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- 💥 Tokenization Has a New Trajectory This Year
💥 Tokenization Has a New Trajectory This Year
January's updates from the STA team
Security Token Advisors
January 10, 2023
In this month's edition of The ReCap we'll be covering:
Industry Updates: News around the world
Real Estate News: Jertion Realty and Kodo Assets
Wall Street Adoption: Hamilton Lane: The first ‘40 Act fund with blockchain-native share classes geared towards the private markets
Vendor of the Month: Securrency
Advisor of the Month: Jean-Philippe Charles
Client Spotlight: Freeport
Marketing STOs 101: Key Trends to Expect in 2023
Crypto Corner: Gemini, DCG, CNBC, and Yahoo Finance
Cap Table Commentary: Check out some great articles from the team this past month!
Announcements: Freeport Webinar and 3D Gallery Demo - 1/17/2023 6pm EST
But first...
Our humble, honest newsletter The ReCap is officially a year old meaning we have some incredible editions to see how the past year went. No doubt we saw the collapse of NFTs and soon after DeFi leaving crypto in a state of disarray. What also happened was that we saw hundreds of new tokenization announcements, big banks showcasing adoption, and regulators and legislators cozying up to security tokens. A sign that we are finally looking at THE year where we will see security tokens start to go mainstream in several forms.
We will see a more defined regulatory stance and possible new reforms as a resolution to the SEC Vs. Ripple case. We will see major retail offerings and marquis ‘household name’ offerings that are tokenized all around the world, including more new platforms and brokers that tokenize or distribute token offerings entering the industry than we have ever seen before. And we will continue to see quiet but strong adoption by major institutions beginning their journey to on-chain management in order to better administrate securities, create greater investor access through tokenized investment vehicles, and leverage the clearing and settlement capabilities for secondary market liquidity for their own books, clients, and security.
Time for crypto to move out of its teenage years and grow into an adult to tackle real opportunities like revolutionizing wall street and regulated securities markets as we know them.
Happy Tokenizing!
Founder and CEO, Security Token Advisors
Happy New Year Tokenizers! 2022 was the year the SEC came down on cryptocurrencies and deemed many of them securities which means 2023 is The Year of Security Tokens! With that being said, we are already starting off on a good note:
Hartmann Benz LLC is holding a private sale for their Easygold Security Token (EASG); the sale will take place from March 1st to May 31st, 2023. EASG represents gold and gives its holder dividends based on Hartmann & Benz’ operational profits. The company attempts to revolutionize investing in gold by obtaining high quality gold and LBMA-certified bars to be sold in the open market for a profit.
Security tokens are also expanding to Korea, where the government has given approval to EQBR Holdings for FSC-Registered Security Token Offerings. Their STO solution allows businesses to complete the offering of securities tokens and the applications that support it (e.g., wallets) within 30 minutes or less. This is the very first and only fully-regulated, end-to-end platform for listing and trading FSC-registered security tokens in Korea.
For more industry updates follow @anathemarketer on twitter.
By Alec Beckman
At the nexus of blockchain technology and real estate investing, tokenized real estate has developed in today’s world. Jertion Realty is one of the biggest names that are playing a significant role by offering the best-class services for real estate tokenization. They have created the framework for the usage of digital tokens to expand real estate assets. Tokenization makes it easier for a wide range of investors to get engaged by streamlining the formerly difficult task of finding, transferring ownership of, and administering many assets.
Jertion Realty makes it simple, quick, and accessible for investors to invest in carefully curated tokenized digital real estate through our commercial real estate platform.
The company gives you access to entire cities, like Manhattan or Miami as well as specialized neighborhoods, like Tribeca or Brickell by providing a digital depiction of property prices from various cities and neighborhoods.
Kodo Assets, a Brazil-based real-estate tokenization driven company has launched asset tokenization opportunities in Sao Paulo, Brazil. The real estate market is one of the most traditional economic sectors in the world. Considered a safe investment with a guaranteed return, it is seen as a great balancer of investment portfolios.
In this project it is possible to obtain tokens from a property located in the heart of Faria Lima. This is the opportunity that the crypto market has been waiting for famous wallet balancing.
It is an investment backed by a property that, in addition to the profitability of quotas, produces receivables in stablecoin. The token that is referred here is KODO1, it is responsible for ensuring that the issuance of security tokens is in line with the total supply of the offer.
The location of a property that will undergo tokenization is essential to ensure the best cost-benefit associated with interested parties. Therefore, the choice of this first location was made after the return equation, along with the available opportunities that provide the best result.
Hamilton Lane, with roughly $1 trillion in assets under management and supervision, continued its digital trek with the most blockchain-centric move thus far: three new blockchain-native share classes in the Hamilton Lane Private Assets Fund (PAF) organized under the Investment Company Act of 1940. This is the first ‘40 Act fund with blockchain-native share classes geared towards the private markets. Rather than this being a feeder fund that invests in the traditional Private Assets Fund, these new share classes are only accessible via the blockchain security.
Why is this significant? While there are currently three share classes in the PAF, which is itself an evergreen fund, the investment terms including subscription amounts, redemption features, fees, and accessibility may (and likely will) differ. The fund is not yet Effective with the SEC, although the STA team expects it to go live in Q1 or Q2 2023. The graphic below shows the traditional fund structure.
Presumably, there are inefficiencies when evaluating the subscriptions and redemption (‘Repurchase’) features. Corporate actions can be facilitated in near real-time through tokenization and programmable parameters. Hamilton Lane also details a maximum of 5% of the fund’s NAV per quarter on the redemption side. Why 5%? Likely a combination of a couple factors:
Managing more than that amount in redemptions will be cumbersome to the Hamilton Lane management team (i.e. numerous asset valuation requirements, cap table management, investor reporting & onboarding of offloading, distribution management)
A high number of redemptions may be seen as a negative to prospective investors and shift current investors to a more fearful state
The iceberg may go deeper than this, but these two pieces can largely be eased with tokenization and secondary listing. Trading on an Alternative Trading System (ATS) or comparable secondary market venue will enable investors on both sides of the equation to buy and sell as they see fit, thus allowing the market to determine value. Additionally, investor management and corporate actions become more or less streamlined in a digital wrapper (i.e. a security token) than through traditional software.
Revisiting the announcement details, Hamilton Lane is issuing these share classes on the Provenance blockchain and through Figure Technologies’ Digital Fund Service (DFS) to handle cap table management, investor distributions and reporting, and capital calls. Pending an Effective legal filing with the Securities and Exchange Commission, Hamilton Lane will likely make use of these features to differentiate these share classes from the existing three in the Private Assets Fund. Keep an extra eye on the possibility of secondary listing trading. The general fund prospectus states, “The shares have no history of public trading, nor is it intended that the shares will be listed on a public exchange at this time. We do not expect a secondary market in the shares to develop.” Emphasis should be put on the ‘public exchange’ disclosure here. ATSs may be fair game for Hamilton Lane should this be a part of the full-scale proof-of-concept.
Lastly, based on conversations with and inquiries from prospective and current client issuers, it seems the 1940 Act Fund structure is preferable to the feeder fund model, although the feeder fund is likely a quicker-to-market option. This is an interesting dynamic that, in my opinion, shows the market is maturing as issuers (private equity firms, asset managers) are willing to dedicate more than just baseline resources to achieve their desirable goals with tokenization.
For more in-depth detail on Hamilton Lane and related private markets initiatives, enjoy our State of Security Tokens 2023 - Institutional Edition publication.
With an institutional focus for 2023, STA would like to highlight the progress and traction that Securrency has been finding within the industry. Securrency, an SEC-registered Broker-Dealer/Alternative Trading System and Transfer Agent, has been working since the inception of digital securities to create and implement cross-border compliant solutions for the major financiers and institutional players.
The firm is the acting Transfer Agent of WisdomTree Prime, the digital assets arm of $80+ billion WisdomTree Asset Management, who recently received SEC approval of nine tokenized funds ranging from money market and treasury funds to broad and niche S&P-driven products. This brings WisdomTree Prime’s approved product number to ten in total, all of which Securrency will be managing and supporting from a Transfer Agent perspective.
More recently, Securrecy announced the appointment of Nadine Chaker as new acting CEO. Nadine is a super experienced executive in the digital assets and capital markets space, having managed State Street’s digital assets division for years prior. State Street, an investor in Securrency, clearly sees the promise of Securrency and elected to appoint one of its finest to lead the mission and charge.
Congratulations to the entire team at Securrency. These are key pieces to fall into place to capitalize as institutional adoption increases and solidifies.
Congrats to Jean-Philippe for being our advisor of the month!
Jean-Philippe Charles, born and raised in Haiti and is an entrepreneur, musician, artist and much more!
A graduate from Miami Dade, Jean brings a-lot to the STA team. He is certified in Nasdaq Digital Assets’s certification and helps the STA team with outreach, research, client needs in addition getting the STA brand out for the world to see. He is also bilingual, speaking English, French & creole!
In addition to being. An artist, JP is a serial entrepreneur who runs several businesses of his own on the side including U-GOBE which is a digital platform that connects audiences with media in unique ways such as ride sharing.
He’s also the most internet famous as the team for recently tying the knot on the Brightline with his new wife and sharing his unique love story with the world.
Thanks for all your hard work JP!
You may recognize this month’s client spotlight from one of our previous editions! This is because there’s an update: Freeport is going to be showcasing their 3D art gallery experience on a webinar with us on January 17th at 6pm EST! Not only can you display your favorite NFT alongside museum-quality art, but you can also invest into that valuable art… compliantly!
For our newer subscribers and as a refresher, they'll be using RegA+ to raise capital for these paintings, from both accredited and retail investors, and enable a secondary trading marketplace with no seasoning/lockup period. Investors will be able to invest into high-barrier-to-entry art while being able to actively manage their portfolios!
After the initial raise closes, anyone still wanting to invest and current investors looking to increase their allocation can do so on the secondary market. Similarly, if an investor needs some liquid cash, they can go ahead and sell their tokens to others - no need to wait until the art sells! Either way the investor has the power to control their desired allocations and holding periods.
So what’s the webinar about?
Freeport's CEO, Colin Johnson will be covering:
Freeport's new 3D futuristic art gallery
How Freeport is democratizing Museum Quality Art for Investors
How anyone can own a piece of an iconic Andy Warhol painting
The type of experience the new art gallery offers users
How investors can purchase art through this dynamic experience
How investors can place their NFTs alongside the world’s finest art pieces and much more
Because there's only a limited amount of seats left for the webinar we ask you RSVP before they fill up! This will be on January 17th, 2023 at 6pm EST.
Here's a sneak peak:
As the Security Token Industry continues to grow and evolve, everyone is wondering when the year of Security Tokens will actually begin. It has been predicted that the tokenization market will exceed $16 trillion by 2030; this forecasts a large opportunity for companies and professionals to transition to a blockchain-powered future, where tokenization is a part of our everyday lives.
Here are some of the few key trends that we can expect to see in the security token industry in 2023:
Continued adoption by traditional financial institutions: In recent years, we’ve seen a number of traditional financial institutions begin to embrace security tokens as a way to streamline and modernize their operations. This trend is likely to continue in 2023, as more and more financial institutions see the benefits of using security tokens to facilitate trades, settlements, and other key processes.
Increased regulatory compliance: One of the biggest challenges facing the security token industry has been a lack of clarity around compliance and securities laws. In 2023, we can expect to see more regulatory frameworks put in place to provide guidance and clarity for issuers, investors, and others. This will help to create a more stable and predictable environment for the industry to thrive in addition to familiarizing the general public with STO’s (how they work, who they benefit + more STO investors overall).
Growth in STO’s (security token offerings): As the industry matures, we can expect to see a significant increase in the number of STOs. This will be driven by a number of factors, including increased investor demand and the growing number of issuers looking to take advantage of the benefits offered by security tokens.
Emergence of new use cases: It’s clear we can expect to see the security token industry begin to explore new use cases in industries like real estate, art, and other important asset classes. This will help to broaden the appeal of security tokens and bring more investors into the market & increase liquidity.
Greater interoperability: As the tokenization ecosystem grows, we can expect to see greater interoperability between different platforms and protocols. This will make it easier for investors and issuers to move assets between different systems and create more liquidity in the market, which is one of the main concerns in tokenization.
Overall, the security token industry is likely to see significant growth and development in 2023. As the market matures and more players enter the space, we can expect to see a wide range of exciting new opportunities and innovations emerge.
It has been predicted that the tokenization market will exceed $16 trillion by 2030; this forecasts a large opportunity for forward-looking companies that partner with experienced professionals to transition to a blockchain-powered future.
By Nick Steffen
This week in crypto corner, or should I say crypto firestorm, we have more reasons to shame crypto execs for lack of customer base empathy, and more reasons to embrace regulation, security tokens and digital assets as a whole.
First off, we have Gemini’s Cameron Winklevoss Slamming Crypto Exec Barry Silbert Over Frozen Funds citing $1.675 billion owed to Genesis by DCG while also noting Cameron had made several proposals to resolve the issue in the past. Seems like the crypto exchanges are falling one by one due to weak regulation in place, and all it will take to topple the rest soon are a couple of swift regulations implemented by the S.E.C. While I too have empathy for those who lost money in crypto (including myself), a new era upon us where investor protections exist in digital assets is very much needed at this point in financial history. Check out Cameron’s open letter to Barry Silbert here.
In other news, we have CNBC and Yahoo Finance informing the awfully misinformed public about how Bitcoin Could Easily Rally To $160,000 Says Crypto Analyst: Here's How Soon It May Happen and how The boldest bitcoin calls for 2023 are out — and a 1,400% rally or a 70% plunge may be on the cards. While many think bitcoin may be deemed a commodity (saving it from the securities laws) it is all up in the air at the moment, so think before you invest and know that anything could and will happen. The lesson here is don’t believe everything that you read, and to keep doing your own research, follow regulation trends, and keep your eyes and ears open to everything. That’s all for this time. Happy Tokenizing! See you on the other side of the blockchain!
Check out some great articles from the team this past month! Just click the desired thumbnail and you'll be on your way... happy reading!
ANNOUNCEMENTS:
Freeport Webinar: 3D Gallery and Tokenized Museum-Quality Art
Freeport's CEO, Colin Johnson will be covering:
Freeport's new 3D futuristic art gallery
How Freeport is democratizing Museum Quality Art for Investors
How anyone can own a piece of an iconic Andy Warhol painting
The type of experience the new art gallery offers users
How investors can purchase art through this dynamic experience
How investors can place their NFTs alongside the world’s finest art pieces and much more
Because there's only a limited amount of seats left for the webinar we ask you RSVP before they fill up! This will be on January 17th, 2023 at 6pm EST.
Here's a sneak peak:
Real Estate Tokenization Course: Sponsored by Oasis Pro Markets
Our self paced course guides you through the tokenization of real estate, from the basics of blockchain to regulation and liquidity. This course also comes with case studies and webinars with industry leaders!
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