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Nav­i­gat­ing the Secu­ri­ty Token Land­scape in 2023

Accord­ing to a study by Arca and Coali­tion Green­wich, it is esti­mat­ed that the tok­eniza­tion indus­try, which involves the dig­i­tal rep­re­sen­ta­tion of tra­di­tion­al secu­ri­ties, will grow sig­nif­i­cant­ly in the next decade. The pri­vate secu­ri­ties mar­ket is expect­ed to grow from $7 tril­lion to $30 tril­lion by 2030, and 77% of cap­i­tal mar­kets par­tic­i­pants believe that tra­di­tion­al secu­ri­ties will be dig­i­tized with­in the next 5–10 years. This sug­gests that the tok­enized secu­ri­ties mar­ket could reach over $20 tril­lion by the end of the decade. In addi­tion, equi­ty crowd­fund­ing cap­i­tal rais­es saw a sig­nif­i­cant increase of 1,021% in 2021.


The Big Play­ers are step­ping in


Pri­vate equi­ty giant KKR made head­lines in Sep­tem­ber 2022 when it announced the launch of its first tok­enized pri­vate equi­ty fund, which will be offered through Secu­ri­tize and tok­enized on the Avalanche blockchain. The secu­ri­ty tokens will rep­re­sent eco­nom­ic inter­ests in the fund, with a min­i­mum sub­scrip­tion amount of $100,000, a sig­nif­i­cant reduc­tion from the tra­di­tion­al min­i­mum of $5 mil­lion. Pend­ing a 12-month lock­up peri­od, the fund may also be list­ed and trad­ed on Secu­ri­tize Mar­kets, poten­tial­ly open­ing it up to both accred­it­ed and retail investors. The tar­get size for the tok­enized fund is esti­mat­ed to be between $30-$50 million.


Alter­na­tive asset man­ag­er Hamil­ton Lane has also been active in the tok­eniza­tion space. In March 2022, the com­pa­ny announced it would offer inter­ests in its $2.2 bil­lion Glob­al Pri­vate Assets fund through secu­ri­ty tokens on the Sin­ga­pore-based plat­form ADDX, with a min­i­mum tick­et amount of $10,000. In addi­tion, Hamil­ton Lane worked with Secu­ri­tize to offer tok­enized ver­sions of three US-based funds, with min­i­mum invest­ments rang­ing from $25,000 to $50,000 which again sig­nif­i­cant­ly low­ered the bar­ri­ers to entry for these funds and opened up more oppor­tu­ni­ties for issuers as well as addi­tion­al players.


JP Mor­gan’s Onyx divi­sion is a leader in the use of blockchain tech­nol­o­gy in the bank­ing indus­try. One of the main dri­vers of this is the use of JPM Coin, a dig­i­tal rep­re­sen­ta­tion of the US dol­lar that is used for inter­nal blockchain-based trans­ac­tions. In addi­tion to this, the bank has also launched a blockchain-based Repo Net­work, which allows for the trad­ing of repur­chase agree­ments (repos) with any third par­ty that joins the syn­di­cate. The Tok­enized Col­lat­er­al Net­work (TCN) allows for the use of tra­di­tion­al tok­enized funds as col­lat­er­al, and the bank is also involved in a num­ber of oth­er blockchain-based projects, includ­ing the Inter­bank Infor­ma­tion Net­work (IIN) and a blockchain-based trade finance plat­form. JP Mor­gan is anoth­er exam­ple of the grow­ing adop­tion of tok­eniza­tion, as well as prac­ti­cal appli­ca­tions increas­ing­ly seen in the Trad­Fi space out­side of cryp­to com­pa­nies, which until recent­ly were the only front for innovation.


While JP Mor­gan has opt­ed for an in-house approach, Gold­man Sachs has been work­ing with third-par­ty enter­prise solu­tions like Daml to tok­enize and man­age assets. Gold­man Sachs has also part­nered with HQLAx, an enter­prise blockchain plat­form built on Cor­da’s R3 blockchain, which aims to serve as a glob­al ledger for secu­ri­ties and repo trans­ac­tions. In July 2022, Gold­man Sachs and BNY Mel­lon com­plet­ed the first-ever agency secu­ri­ties lend­ing trans­ac­tion using dis­trib­uted ledger tech­nol­o­gy on HQLAx. Tok­eniza­tion offers numer­ous ben­e­fits, includ­ing the abil­i­ty to trans­fer and set­tle secu­ri­ties imme­di­ate­ly and elim­i­nat­ing the risk of dupli­ca­tion. Its exe­cu­tion has proven to be invalu­able for finan­cial insti­tu­tions in the future.


The rise of pub­lic bonds issuances 


In the finan­cial sec­tor, blockchain tech­nol­o­gy has also been increas­ing­ly adopt­ed for the issuance of pub­lic bonds. Invest­ment banks and asset man­agers around the world have begun using blockchain-based plat­forms to stream­line the process and reduce costs. In April 2019, Société Générale issued a €100 mil­lion cov­ered bond on the Ethereum blockchain, becom­ing the first tok­enized bond to receive cred­it rat­ings from agen­cies such as Fitch and Moody’s. Two years lat­er, the bank issued a €40 mil­lion tok­enized struc­tured prod­uct on the Tezos blockchain, which was sub­scribed to entire­ly by Société Générale Assurances.


In Jan­u­ary 2022, these tok­enized prod­ucts were admit­ted to the Lux­em­bourg Stock Exchange’s Secu­ri­ties Offi­cial List, mak­ing them the first dis­trib­uted ledger tech­nol­o­gy (DLT) secu­ri­ties on the exchange. This mile­stone paved the way for future DLT secu­ri­ties and result­ed in Société Générale FORGE, the bank’s inno­va­tion start­up focused on dig­i­tal assets, part­ner­ing with Swiss dig­i­tal asset firm Meta­co for insti­tu­tion­al-grade cus­to­di­an services.


In July 2022, Mak­er­DAO, a decen­tral­ized finance (DeFi) plat­form, approved a $30 mil­lion loan to Société Générale FORGE, which required the deposit of $40 mil­lion worth of the bond tokens as col­lat­er­al. This marked the first time a pub­lic bond was used as col­lat­er­al for a DeFi loan.


Oth­er notable exam­ples of blockchain-based pub­lic bond issuances include the part­ner­ship between the Euro­pean Invest­ment Bank (EIB) and Gold­man Sachs. In Novem­ber 2022, the EIB com­mis­sioned Gold­man Sachs, San­tander, and Société Générale as lead man­agers for the sale of a €100 mil­lion bond issuance on the Ethereum blockchain. These bonds were set­tled in cen­tral bank dig­i­tal cur­ren­cy issued by the Banque de France and were offered to exter­nal investors through a syn­di­cate group.


This issuance, known as Project Venus, was also the inau­gur­al issuance on Gold­man Sachs’ pri­vate tok­eniza­tion plat­form, GS DAPTM. The suc­cess­ful offer­ing was sub­scribed to by AXA Invest­ment Man­agers and Union Invest­ment and was admit­ted to the Lux­em­bourg Stock Exchange Secu­ri­ties Offi­cial List.


HSBC has also entered the tok­eniza­tion space with the devel­op­ment of its own bond tok­eniza­tion plat­form, Ori­on. The plat­form will tok­enize both the bond and the cash involved in the trans­ac­tion, enabling an atom­ic swap or deliv­ery vs pay­ment. This inno­v­a­tive fea­ture, known as DvP, allows for instan­ta­neous swaps and set­tle­ments and could become a key fea­ture in pub­lic bond issuances. HSBC is hop­ing that the EIB and oth­er firms will issue bonds through Ori­on, pro­vid­ing the bank with an added source of val­ue as the infra­struc­ture part­ner. The bank has already issued a $400 ($295 mil­lion at the time) syn­di­cat­ed bond through blockchain firm Mar­ketn­ode and the Sin­ga­pore Exchange.