🤝 Security Token Prime Insights: 3/25/2024

Exclusive Intelligence for Security Token Prime Members

March 25, 2024

Summary and Key Takeaways

1. Securitize lands the Golden Goose: BlackRock

The world's largest asset manager officially entered the tokenization industry this past week. BlackRock, who manages around $10 trillion in assets, announced its USD Institutional Digital Liquidity Fund (BUIDL) listed on Securitize Markets, the broker-dealer arm of prominent tokenization platform Securitize. BlackRock moved $100 million onto the Ethereum blockchain in the form of popular stablecoin USDC Coin (USDC), presumably as seed funding for BUIDL and associated transactional work. BUIDL is stated to “offer a stable value of $1 per token and pay[s] daily accrued dividends directly to investors' wallets as new tokens each month,” and “invest[s] 100% of its total assets in cash, U.S. Treasury bills, and repurchase agreements.” The product is a classic money market and treasury fund - no coincidence that this is the product suite that took off the most in the tokenization industry all 2023; after all, this is where serious pools of capital will begin and onboard themselves to the blockchain world given where interest rates are and fiduciary responsibilities. The other service providers in this stack include BNY Mellon, Anchorage Digital Bank NA, BitGo, Coinbase, Fireblocks, and PriceWaterhouseCoopers.

The real significance of BlackRock’s issuance and selection of Securitize as its host venue is actually on other tokenized products and asset managers. To date, liquidity has been a trifling pain point - both in the ease of primary offering placement and in secondary trading pairs. Securitize is already home to multiple Hamilton Lane alternative investment funds, a KKR healthcare fund, and smaller firm offerings. Blue-chip investment firms, issuers, and other market participants will likely see BUIDL as the gold standard of tokenized products to date given the BlackRock branding. As a result, expect to see capital and product inflows to the Securitize ecosystem that has positive externalities on other listed assets and products.

As an extension, the Security Token Advisors team was quoted in FundFire’s launch coverage on this product topic and will be sharing additional insights with CoinDesk’s Crypto & Long Short audience next week.

Industry professionals and enthusiasts are encouraged to come listen to Carlos Domingo (CEO of Securitize) share his vision on interactions with BlackRock, institutional use-cases, and the broader Securitize roadmap at TokenizeThis 2024 in Miami, FL May 9-11th.

2. RealT Completes Swiss-structured Retail & Accredited Equity Token Offering Valued at $80 million

One of the original Real Estate tokenization issuers and platforms completed its most significant and market moving initiative to date this past week. RealT, who made a name and brand for itself by tokenizing and placing $100+ million of residential housing across hundreds of offerings, structured its own equity offering under the Swiss DLT Act. RealT raised an estimated $4.5 million from 2,300+ investors across US Accredited, International Accredited, and International Retail segments. The remainder of the $5M target by RealT is currently being released in tranches to enable everyone an opportunity to invest that initially missed out. The average investment size was around $2,100 per investor, although individual check sizes reached the low six-figure level. RealT is arguably the most successful firm in the real estate tokenization space, having built up a loyal and active audience contributing heavily to both the primary offering subscription and secondary trading of RealT-issued assets - something that many firms and protocols have struggled with over the years. The RealT equity token will be an early case to keep an eye on within the Swiss regulatory framework as it already has extensive ties to the DeFi world via Levinswap, per Security Token Market data.

3. 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.

4. WisdomTree Prime & Digital Trust Set to Operate in New York through New York State Department of Financial Services (DFS)

WisdomTree Prime, the digital asset investment application hosted by $100 billion asset manager WisdomTree Inc, is now able to operate and transact in the state of New York after achieving regulatory milestones in 30+ states throughout the United States. WisdomTree Inc. received a charter from the New York State Department of Financial Services (DFS) to operate a limited purpose trust company under New York Banking Law. This charter, enriching WisdomTree Prime, enables WisdomTree to “perform fiduciary custody of digital assets, including digital wallet services, to issue and exchange DFS-approved stablecoins and manage stablecoin reserves under the newly formed entity, WisdomTree Digital Trust Company, LLC.” The initial two products through the Digital Trust will be WisdomTree Gold Token and the WisdomTree Dollar Token, with support and integration to WisdomTree Prime’s Digital 1940 Act Funds coming in the near-term.

5. Sygnum Bank Purchases $50 million in Fidelity Institutional Liquidity Fund (ILF); Tokenizes the Shares for Matter Labs’ Treasury Holdings

Swiss-based Sygnum Bank has been a long-time advocate for and participant in tokenization, recently completing a private fund tokenization deal with Hamilton Lane and Apex Group. This past week, Sygnum actually invested $50 million into Fidelity’s $6.9 billion Institutional Liquidity Fund (ILF) - the financial service giant’s money market fund - which it will then tokenize the shares of and send to Matter Labs’ own treasury holdings. The workflow here stems from the understanding that Matter Labs is a client of Syngum Bank that operates an Ethereum Layer 2 blockchain, zkSync. Matter Labs will be diversifying the zkSync treasury holdings with the Fidelity money market shares - something that can only be done once the MMF shares are on-chain. This is not the first time we’ve seen this cross-over between traditional shares and tokens, as Archax and Abrdn completed a similar digital twinning of Abrdn’s Sterling money market fund in 2023. This is a great method to begin the intertwining of traditional finance and Web 3.0 platforms and services as it brings the blue-chip legacy names together with the emerging trailblazers.

6. Mikro Kapital Successfully Distributes First Coupon Payments for Bitfinex Securities-listed Tokenized SME Bond

Bitfinex Securities has established itself steadily in the fixed income side of the tokenization space. Alongside opening operations in El Salvador and winning the bid for El Salvador’s government-issued Bitcoin-backed Volcano Bonds, Bitfinex Securities has been host to the Blockstream Mining Note (BMN) and Blockstream ASIC Note (BASIC), both revenue share agreements on the BTC infrastructure side. Opening up more broadly, Bitfinex Securities listed support for Mikro Kapital’s small-to-medium enterprise (SME) loans. Mikro Kapital made the first $130,000 coupon payment of its ALT2612 bond, which is a 36-month 10% coupon issue paid out quarterly via Tether (USDt). Completing successful dividend payments, coupon payments, and other distributions is crucial to bringing the tokenized product narrative full-circle; Mikro Kapital’s success here will have positive implications for the surrounding on-chain fixed income markets and confidence.

7. Centrifuge Launches Onchain Fund Management Platform with Fund Administrator Trident Trust

One of the earlier and well built-out on-chain loan origination and management platforms Centrifuge has launched its formal fund management solution with leading fund administrator Trident Trust. The partnership between Centrifuge and Trident Trust will enable asset managers and sponsors to interact with their off-chain and on-chahin funds and assets alike, streamlining the management of portfolio positions, net asset values and marks, transactions, corporate actions, and operational data solely through the Onchain Fund Management Platform. The duo is working towards reducing yield spreads by 25 bps (BIS), improving liquidity by 5.3% (HKMA), and saving up to 1.50% (150 bps) running the fund. Web 3.0 asset manager Anemoy is one of the earlier users of the Fund Management solution as a client of Trident Tust’s BVI practice.

Notable Market Headlines

Institutional Activity

STM Data

The Security Token Market team is proud to launch a new feature this week: interactable charts and dashboards! Displaying financial data on tokenized securities has been STM’s bread and butter for the past 5 years. As the industry continues to evolve, however, there will be more information to track and analyze… we’re here to help aggregate and visualize that as best as possible for you.

As a sneak peak for our Security Token Prime members, we’ve included some of what you can find on the Tokenized Debt tab. With over $10 billion in institutional bonds issued, most are done so via in-house tokenization platforms or partnering with one (at another institutional firm). Frontrunners include HSBC Orion, Societe Generale - FORGE, and Six Digital Exchange (SDX). 

While Germany currently leads by market cap it’s important to recognize it’s led by a 3-tranche issuance from Deutsche Börse - an issuance that literally put the country on the tokenized bonds map. Make sure to zoom in to explore other countries (Hong Kong is right under China)!

Keep an eye out for the official launch of all charts this week via our LinkedIn and X/ Twitter! Have any feedback? Want to see additional charts? Let us know via Security Token Prime or email [email protected]!

Security Token Prime is Made Possible Thanks to Our Enterprise Partners

The Security Token Advisors team was very pleased to share our take and commentary on the Securitize and BlackRock deal with Financial Times’ FundFire outlet this past week. The main piece to keep in mind is that the BlackRock USD Institutional Digital Liquidity Fund (BUIDL) is not meant to be taken and used in Ethereum-based applications like Uniswap, Aave, or other common retail pools - not yet, at least. For now, BUIDL offers a vote of confidence from the world’s leading asset manager in Securitize and in the concept and execution of compliant tokenization. It will enable BlackRock’s partners and even competitors to park capital in a yield-generating blue-chip product while getting comfortable with tokenization and the associated workflows. Other products listed alongside BUIDL will benefit as this off-chain capital rotates into BUIDL and now into the Securitize ecosystem. Whenever money managers like what they see on Securitze listings - perhaps the KKR fund, Hamilton Lane credit fund, or startup equities - they may simply rotate from BUIDL into these primary subscriptions. Further down the road, they may even be doing this on Securitize Markets’ Alternative Trading System (ATS) secondary marketplace. It’s a total necessity given how slowly secondary liquidity has been shaoping up, and I expect other BD/ATS players will scramble to find their own blue-chip asset manager to issue a comparable money market product in BlackRock and Securitize’s footsteps, if they haven’t already.

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 26th at 3:30pm EST

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

  • Office Hours with Security Token Prime - Thursday March 28th at 11am EST

  • Weekly Networking Happy Hour - Thursday March 28th at 4:30pm EST 

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,

Last week I discussed the perfect storm for RWAs and then that same week BlackRock launched BUIDL and RealT sold out millions of dollars in its own DeFi offering (for equity in the company itself) in mere minutes. This has ushered in a huge retail crypto trader wave looking for utility tokens associated to tokenization infrastructure or RWA platforms like Chainlink, Ondo, TokenFi, and others. With crypto vested in the success of tokenization, we can expect RWA projects to start receiving the spotlight they deserve, feeding the narrative.

With those successful predictions, maybe I should ask for something else to come true this week? As mentioned last time, regulatory clarity in the US will certainly go a long way. Still, I don’t foresee that happening anytime soon. The next best thing? Huge demand and subscriptions for BUIDL as well as all the other tokenized liquidity funds that are out there. The more money that comes on chain and stays on chain, the faster the world’s capital markets will transition altogether.

Happy tokenizing,
Herwig
CEO, Security Token Group 
@tokenwig

Herwig’s Pick: RealT

Kyle’s Pick: BlackRock

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! 

Helpful Resources

We hope you enjoyed this week's Security Token Prime Insights email - if you have any feedback on either what you liked or what you’d like to see, please reply to this email with it.

This newsletter should be not be considered financial advice.
Security Token Prime Insights is for informational purposes only.