Quarter-Billion of Tokenized AAA Infrastructure Bonds Start Trading 2019Q3

Progress is being made by Bondsai, AiX and XinFin in the fixed-income space.

By tokenizing infrastructure bonds, XinFin & AiX aim to bridge a gap in the market allowing them to provide direct liquidity access to global institutional investors for investments in critical physical infrastructure projects such as power, water, and transportation. The first issuance of bonds will take place in the 3rd Quarter of 2019 and will consist of approximately $250-$400m of AAA rated, sovereign backed, post-risk infrastructure bonds from the books of the Development Banks and Government Treasuries.

Learn more about XinFin. It is a “Hybrid Blockchain” and lists 10 “dApps“, without mention of Bondsai/AiX. To get a “free eWallet“, an e-mail address was necessary and there was no way to export private keys from the interface. XinFin claims a private network can be launched via forks of Quorum and Geth, or Hyperledger and Corda or in a public fashion using a masternode architecture. The XinFin team was granted a regulatory sandbox license in Abu Dhabi in 2018.

17 Issuance startups raised $192M, San Francisco, Toronto & New York lead

The Security Token Group published some data with their State of Investment into Security Token Infrastructure for 2019 Q1.

Issuance

17 Issuance Platform startups have raised approximately 192M. 5 of them call San Francisco home. 34%, 31% and 24% of the funding went to San Francisco, Toronto, and New York, respectively. Toronto only makes the list because the jobs at Polymath are in Toronto, despite them being domiciled in Barbados.

Early Usage

Clicking around a few of the platforms, some interesting facts:

  • Stem’s pricing is sold as a subscription for the issuer, based on team size — just like software
  • Smartlands is advertising a Real Estate deal with a 16% yield
  • Smartlands, Neufund, Swarm and Brickblock, exposed hints of deal pipeline to the public from their platform’s page.

The List of Platforms

The Security Token Group is maintaining a more comprehensive list and is publishing quarterly. The 17 startups listed today are below.

Polymath, Barbados — $58,700,000

Harbor, San Francisco — $38,000,000

BankEx, New York — $30,000,000 (ICO)

Securitize, San Francisco — $12,800,000

Prometheum, New York — $12,000,000

Dharma Labs, San Francisco — $7,100,000

FinHaven, Vancouver — ~$5,900,000

BrickBlock, Gibraltar — $5,700,000

Swarm, San Francisco — $5,500,000 (ICO)

Neufund, Berlin — $3,420,000

Atomic Capital, New York — $3,400,000

SeriesX, Austin — $2,300,000

Abacus, San Francisco — $2,100,000

Smartlands, Cyprus — $1,750,000 (ICO)

Smart Valor, Zug — $1,500,000

Stem, Amsterdam — $300,000

Other Infrastructure

8 Exchange-like startups focusing on programmable capital have raised $200M. Over half a billion raised across all security token infrastructure. Noteworthy locations include Moscow, Houston, Hong Kong, Gibraltar, and Zurich.

PCap Links – #3

OC

  1. Interview with Zoe, Co-Founder of Neufund | Rebecca Stoner, Securities.io (2019-01-16)
  2. Nasdaq Head Explains why Institutions are Holding Back | Max Moeller, Blocknomi (2019-02-02)
  3. Fidelity Investments Digital Assets are serving a set of eligible clients | Fidelity Digital Assets Blog (2019-01-31)

…worth noting is the programmability of tokenized assets, which means that issuers can include utility functions [sic] in the asset itself such as automated dividend distribution

– Zoe Adamovicz

TIL

  1. Bonding Curves Explained | Yos Riady, yos.io (2018-11-01)
  2. A Whirlwind Tour of Security Token Standards | Yos Riady, yos.io (2018-10-31)

In these economic games, Tokens (programmable financial assets) incentivize network participants towards some outcome that is beneficial for every network participant.

Yos Riady

Jibrel & Al Hilal Bank make “Programmable Assets” starting with Sukuk Bonds

The Jibrel network, a company with a growing worldwide presence, announced a while ago it was working with Al Hilal Bank to put Shariah-Compliant bonds on a blockchain. Yesterday, they shared more about their development and vision to program Sukuk Bonds. It’s unclear, if they are using the Ethereum mainnet or even if they did a real transaction yet. However, Jibrel’s strategy includes both.

It is but one step in our vision to put traditional assets on the Ethereum blockchain.

– Jibrel Networks

Included in the aforementioned link, they shared an “Infrastructure” diagram which calls out new responsibilities for legacy actors. Two of the six, jump out.

The Investment Bank translates the term sheet into code then program the assets.

The Custodian verifies and authenticates settlement and clearing of value of programmable assets.

Sukuk bonds come in three flavors. They are debt instruments, but have equity and governance features embedded, depending on the type. They are a great use-case for the kind sophisticated instruments one can create as capital becomes programmable.

Security Token Conference Participant Rundown

A two day conference, related to security tokens, takes place this week in London. It’s called Security Token Realised. The kinds of sponsors and speakers shed some insights into the state of the ecosystem’s maturity. The focal point for the firms engaged is London.

This (and all content on this site) is not sponsored.

Platforms & Exchanges

Archax – A team of 5 executives, 7 advisors with 5 crypto-ecosystem partners have created a regulated and “institutional-grade” exchange for “asset-backed tokens” in London. Graham Rodford is the CEO.

Tokeny – The 17 person team responsible for the Tokens for Regulated Exchange standard, spread across Luxembourg, Paris, London, and Minneapolis has created an end-to-end platform to issue, manage and transfer security tokens. They have compiled a summary of the current Security Token Ecosystem. Their CEO is Luc Falempin.

Kodebox – A 15 person team aiming to help tokenize art, patents, real estate, and inventory. Their CEO, JinGyeong Jeong is based in Korea. Their main project is CodeChain, the “Programmable multi-asset chain” claims to be “an end-to-end solution for real-world asset digitization” and has had active contributions recently.

MIRIS – A company partnered with international conglomerates such as Nokia, has developed a platform to invest in, and trade, tokens which represent claims to “value, rights and contractual obligations” related to real estate projects. Their vision includes transparency into the operations (ie supply chain) of individual projects. They are based in Norway and have at least 51 employees.

White Labels & Public Parents

CEDEX – A platform aiming to tokenize diamonds. It’s advertised as a staple in the portfolio of a technology company listed on the LSE, named Tech Financials Group (“TECH“). It’s unclear if TECH is a parent, supplier, or partner because multiple team members at CEDEX used to have positions at TECH.

ANXONE – Offers a white label trading platform for programmable capital. They are part of the HKSE listed, Branding China Group (“SEHK”) (863). There are at least 3 employees, according to linkedin.

Both TECH and Branding China Group have shown material weakness in the performance of their public equity.

AlphaPoint – New York, US based firm sells a white-label solution for digital asset exchange. The team is led by an ex-Nasdaq executive, and has 13 open positions — including 5 regional sales roles spanning the 3 largest continents by GDP. Their customer list boasts firms such as CME Group and Scotia Bank. They have partnerships counting Intel and Red Hat.

Custody & Compliance

Koine – The former CEO of Soc Gen, Hugh Hughes, is now building out custody and settlement solutions for digital asset exchange. There are at least 29 employees. Their headquarters are in London.

Compliancy Services – The 31-person strong team in the UK looks to be extending their surface area to the programmable capital ecosystem. They published a guide in October of 2018 related to the regulation of cryptocurrencies and another guide on financial crimes in the same space, in September 2018.

Other Sponsors of Note

Iconomi – Allows you to buy and sell first generation programmable money.

SHG Capital – A $1.8B Super Angel fund launched in 2014.

GSX Group – The 2014-founded, Gibraltar Stock Exchange’s latest initiative is a joint venture with two other firms, Prime Fintech Co. Ltd and Hong Kong listed Chong Sing Fintech Holdings. The JV forms Hashstacs, to “radically transform the capital markets”. They use the word Distributed Ledger Technology in their marketing material. Also in the GCS Group, is the Gibraltar Blockchain Exchange. Their ROCK token sale in early 2018, raised $27M USD.

The other sponsors were less relevant to the adoption-centric mission of programmablecapital.com. Some are more broad technology solutions, some have offerings of auxiliary services, others are just young start-ups which are still in early stages of team or financial development. If we didn’t get it right, and somebody should have been covered for their innovation, impact or adoption, please leave a comment.

Speakers

Naturally, many of the sponsors have executives speaking. There seems to be a small amount of active participation and contribution from non-sponsors as well. Below is a sample of the subset of noteworthy individuals participating at the conference.

PCap Links – #2

OC

  1. Interview with Trevor Koverko, founder of Polymath | Yoav Vilner, Forbes (2019-01-17)
  2. Security Token Issuance Set to Take Off | Shany Basar, Markets Media (2019-01-18)
  3. Security Tokens: What you need to know | Jason Hamlin, Equities.com (2019-01-18)
  4. tZero Will Launch Next Week | Anna Baydakova, Coindesk (2019-01-19)

I believed STOs would overtake ICOs, but didn’t expect adoption to happen so fast.

…

It’s the idea that security tokens are programmable.

– Trevor Koverko

SharesPost: Enabling Compliant US Secondary Market for Security Tokens

SharesPost announced enhancements to their platform, enabling a compliant access to trade “Digital Securities” or “Security Tokens”. The first security they plan to support is units of the Blockchain Capital fund. SharesPost is a marketplace for private growth companies and has done $4.5B in transactions since 2009. Those transactions have been for 250 companies, including RobinHood, Docker, and 23andMe.

The platform has “over 50,000” institutions and accredited investors.

A press release announced on their site has more information. From the release…

We believe that over time digital securities will join preferred and common stock as the mainstays of the private capital market.

Greg Brogger, SharesPost Founder and CEO

Will the data of transactions be public? What standards will these “Security Tokens” follow?

A Token Index

SharesPost started tracking a Token Index, last year. The weights for today are shown below. They claim that companies issuing tokens are “typically younger than a venture-backed startup and have raised capital by selling tokens”.

SharesPost Token Index on Jan 11th.

More Equity-Linked Tokens

What does Estonia and Canada have in common?

Both have regulator-engaged equity-linked token experiments.

Unimpressed

Reddit was not impressed when a Trustnode’s piece hit the top of r/Ethereum. The article reported on large cap, American, single issue stocks being linked to ERC-20 tokens by a firm in Estonia, DX.Exchange. While the majority of American investors might struggle to see the point, or not trust Estonia, there are investors who might look forward to this form of financial liberalisation and be willing to trust the 1.3M person republic. For instance, anybody maintaining businesses in the black or grey market, hedge funds operating in the programmable capital space, or citizens of countries with oppressive regimes.

Many Questions

The ERC-20 forms of linked equity brings up many questions.

  1. Will these trade on decentralized exchanges?
  2. Can they be used as collateral, for CDPs?
  3. Will the price stay coupled to the regulated, centralized, and non-programmable markets?
  4. Will US regulators attempt to shut it down?
  5. Will the firms with their equity linked (Tesla, Apple, Google, etc.) firms notice? Or care?
  6. What happens to corporate actions?

With the emergence of an “AAPLT-ETH” pair, micro-structure for actual equity trading could emerge along-side the same interfaces wherever these tokens trade. Could this be the first part of a transition or priming, where the next phase involves listing a firm’s equity both in New York and on the Ethereum mainnet? Could a form of Norbert’s gambit, eventually, be orchestrated between a centralized and decentralized market?

Jasper

Up in Canada, they are a little more conservative, and way more centralised. The Jasper III project completed, with the report released in late October 2018. The outcomes from the proof of concept, where the Bank of Canada (BoC), and the Canadian Depository for Securities (CDS), used a “Non-Enterprise Version” of R3’s Corda to “tokenize” both equity and cash. They created tokens linked to the legacy forms of equity which is traded on the TSX. They used a ledger to effectively trade intraday, which settled inside the PoC instantly in an atomic way, but then used the legacy financial market infrastructure to run the legacy 3-day settlement process.

The most encouraging foreshadowing came from part of the key outcomes.

Overall, a more ambitious re-imagining of clearing and settlement in a decentralized form, guided by market pain points in the settlement life cycle, would also create a more informed premise for benefits assessment.

SECURITIES SETTLEMENT USING DISTRIBUTED LEDGER TECHNOLOGY – 1.4 KEY OBSERVATIONS (pg 9)

A Rose By Any Other Name

The act and implementation of tokenization in Canada, is wildly different than in Estonia.

Tokenization by the regulated startup in Estonia, involves creating a transparent registry of pseudo-anonymous owners with associated quantity on the Ethereum blockchain using a smart contract, where the tokens represent a claim on shares held on deposit by the broker. Trust that the claim is legally binding is necessary. In a sense, even if the claim came with some observable non-zero counter-party risk, the claim itself likely meets the definition of programmable capital.

Tokenization by the regulated agency in Canada, involves using inputs and outputs representing quantities, on a distributed ledger to track provenance across single-use confidential identities on a private installation of Corda, where the tokens represent a claim on shares held on deposit by CDS. Trust that the claim is tracked by the notary is necessary, but should be near-zero given the open-source nature and implied policy support. With an increase of scope in future ambitions, to support more interoperable control, the claim itself could meet the definition of programmable capital.

The one thing both implementations have in common is that for these forms of equity, neither would meet the current working definition of programmable capital. This is because the explicit ownership, of the equity (as opposed to just the claim), could be considered ambiguous and require governance of third-parties to enforce.

Neufund: Equity-Linked Tokens & Supporting Platform

Similar to the fledgling on-chain lending markets and the debt-token ecosystem, on-chain equity-linked token solutions are seeing development, interest and capital flows. In 2018, 3000 investors registered on an early stage equity issuance platform named Neufund. They recently announced a partnership with Ledger. The platform (arms-length?) operator, Fifth Force, looks to compete with Polymath. Neufund aims to reduce friction in legacy venture capital market micro-structure.

“If you look at the inefficiencies and transaction costs that firms incur in the way capital is raised in the venture capital market, it can cause a lot of friction and costs which this technology disruption (blockchain) can really help fix,”

Philipp Freise, head of the technology, media and telecommunications industry team at private equity firm KKR

Healthy Activity

https://twitter.com/neufundorg/status/1079359738205347840

Earlier this December, Fifth Force completed their first issuance of blockchain-registered equity-proxies, for their own equity, raising €3.4M in what appears to be 46 transactions. An example €250,010 investment, shows the EUR-pegged tokens being minted by the platform and then both FTH and NEU tokens being minted.

The FTH equity-tokens come with features including voting and information dissemination. They are actually a claim on legacy system government registration and legal artifacts. The Investment Memorandum and Term Sheet have more information.

The NEU tokens seen in the transaction are grants included as part of an incentive program designed to align stakeholders in the ecosystem. Their issuance is part of every deal done on the platform per a pre-determined schedule.

Past & Present

From their marketing materials, a history of the firm:

  1. September 2016: Neufund founded
  2. January 2017: Whitepaper 1.0 released
  3. May 2017: Employee Stock Option Plan
  4. July 2017: Blockchain Policy Report published
  5. August 2017: ICO Transparency Monitor Released
  6. September 2017: Whitepaper 2.0 released
  7. October 2017: Smart Contract Watch
  8. November 2017: ICBM
  9. May 2018: Platform pre-launch KYC
  10. June 2018: First ETOs announced
  11. July 2018: First partnerships with secondary markets
  12. November 2018: Platform 1.1. Live on the Mainnet
  13. November 2018: First Security Token Offering (STO)

The Equity Token Offering ETO took 14 days to execute the raise. Registration and settlement in legacy government frameworks add 2 months to their timeline.

Timeline for Neufund’s Equity Token Offering

The startup also raised €10M in private equity late 2017.

Pipeline

There are currently 10 advertised firms preparing to raise equity on the platform in the near future. Everything from seed stage, through Series D offerings. Countries of origin span Germany, India and Malta so far. Industries span energy, finance, consumer and technology. Germany based Brille24, is a 10 year old company and has shipped 2 million eye glasses. India based Emflux Motors, sells bikes that do 0 to 100 km/h in 3 seconds. The highly anticipated Malta based, Founders Bank, initiated as a strategic move by Binance is also on the platform.


Compound: Algorithm & Arbitrage Backed Money Markets

Dune Analytics analyzed the state of dApp adoption at the end of 2018. One of the apps they looked at is Compound. They shared that Compound had $8M USD worth of Dai supplied. As of today, there is a $16M worth of supply. Compound launched in September 2018. This kind of market, for crypto, is brand new in 2018. Below is our executive summary of the service; stay tuned for a review of the investor experience and trade life-cycle.

Executive Summary of Compound

Compound creates anonymous, secured, variable rate, open-term, lending agreements using a pool-based micro-structure, along with a ratio-based excess-supply, equity and incentive system to reduce risk and friction observed in existing lending markets. It enables exchange of exposure and time-value of individual digital tokens via the formation of an algorithm maintained and arbitrageur monitored pool of programmable capital. There are currently 6 supported digital tokens spanning four utility-tokens, a USD-proxy, and ETH-proxy.

Rates

There are two distinct interest rates, one seen by all borrowers, the other by all lenders. The rates float over the life of any deposit or loan. This is by design; supplied capital must always be higher than borrowed capital. Both rates are managed by an algorithm with inputs from supply and demand, with a global index for each rate on a per market basis. Interest is earned every 15 seconds, and tracked by the protocol, but doesn’t settle to the chain until the loan does.

Collateral

Borrowers need to maintain collateral deposits worth at least 1.5x the value of any loan. If the collateral is impaired below this ratio, the first arbitrageur to notice, can exploit the incentive system in order to return the loan to good standing. Any market participant can do this, by simply buying the impaired portion of the loan at a 5% discount at the expense of the borrower. A layer of equity helps to prime the market and secure loans against system failure.

Agency

The governance is currently centralized with the intent to transfer to a DAO. A 2.5 basis point origination fee is charged to the borrower by Compound for registering a new agreements. Andreessen Horowitz, Polychain and Bain Capital Ventures invested $8.2M in early 2018. The team has 7 executives and 4 open positions advertised in San Francisco, California, USA. The Compound Labs FAQ is helpful to learn more.

References