Digital Securities: Disrupting Capital Raising

Over the past 12 months, the market capitalization of the digital securities market has gone up by over 100%, now sitting close to $1.4 billion.

Trading volumes have remained low, despite the launch of various digital securities exchanges. The total traded volume across all exchanges is below $1 million per day. For detailed data on each digital security’s volume, visit our Research Terminal and create a free account.

While this growth has yet to become exponential (as more industries adopt digital securities to enhance their capital raising processes), we have seen some promising developments.

In this newsletter we want to cover various applications of digital securities that show the potential for further adoption.

Real Estate

Both real estate deals and funds can be tokenized. This allows issuers to dramatically reduce costs and frictions associated with raising capital for real estate. For instance, REITs (real estate investment trusts) can save up to 60% of their regular issuance costs by adopting tokenization. See our report on real estate issuance costs here.

For investors, digital securities enable them to gain access to a traditionally illiquid asset class. While the global real estate market is worth close to $300 trillion, less than $10.5 trillion of that is considered managed real estate.

Digital securities open access to the asset class both in the form of actively managed funds and single-property deals.

The market capitalization of real estate digital securities is still under the $200 million mark, which underlines the potential for growth in the sector.

Tokenizing Image Rights

Tokenization opened up the doors to new asset classes. Now everyday investors can access returns from assets that were typically reserved for the very few in the industry.

For instance, revenues from copyrights and intellectual property rights are usually reserved for those who wholly own them. But thanks to digital securities, retail investors can access this asset class using blockchain technology.

Tokenchampions is the first investment fund that tokenizes debts for the acquisition and management of international football players’ image rights.

Numerous platforms have emerged using blockchain technology to monetize intellectual property rights. Digital securities are useful for this as they provide a tangible digital representation of the IP asset on the internet, creating a public history for its value which gives transparency to investors.

Cryptocurrency Funds

Digital securities tie very well into the world of crypto investing. Accredited and institutional investors are often too busy or risk-averse to want to actively manage their cryptocurrency assets and be responsible for their storage, liquidity, and active management. So they often turn to professional managers that will offer funds backed by underlying digital assets (cryptocurrencies, NFTs, etc).

There are numerous ways to create a crypto fund, but the most logical avenue is to offer it through digital securities.

Digital securities provide an immediate up to date record of investors in a fund, as well as the ability to create liquidity for accredited and institutional investors.

They also allow fund issuers to create funds with different compositions and strategies. For instance, some funds may use derivatives, while some will only invest in altcoins in the hopes of beating the overall performance of Bitcoin.

Securitize is leading this effort by providing investors with returns through their Bitcoin and USDC income funds.

In short, digital securities provide crypto fund issuers with a native solution that allows them to operate with flexibility. They allow investors to safely trade, and help issuers keep a permanent record of ownership and pricing across units.

Recent News & Developments

• Atlas One Digital Securities Index is up 134% YTD.
• The Digital Securities Market Cap is at $1.27 billion.
• BlockInvest, the start-up that is bringing blockchain technology to institutional services, announces the closure of a new investment round, reserved and entirely subscribed by Crédit Agricole Italia.
• The BlockInvest solution, is a blockchain-based platform designed for financial institutions and market participants. It allows you to digitize the process of issuing and selling real assets such as real estate, bonds and/or portfolios of Non Performing Loan (Secured, Unsecured) by designing sophisticated tokens on Ethereum’s public Blockchain, capable of representing the tokenized financial instrument. BlockInvest also enables its clients to expand their investor base globally, in a transparent, liquid environment with an unparalleled level of security.
• Coinstreet Holdings Limited, a leading global professional consultancy group and solution provider in the digital asset sector since 2017 (“Coinstreet”), and a subsidiary of Somerley Capital Holdings Limited, a leading financial group headquartered in Hong Kong with an established history and proven track record in the corporate finance advisory space in Greater China (“Somerley”), have entered into a joint venture agreement with an aim to provide professional advisory and management consulting service for security token offerings (“STO”), and to serve the rising need for asset tokenization and fundraising through issuing of digitized securities from Hong Kong enterprises (“JV”).
• Securitize, a firm using blockchain to expand access to the capital markets, announced today the launch of two new tokenized funds tracking two of the most innovative indices from S&P Dow Jones Indices, the world’s leading index provider, a major milestone in institutional innovation and adoption of blockchain.
• Launchpool, the token-based community crowdfunding platform, is pleased to announce an exciting partnership with Archax, the first FCA regulated digital securities exchange, broker and custodian. This partnership will provide new services for all stakeholders, the Launchpool community and investment funds, as well as offering projects optionality when raising capital.