The Short Stick
- There is growing institutional acceptance that crypto is a potential long term store of value
- Security tokens are now a real thing and can be assessed as a regular investment
- ASEAN is behind the curve as usual, but Singapore will be our regional first mover and some firms are headed down this path.
- Be on the look out for fundamentally sustainable opportunities in this space
The Long Story
A rash of crypto-related announcements over the past few weeks has added fresh impetus to the narrative surrounding a gradual convergence of crypto and traditional assets. Of course, both types of assets continue to be quoted (and one could argue, denominated) in fiat currency terms, in particular the US Dollar, but that is another story altogether…
The three situations below gives a sense that dreams of a fully digital future are starting to take shape as blockchain and distributed ledger technology adoption within the financial services space appears to gain more traction.
1. Digital Assets Going Mainstream
In the US, Intercontinental Exchange – the trading colossus that owns the New York Stock Exchange and other global marketplaces – announced the formation of a new company called Bakkt, which will launch in November 2018. The stated mission of Bakkt is to transform Bitcoin into a trusted global currency, and this starts by offering a federally regulated market for Bitcoin.
- More interesting is the all-star cast that ICE is partnering with, who have giant footprints across technology, consulting, and retail: Microsoft, Boston Consulting Group, and Starbucks. Investment capital has also been raised from the likes of Fortress Investment Group, Eagle Seven, and Susquehanna International Group.
- The move is targeted at the world’s big financial institutions. ICE believes that an institutionalised B2B / wholesale dealing market in Bitcoin will clear the way for major money managers to offer Bitcoin mutual funds, pension funds, and ETFs, as highly regulated, mainstream investments. This would be a step in the direction of having BTC denominated consumer transactions.
2. SAFE Notes on Security Tokens; for Trade Finance on Blockchain
Also in the US was the capital raise mechianism for t0.com (or tZERO””), a distributed ledger platform for capital markets that is majority owned by Overstock.com, Inc (NASDAQ: OSTK). tZERO provides a modular and adaptable blockchain-based platform that integrates with trade participants to create a real-time, authenticated, immutable ledger. This enables pre-trade clearance, enhanced trade FIX, and better post-trade clearing and reconciliation. Overstock.com will be a the launch client for tZERO and provide access to Overstock’s invoices, payable and receivables.
- tZERO’s public fundraising round was through a traditional SAFE Note, that will be tokenised and distributed through the tZERO blockchain. tZERO claims that this is the first SEC-approved security token issuance in the US.
- Investors were able to invest in the SAFE Note / token through both traditional and new crypto mechanisms. I.e. The investment can be funded through either: (a) a traditional wire transfer instruction; or (b) sending BTC or ETH from a personal, non-exchange, wallet.
- KYC was done separately through the use of an agent. In this case, tZERO used StartEngine.com, a crowdfunding platform for startups. The requirement to use a unique wallet address instead of an exchange wallet is part of the KYC requirement, as that wallet address can be tied to the investor’s name.
3. On the horizon: Security Tokens in Singapore
Closer to home, the Singapore fintech startup Rate raised USD 15M (ETH 25K) via a token sale. Rate will use proceeds to build out the Rate3 platform, which provides tokenisation of traditional assets – in short, tools to create security tokens.
- They have interesting investors – traditional VCs including Matrix Partners China and Bo Shen, founder of Fenbushi Capital, as well as crypto investors Node Capital, Kenetic, FBG Capital, Signum Capital.
- Rate3 is actually a pivot away from RateX, the company’s original product, which is a free browser extension that automatically provides shoppers with the lowest exchange rate at no transaction fee for overseas purchases through e-commerce platforms
So what does this all mean? Or in the almost immortal words of No Mercy “Where Do You Go“?
I would posit that tryb needs to take a deeper look at crypto/blockchain/DLT opportunities that are truly transformative. Yet, these are not the easiest opportunities to identify as we try to (as we say internally) stay out of the weeds. I suggest keeping some guidelines in mind when assessing transformative technology investments:
- Believe that there will be a gradual but persistent shift in physical and informational the structure of the internet through the increasing adoption of decentralised protocols over the long term.
- Focus on non-speculative use cases that have the potential to generate recurring cash flow streams. There are few truly new business models. If we are unable to find a traditional analogue to any opportunity, it should come under much closer scrutiny.
- Be open to the fact that crypto tokens are the native asset class of digital networks (and token value is driven by underlying use cases). In the same way that the FX market facilitates financial transactions across physical economies in different countries, we should be wary of token FX risk.
- Digital or not, good governance is sacrosanct. A company is still a collection of people, distributed network or not, and tryb has a responsibility to its investors to be an active participant in the good governance of companies by the people that run them.
This post was written by Veiverne Yuen, Co-Founder of tryb.