🤝 Security Token Prime Insights: 4/1/2024

Exclusive Intelligence for Security Token Prime Members

April 01, 2024

Summary and Key Takeaways

1. Tokenization Heats up Ahead of Security Token Market’s TokenizeThis Conference May 9-11th in Miami, FL

Are you tired of just one panel on RWAs and tokenization at the big conferences? So are we! That’s why we decided to throw our own 2-day event instead. This industry is moving faster than ever before so we’re bringing together the pioneers, the protocols, and the incumbents all in one room so we can hear about their latest launches, updates, and insights on the future of the market. We’re less than 6 weeks out before TokenizeThis is live. Save 10% using code PRIME and get your tickets now at summit.stm.co.

2. Crypto Prime Brokers and RWAs: FalconX Begins BUIDL Support as Margin

Unlocking utility and value propositions associated with tokenized products requires greater collaboration and support from digital assets infrastructure - components that have existing traction and activity. Within a short week after its formal announcement, BlackRock’s BUIDL is already becoming accepted by crypto prime broker FalconX, one of the original PBs in the industry that’s been responsible for $1 trillion in trades and $100 million in crypto-backed loans. FalconX institutional clients will be able to use BUIDL as margin and collateral in trades and swaps through the prime brokerage platform, thus bringing a tangible reason for capital flows into the tokenized liquidity fund. This is huge news as it unlocks a bit more of existing crypto capital for the regulated tokenization markets and the Securitize ecosystem, a crossover that’s necessary for reaching the next level of legitimacy.

3. HSBC Going Direct-to-Retail in its Tokenized Gold Offering

HSBC is one of the investment banks progressing nicely with regards to tokenization, having issued a number of digital bonds through its Orion platform and integrating with Asian-based secondary venues. HSBC has now officially brought its planned tokenized gold product to market through a direct-to-retail investors approach via  HSBC Online Banking and HSBC HK Mobile App. The gold token is designed to give retail clients exposure to the price of gold without going through an ETF or comparable investment fund wrapper. It’s minted on Orion, which is underpinned by private blockchains like Hyperledger Fabric or R3 Corda.

4. On-chain Money Markets and Liquidity Funds Reach the 10-Figure Mark

The second half of last week was dominated by headlines and posts about breaking the $1 billion mark in tokenized US Treasuries. It’s an incredible milestone, and one we’ve been in pursuit of for 15 months now. Nuance and details are important, however, and it should be noted that the $1 billion in assets is across money market funds, US Treasury funds, and US Treasury notes - not simply the Treasury Note segment that many keep circulating (see Herwig’s take further below in the email).

Take BlackRock’s USD Institutional Digital Liquidity Fund (BUIDL) for example. This is functionally a digital money market fund holding cash, repos, and treasuries. It’s not as pure-play as the Arca US Treasury Fund (RCOIN), nor is it tokenizing individual treasury notes like OpenEden. In fact, the 2 largest products within this billion-dollar cohort are BUIDL and Franklin Templeton’s OnChain U.S. Government Money Fund (BENJI) - both of which are money market funds totalling around $635 million in assets collectively. As mentioned, details matter and headlines influence future product strategy. This is a major milestone for the industry and “liquidity funds” will likely become the new “it” product name as trendier versions of money market funds holding government securities and short-term debt.

Notable Market Headlines

Institutional Activity

STM Data

This week’s Security Token Market graph comes from STM’s newly-launched charts feature and reflects aggregate on-chain Redwood Trust SEMT securitizations using LiquidFi (previously Liquid Mortgage) technology. As we close Q1 2024, we wanted to point out the growth trajectory of these balances leveraging blockchain technology.

LiquidFi gives investors transparent and efficient access to data, tracking amount borrowed, payment history, documents, loan-level data, and more. Redwood Trust now uses LiquidFi for 16 of their SEMT securitizations, with the latest being SEMT 2024-3 announced March 16, 2024, valued at $388.3M and bringing their total loan securitization balance as of writing to $5,810,700,000.

Why do these residential mortgage backed securities make sense to be on-chain? 

The blockchain can help reduce friction points throughout the life of the loan thanks to streamlined diligence, reporting, and data providing more consistent insight such as borrower payment and prepayment activity.

While LiquidFi is bringing Residential Mortgage Backed Securities on-chain, Figure has been using their technology for HELOC originations. Check out this comparison chart on STM.Co!

Have any feedback? Want to see additional charts? Let us know via Security Token Prime or email [email protected]!

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Upcoming Events

  • Weekly Industry Updates Breakdown - Tuesday April 2nd at 3:30pm EST

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Recent Recordings

  • Issuer Spotlight: Tuscany National Token (Recording Link)

  • 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,

As I explained in this week’s Security Token Show, the most popular funds being referenced are money market funds, which are not strictly required to invest in treasuries.

And as referenced earlier in this email, tokenized treasury bills are different than tokenized treasury funds. The underlying fund treasuries are not necessarily tokenized themselves and what is instead tokenized is the interest in the fund. Collectively, all of these products (which we call liquidity funds like BUIDL does theirs) have surpassed $1 Billion USD with the caveat that these reports also misrepresent the almost $100M Ondo’s OUSG represents itself that was transferred to BUIDL. That’s almost 10% of the supposed growth double counted. Unfortunately, this means tokenized treasuries themselves are actually quite far off from that milestone, even if you included tokenized treasuries funds. 

As the world moves to tokenized funds, tokenized underlying reserves & portfolios, onchain loan bundle securitizations and more, understanding the layers and the way they interact is crucial to the market’s success and your own success. Good thing you can always count on us for accuracy and to verify everything!

STM.co’s charts are pretty cool if I do say so myself.

Happy tokenizing,
Herwig
CEO, Security Token Group 
@tokenwig

Helpful Resources

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