🤝 STA Insights: 12/25/2023

Exclusive Intelligence for STA Success Network Members

Summary and Key Takeaways

1. Cboe-backed Osaka Digital goes live with first offering on Christmas Day

Osaka Digital Exchange (ODX) received regulatory approval in Japan to issue and list digital securities in the primary and secondary markets, respectively, in November. The Securities Token Proprietary Trading System (ST PTS) is comparable to a United States Alternative Trading System (ATS). The exchange began trading traditional securities earlier this year through backing from SBI (majority shareholder), SMBC, Nomura, Daiwa Securities and Cboe Worldwide.

The first two listings for START (the security token venue) are set to come live on Christmas Day (December 25th, 2023) - one of which will be a JPY 2.9 billion ($19.7 million) real estate security token issued by Ichigo through MUFG’s Progmat platform. The other is a JPY 3.361 billion ($24m) real estate security token from Kenedix Investment Partners, who has previously issued 8 digital securities through Progmat and is now using BOOSTRY’s iBet for Fin for this issuance

2. tZERO Takes a Fresh Breath with 2 Offerings

One of the original Alternative Trading Systems (ATS) in the United States, and the venue with the most volume to date per Security Token Market, is getting more active on the primary market side with 2 new offerings. The first is the $35 million Regulation A+ (Reg A+) for Spirits Capital, a firm that enables an investment route providing exposure to premium American whiskey while it matures in the barrel. Investors have the ability to purchase Cask Investment Deeds (CID) as an instrument secured by newly filled barrels of high-demand Premium American Whiskey that increase in value as they mature. This previously unavailable asset class is experiencing double-digit returns and has proven to be inflation-resistant.

Additionally, and this isn’t directly on the primary side but will drive future listings towards tZERO, Castle Placement is leading a $10 million convertible debt Regulation A+ offering for Chesterfield One, Inc. seeking to build a commercial real estate tokenization portal on the tZERO marketplace. Chesterfield One owns and controls $170 million in CRE assets and will likely white-label tZERO’s technology and licensing as it brings future CRE listings to both the primary and secondary marketplaces.

3. Figure closes an already record year with $570+ million in on-chain HELOC securitizations

While reports and publications continue to focus on treasuries, stablecoins, and private credit protocols, Figure Lending has seemingly quietly (at least quiet relative to what it deserves) been adding to its stable of on-chain HELOC originations. Solidifying itself as the alpha in asset-backed securities, the firm responsible for $8+ billion in on-chain originations to date including a Q3 accounting for $1 billion alone added two securitizations totaling $570+ million last week:

  • $195.8 million securitization on its own (Figure Lending)

  • $378.1 million deal from Saluda Grade Alternative Mortgage Trust (2023-FIG4)

This sizing is a key mark for Figure Lending as it prepares for its intended Q1/Q2 2024 IPO led by Goldman Sachs, JP Morgan, and Jefferies, who are also active underwriters of its HELOCs.

4. Sumitomo Life Insurance Company fully subscribes to tokenized Blackstone Real Estate fund in Japan

Japanese tokenization platform Digital Securities issued its second tokenized real estate fund offering to institutional and qualified investors, this time converting anonymous partnership equity in a Blackstone Group real estate fund into security tokens. The offering is known as the Renga Pro Fund, which was fully purchased by Sumitomo Life Insurance Company, showing its appetite for on-chain products and comfort with the technology as a buyer. Digital Securities is backed by Japanese financial entities and focuses solely on institutional investors.

5. TradeFlow Capital Fund issues USDC-denominated bond via Obligate

Switzerland-based private credit platform Obligate, who recently integrated with Coinbase’s Base blockchain as an ecosystem extension, recently issued its first debt offering for a private fund, TradeFlow Capital, on the Polygon blockchain. While Obligate has had a multitude of existing debt issuances for Web 3.0 firms and corporate clients, this is the first step in capital raising for an investment fund, and TradeFlow saw it as a route to diversify its financing profile. The offering uses Obligate’s eNote framework ensuring a legally compliant and globally acceptable standard for digital securities under Swiss law. It is stated that the transaction garnered attention from High Net Worth Individuals (HNWI) and family offices, although the STA team will work to provide deeper insights into the demand side as we can.

6. The UK’s Digital Security Sandbox to go live January 8, 2024

The UK, who proposed the Financial Services and Markets Act of 2023 in July 2023, is pushing forward with its sandbox for DLT-based Financial Market Infrastructure (FMI). The sandbox is set to go live on January 8th, 2024 for participants applying to join. This is a strong tailwind as the UK recently announced fund tokenization guidelines and as some key capital markets players, like London Stock Exchange Group and the Bank of England, have come forward with their blockchain-powered initiative intentions. Per Blockworks, “UK-based investment exchanges, recognized central counterparties and central securities depositories and investment firms are permitted to apply to participate in the sandbox, the regulations state.” The UK has some existing firepower in this industry with regulated service providers like Archax, Tokenbridge, and even the investment banks’ blockchain divisions.

Notable Market Headlines

Institutional Activity

It was a very packed week to (almost) close 2023 out - don’t discount the possibility for additional headlines to surface before next Monday when we officially move into 2024. The noticeable takeaways to me are the involvement of Asian banks and even trading firms (Optiver and Virtu are key backers of Osaka Digital) and greater propensity for partners to work with tokenization within that region (see: Blackstone with Digital Securities in our summary section). There are a number of digital bond offerings that I’m anticipating in January or February coming out of platforms like Goldman Sachs DAP, MUFG Progmat (lot of momentum in December), and HSBC Orion. If 2023 was the year these came live with $100 million issuances, 2024 is the year to test the platforms at size ($1+ billion single issuance). I’d be very curious where the buyers are, with active subscribers including AXA Investment Management, Union Investment, Santander, and Sumitomo, among others.

JP Morgan and Bain & Co. published a ~20 page piece detailing their thoughts on private fund tokenization and the projected $400 billion opportunity in that segment. The STA team will be sending out another newsletter to members detailing those findings, takeaways, and our own thoughts in the near future. Until then, I’m wishing everybody an enjoyable holiday season and a prosperous 2024 to come.

Peter Gaffney, Head of Research at Security Token Advisors

Upcoming Success Network Events

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

  • Tokenizing a $4B Real Estate Portfolio in the Middle East - Wednesday January 3rd at 12pm EST

Recent Recordings

Hello members,

Every year it feels like the holidays slow down, as to be expected for most industries. Crypto and finance are possibly the exception and wow we did not get disappointed this year. As I declared on the Security Token Show, Japan is now fully open for business with ODX being live with two offerings. This marks a full ecosystem (or tokenization infrastructure) being completed as assets are tokenized and now trading. What’s so cool about that is that this was done almost entirely exclusively through investment banking rails. Progmat and Boostry, the two tokenization platforms behind the ODX offerings were both created by banks. The asset managers behind the real estate have serious track records. The marketplace exchange is owned by SBI and a number of other investment banks. I have zero doubt that Japan will become one of the most active and biggest tokenization issuers and markets in 2024, catching up to Singapore and possibly surpassing Europe.

And the much needed research from the largest banks, asset managers, and economic groups continue to pour out with delightful stats and punchlines to make it clear that tokenization or RWAs are here to stay and a major theme for 2024 for both the institutional world and the crypto community - the perfect storm I referenced last week. If the amount of new issuances, product announcements, integrations, research reports and more news wasn’t proof enough this last week, then surely our announcement from Security Token Group (our parent co) planning our first tokenized investment product should be! If you’re interested in learning more about our new arm, Security Token Capital, please do reach out. 

Hope everyone is enjoying a lovely holiday season and I look forward to an amazing ride in 2024 with you all!

Happy tokenizing,

Herwig Konings, CEO at Security Token Advisors

Helpful Resources

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