Digital Securities: Q3 Update

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Market Insights

The third quarter of 2021 has been full of growth in the digital securities market. From tokenization taking place across a large number of asset classes to prominent issuers going live with their digital security offerings, it is fair to say that we are at a pivotal point.

As cryptocurrencies and digital assets gain traction, digital securities are following suit, with the overall market capitalization of the digital securities ecosystem now up almost 100% since the start of 2021 — estimated at around $1.5 billion.

This increase in market capitalization is largely due to the addition of two of the largest digital securities over the past quarter: INX ($370 million) and Exodus (originally $150 million but now down to about $50 million).

The Atlas One Index, which is a capitalization-based index of the largest digital securities, has gone up over 140% year-to-date, and now includes Exodus and INX as well. This index is a good representation of the overall growth of traded digital securities, and shows that the largest players in the market are adding issuers of substantial size to their platforms.

Although digital securities are growing at a steady pace, we are not seeing an exponential wave of adoption across private markets. The growth is linear — we are not yet at an inflection point.

The birth of decentralized digital securities exchanges is very promising, and could be a key driver of liquidity in the markets. As of now, the total year-to-date volume on tZERO’s exchange (which is currently the largest one) is around $46 million, which is still a fraction of the volumes seen in cryptocurrency and public equity markets.

We estimate that sometime next year, we may begin to see increased adoption of blockchain technology in private markets, which in turn will drive the growth of digital securities beyond any particular sector or industry. In other words, all industries will be able to use the technology to raise capital and offer higher liquidity for private investors.

Atlas One

Atlas One’s Research Terminal is now integrated with IX Swap and InvestaX, offering clients key market data and industry news. We are currently tracking 77 securities worldwide, with live market data for 16 of those.

The Atlas One Index, which encompasses all of tZERO’s digital securities plus RealT’s tokenized properties, is up 140% since the start of the year. This goes to show the profitability of certain digital securities investments, particularly in the technology sector.

As more digital securities become available on secondary markets, we will continue to include them in our Index in order to provide an accurate picture of the most liquid DSOs.

IX Swap: Decentralized Trading

The secondary trading infrastructure available for digital securities has usually been centralized. However, Singapore-based IX Swap is looking to disrupt this by providing a regulated decentralized exchange for digital securities.

This decentralized exchange will be a first of its kind, providing investors with greater degrees of liquidity and expanding market access for digital securities.

By providing the same Defi infrastructure that is used for trading tokens, IX Swap is pioneering secondary markets for digital securities in a way that is not controlled by only one market, and where various broker-dealers can connect with one another and offer liquidity to their investors.

Aaron Ong from IX Swap gave us some insights on what the exchange is looking to accomplish:

“IX Swap is the “Uniswap” for security tokens (STO) and tokenized stocks (TSO). IX Swap will be the first platform to provide liquidity pools and automated market making functions for the security token (STO) & tokenized stock industry (TSO).

The platform will be the first DeFi platform to facilitate the trading of security tokens through licensed custodians and security brokers which will provide actual ownership and claim over these real world assets.

IX Swap solves a key infrastructural problem for the security token industry which is secondary trading liquidity which is currently minimal due to the lack of market makers in the security token market. The platform applies the automated market making and liquidity pool innovations that we currently see widely across the cryptocurrency space.

IX Swap has completed integrations with their first custodians, 1st Digital Trust and is finalizing its integrations with their first licensed broker-dealer InvestaX. This integration will allow for a seamless UI/UX experience for users trading STOs while ensuring that the platform is regulatory compliant. The IX Swap platform is set to go live in Q1 2022 and will continue to collaborate and integrate with other STO platforms across the globe like Atlas One to increase awareness and adoption for the STO industry.”

Digital Securities Focused on Bitcoin

Over the past quarter two digital securities that provide investors with some degree of exposure to cryptocurrencies have emerged: Exodus and Brox Equity.

Exodus is a cryptocurrency wallet app, and thus offers investors with upside potential if digital assets become increasingly adopted and the wallet gains popularity. However, although Bitcoin has soared past $55,000, Exodus has been quite volatile over the past couple of weeks, losing 60% of its value between September 13 and October 5, 2021.

Brox Equity, on the other hand, is a Bitcoin mining operation generating revenue through various avenues. The company’s profit margins are likely to increase if the price of Bitcoin continues to gain momentum.

Being at the intersection of cryptocurrency and digital securities, these innovative offerings can drive more adoption to the digital securities market, and help build the foundation for dividend distributions in the form of direct crypto deposits into investors’ digital wallets.

INX Exchange

INX made headlines over the past quarter, going live on its own exchange and adding another 4 tokens: Blockchain Capital, Protos, Science Blockchain and SPiCE VC. Between August 3 2021 and October 8, INX token increased in value by over 140%, placing it as one of the best performing digital securities this year.

After acquiring OpenFinance earlier this year, INX is beginning to build the infrastructure to trade digital securities in a regulated environment. While volumes are still low compared to public markets, they are creating a market for securities that were otherwise very illiquid and traded mostly in peer-to-peer, small blocks.

Blockchain Capital, for instance, traded 21 times on Airswap, and used this peer-to-peer non-custodial trading protocol to offer most of the liquidity to investors. But INX is beginning to acquire some of this volume, and although it has not traded as much monetary value as its decentralized counterpart, the number of trades has been higher at 25 total trades.

Latest News

IMetaMask Institutional Announces the Integration of BitGo, Qredo and Cactus Custody™

MetaMask’s 10 Million MAUs across the globe use the wallet to access the decentralized web where they swap, borrow, stake, lend, mint NFTs, buy NFTs, and much more. MetaMask Institutional (MMI) was created in December 2020 by ConsenSys to address large numbers of leading crypto funds, market-makers, and trading desks seeking to increase exposure to DeFi. These organizations struggle to do so because operating at such a scale often necessitates heightened security, operational, and compliance requirements.

MMI solves this problem by providing investors with full access to DeFi and Web3 that satisfies even the most rigorous of institutional requirements.

Société Générale Applies for $20M MakerDAO Loan Using Bond Token Collateral

In a proposal on Thursday on MakerDAO’s governance forums, French multinational banking giant Société Générale (SocGen) submitted an application for the decentralized finance (DeFi) lending platform to accept on-chain bond tokens issued by the bank as collateral for a stablecoin DAI loan.

The loan, mediated between a number of legal entities and third parties in a somewhat complex legal architecture, would be for up to $20 million in DAI — likely the largest step towards institutional adoption of DeFi to date.

Wall Street Ramps Up Tokenization Infrastructure As Second Wave Of Digital Assets Builds

According to a summer note from Rosenblatt Securities, a New York-based institutional brokerage firm, $9.5 billion was invested into Wall Street infrastructure enabling institutional handling of digital assets in 1H of 2021, almost as much as in all 2020. Should this trend continue, and traditional investment pattern — where Q4 investments are roughly comparable to money attracted throughout the year — hold, 2021 will see $370 billion go into industrial grade institutional investor-focused tokenization infrastructure, The Tokenizer estimates.

German financial authority BaFin grants third permission to provide crypto custody services to Munich-based company Tangany

The Munich-based technology and financial services provider Tangany has received a license from the German Federal Financial Supervisory Authority (BaFin) on Oct. 1, 2021, as the third regulated service provider for the custody of digital assets in Germany to provide crypto custody business in accordance with § 1 Section 1a Sentence 2 №6 of the German Banking Act (KWG).

Aqarchain.io Real Estate Tokenization Platform Launches AQR Token IEO on MENA Leading Emirex Exchange

Emirex, the leading cryptocurrency exchange in the MENA region, is pleased to announce an IEO partnership with Aqarchain.io, a blockchain-powered real estate investing platform. Aqarchain’s aim is to create a decentralized ecosystem where investment in real estate is as easy as investing in shares on the stock market.

The Aqarchain IEO was launched on the Emirex exchange on September 30/2021 with a price of $0.25 per token with vesting until the end of the IEO. By joining the AQR IEO, users have a chance to purchase the utility token for a lower price before entering the market. The Aqarchain platform will facilitate the selling of properties between various sellers and investors, cater to retail clients as well as professional clients, and potentially market counterparties. It will also offer an additional level of smart contracts security by tokenizing the shares in the properties.

UOB and ADDX Collaborate On Sustainability-Linked Digital Bond

UOB and digital securities exchange ADDX have concluded the digitisation and digital custody of the inaugural sustainability-linked bond recently launched by Sembcorp Industries (Sembcorp). This initiative comes amid a rise in the use of digital securities to enhance the efficiency of bonds and other fixed income instruments.

UOB was appointed as a joint lead manager for the S$675-million sustainability-linked bond issued by Sembcorp, through its wholly-owned subsidiary Sembcorp Financial Services (SFS). The bank also partnered with ADDX to custodise and manage a S$50-million portion of the bond.

CitaDAO Closes $1 Million Builders Round to Bring Real Estate Onto DeFi

CitaDAO, a Decentralized Finance (DeFi) platform for Real Estate, has successfully closed its $1 million Builders Round, with participation from venture capital funds Sora Finance, SNZ Capital, and Origin Capital. The round also included leaders of other successful blockchain and DeFi projects such as Synthetix, C.R.E.A.M Finance, Mercurial Finance, Manta Network, Kyber Network, Alpha Finance, Binance, MakerDAO, and Bitgo, as well as executives from the real estate industry such as Parmenion and CBRE. Other strategic investors who participated in the round included individuals from MetaCartel Ventures and Nansen.ai community.