturated pool?

Third-party additions and supplements may be key here. I mention this because of the recent activity from Credora, an on-chain rating service and system that’s integrated with protocols and platforms like Obligate, Maple, Clearpool, and a handful of others. What Credora does for debt issuances is something that will help unlock meaningful capital, as it actually presents unbiased ratings against a distinct list of criteria helping determine where similarly-profiled debt issuances stack up against each other. The firm recently updated its rating engine to benchmark against the big 3: Moody’s, S&P, and Fitch Ratings, thus bringing even more clarity and apples-to-apples comparisons to sophisticated capital pools. The Security Token Advisors team is currently working on bringing Credora and related third-parties to our own client base and research network as we recognize the necessary gaps they are filling. Soon, no longer will lack of data and disclosures be the toughest challenges in offering placements, as Credora and these services will streamline much of that work before larger incumbents begin leveraging their own systems to contribute to that firepower. 

Peter Gaffney, Head of Research, 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 March 19th at 3:30pm EST

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  • Issuer Spotlight: Tuscany National Token - Wednesday March 27th at 12pm EST

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Hello members,

All three forces of tokenization are in full swing  right now. The crypto force is going bananas with ATHs (all time highs) being broken and meme coin surges as proof that we are in a bull market. RWAs continue to get more interest because part of the community is eager to go beyond the get rich quick advertising for crypto that is happening right now. Heck, someone managed to raise $10M for a coin and then messed up the mint so original buyers got nothing (the issuer then did a new mint to list the token on NFT marketplaces  and still had it reach a $700M market cap with the originally buyers being made whole and then some). This craze is not sustainable which is why protocols like Chainlink, Bitcoin L2s, and certain popular chains like Avalanche and Polygon are driving and pushing the RWA narrative. This should bode well for the purpose-built chains like Provenance and Polymesh in the future. If they start to “pump” we will know the RWA narrative has made it to the next stage in the crypto community.

The second force at work is the current startup infrastructure (which took 6+ years to get here) which deserves all the praise for pioneering the space and addressing the retail crowd. What’s our indicator here? Fundraises and listings. RedSwan, Digishares, and others all launched their own Reg CFs. Figure announcing $60M is a strong indicator too. And we are seeing tZERO listing offerings again as well as many other brokers. Albeit they’ve turned to primary raises which inevitably means that these offerings will eventually be trading on a secondary market. The reason this segment is important is because it addresses all other audiences that aren’t considered crypto or institutional. 

That leaves us with the institutional force as the last and third segment. The more PoCs, new clients, and positive sentiment actually spills over to crypto and retail. This brings much needed validation to the professional markets and the institutions are taking a slower and closed ecosystem approach in order to truly leverage ‘unseen’ benefits like back office improvements, repo / treasury management, and automated waterfall distributions - stuff that crypto and traditional retail don’t care about or find sexy about the technology.

So what does this all mean? No - still the tokenization market won’t explode 1000x overnight this year. But it is the perfect storm for the regulators and legislators to finally have confidence and support to make changes to the rules of the game in order to set the stage for true growth and adoption for blockchain-powered capital markets.

Happy tokenizing,
Herwig
CEO, Security Token Group 
@tokenwig

Herwig’s Pick: Canton Network

Kyle’s Pick: ClearToken

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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