🤝 STA Insights: 05/30/2023

Exclusive Intelligence for STA Success Network Members

🤝 STA Insights: 05/30/2023

Exclusive Intelligence for STA Success Network Members

Summary and Key Takeaways

1. Korea Champions itself on this side of Digital Assets

South Korea has consistently been publishing STA Insights worthy headlines the past two quarters. Following suit from plays through Mirae Asset Securities and government frameworks from February 2023, security tokens are a hot focus in the country’s capital markets landscape.

Previously, Mirae, the country’s largest investment bank whose parent company owns a number of ETF sponsors and asset management services, announced partnerships and intentions to issue security tokens and provide infrastructure with SK Telecom, a large telecommunications firm in Korea, and develop real estate tokenization models with Korea Real Estate Investment & Trust and Seoul Auction Blue Co. This past week, Mirae brought another announcement to the table with its Next Finance Initiative (NFI), which is a consultative body for tokenized securities that stands to benefit firms in Mirae’s investment banking and asset management networks.

Separately, KB Securities plans to move forward with its security token offering, working with regulatory sandboxes across its renewable energy and intellectual property use-cases. These are two interesting themes - especially the intellectual property side as the world begins to view intellectual and intangible property as a “real-world asset” in the tokenization realm. Even Korea Investment & Securities, a broker-dealer, partnered with internet banks KakaoBank and TossBank, who are already active in the development of blockchain projects like CBDCs, to begin participating in the security token offering side as a new line of business for the broker-dealer.

2. The secondary markets are opening up?

Lo and behold, the first Special Purpose Broker-Dealer (SPBD) was officially given out to Prometheum by the SEC. Prometheum and its Prometheum Ember ATS (PEATS) now have the ability to act as a broker-dealer / alternative trading system that may also custody digital assets and securities. This is the first of its kind, as other existing BD/ATS entities typically partner with a custodian like Anchorage or Prime Trust; in Prometheum’s case, from its initial ATS announcement in October 2022, it will still work with Anchorage but in a more streamlined and integrated fashion, rather than seeing it as an outsourced solution like the current service providers.

Prometheum’s goal is actually issuing crypto assets as securities, with the initial offerings being Filecoin (FIL), a decentralized data storage network, and others in the pipeline including The Graph, Flow, Compound, and Celo. The firm’s thesis is that these and many other digital assets that trade on crypto native exchanges will be deemed securities (one way or another), and therefore the market spillover to a venue that supports digital asset securities will be tremendous.

This begs a few questions: with precedent set now through Prometheum, will current crypto exchanges register as Special Purpose Broker-Dealers (SPBD) with the SEC? Will new entrants come in and follow a similar registration path? Will there be differentiation between “crypto asset securities” like Filecoin and Compound (in this instance) and real estate or 1940 Act Fund interests as tokenized securities?

This is all still TBD, but it's certainly an added bump of pressure on crypto native exchanges dealing with the SEC. Should firms follow Prometheum’s footsteps, it’s possible the market begins to see blockchain-native 1940 Act funds and products listed right alongside crypto asset securities over time, which would completely open up the distribution and trading horizons for tokenized products from the existing ATS landscape to a wider base of approved marketplaces.

Notable Market Headlines

Institutional Activity

Hope everybody had a fantastic Memorial Day Weekend. Against common thinking, summertime is rarely the off-season in capital markets and especially on this side of capital markets. The week leading up to Memorial Day brought a new massive infrastructure approval (Prometheum’s SPBD) and another step-up in Korea adoption - a region which stands to unlock capital alongside other Asian security token behemoths Singapore and Japan.

This summer will be double time for the industry. From now to the Fourth of July to Labor Day (the typical American checkpoints throughout the summer), we will see some massive headlines, partnerships, and announcements of incumbents working to integrate and support the future digitized economy. Firms and individuals simply can’t afford to slip as the landscape shapes up internationally. This past week was a testament to that.

Japan’s MUFG is issuing the first real estate security token offering through its own Progmat platform on behalf of $3.7 billion Marubeni Asset Management and alongside SBI Securities for distribution. Singapore’s second largest bank, OCBC, selected ADDX for the issuance of its first tokenized structured products - another hot topic in the tokenization space as brought to light by Intain and Figure. And Broadridge expanded its already $1 trillion monthly repo network to the likes of DRW, Societe Generale and another undisclosed bank.

All incredible momentum in a pressing macroeconomic environment. My characterization when discussing tokenization is the precision that it brings to asset owners and buyers. One of the frustrating pushbacks to tokenization is the usual “I don’t need to buy $10,000 increments, I buy $1,000,000 at a time.” Great. So buy a million dollars worth in ten-thousand-dollar increments. Just because you may not need precision - whether on the borrowing or selling front - now, does not mean the markets won’t swiftly shake up at some point at which that precision would be very helpful. Even looking at how managers’ allocations can become out of whack especially in the private space relative to public holdings, precision around one’s assets is the key to healthy and effective rebalancing, among other activities.

Peter Gaffney, Head of Research at Security Token Advisors

Upcoming Success Network Events

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

  • Office Hours with Peter Gaffney - Thursday June 1st at 11am EST

  • Office Hours with Kyle Sonlin - Thursday June 1st at 1pm EST

  • New Member Introductions & Networking - Thursday June 1st at 4pm EST

Recent Recordings

Powers’ Hour - Legal Review with Marc Powers - Reviewing Bitcoin 2023 - Thursday May 25th at 12pm EST- Recording

Webinars + Events

Member Updates

Coinbase launches its wallet-as-a-service, which can truly be a pivotal point for platforms and service providers looking to streamline that end for its clients and partners.

Broadridge expands its growing DLR (Distributed Ledger Repo) network with new transactions and partners including DRW and Societe Generale.

DigiShares improves its market standing with the Fireblocks custodial integration.

Ripple has joined the tokenization world through initial real estate projects with the Hong Kong Monetary Authority. The organization is also preparing for the custody side with its acquisition of Metaco.

Freeport, a Security Token Advisors client focusing on fractional museum-quality art investing to retail and accredited investors, went live with its initial Reg A+ offering to Andy Warhol paintings last week. The collection includes Marilyn, Double Mickey, Mick Jagger, and Rebel Without a Cause.

Avalanche launches the Spruce subnet to cater to institutional players and usher them into the tokenization worlds at a lower barrier to entry. Initial joiners include WisdomTree, Cumberland, Wellington Management, and T. Rowe Price. Fireblocks signed on as a custodian.

Franklin Templeton announces its original blockchain-based mutual fund, the Franklin OnChain US Government Money Fund (FOBXX), surpassed $270 million in assets on the Stellar blockchain. Franklin Templeton soon after rolled the product out on the Polygon blockchain (under the token ticker $BENJI) in an effort to find wider distribution channels for the proven out product and concept.

Castle Placement goes live with its alternative trading system CPGO that supports private placements in analog and tokenized form.

Republic closes its Algorand-based Republic Note Regulation Crowdfund (Reg CF) offering, reaching its capital raise target of $2 million.

Hello tokenizers,

We’re heading into the last month of the quarter with major strides. Most of the major blockchain protocols have announced real-world asset tokenization projects. FINRA has already approved several more broker dealers to conduct business in the crypto asset securities world and now the SEC has to deal with real players on Wall Street for tokenized products that will do full registrations. We already saw headway with the Freeport Reg A+ offering as proof private exemptions work fine as well (even to retail investors, at that).

What I can only predict and, partially, already know (under NDA) that June will be a big month of announcements from the industry. We’re cooking up our own benefits and new features for you members as well as the rest of the ecosystem. We’re certainly going to continue to see new blockchain integrations and pilots for many. We will likely see some international approvals on more security token brokers and exchanges. Singapore and Japan are proving themselves to be powerhouses with MUFG’s Progmat gaining popularity and ADDX continuing to list new offerings. We’re expecting more of those in the US too, with hopefully Press Releases by more big banks and asset managers.

As we enter a potentially new time for the economy, many will turn to automation and cost-savings. Tokenization will be a big solution for the world of finance. This mixed with novel and new offerings that attract more and more investors into the digital paradigm of investing will collide into an incredibly fast growing industry in 2024 and 2025. Meanwhile, the snowball is growing every day and we’re excited to give you direct access to everything you need to succeed in tokenization. Please let us know how we can help and I hope to see you in some of June’s events that we have planned!

Happy tokenizing,

Herwig Konings, CEO at Security Token Advisors

Helpful Resources

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