Securitize deal to access RIA market latest step of tokenization growth journey

A deal by Securitize to tap into the registered investment adviser (RIA) community reflects a potential significant new step for tokenization market growth, industry watchers told Blockworks — a theme viewed as one of the crypto segment’s most promising developments.

Securitize revealed Thursday that it would buy Onramp Invest — a digital asset wealth platform working with US RIAs with combined assets under management of $40 billion.

The purchase allows the company to offer tokenized alternatives — like private equity, private credit and secondaries — through systems RIAs are accustomed to using for reporting to clients.

Tokenization is the process of digitizing real-world assets, such as equities or real estate, onto a blockchain — and backing those digitized versions by real-world assets. Settlement can be conducted in real time, and investors can see where their assets are stored on-chain.

Securitize President Jamie Finn said for the further adoption of tokenized alternatives, it was “crucial” to make them accessible to the RIA market — a community he said manages $110 trillion in assets in the US.

“I think you will continue to see two things: first, expanded investor access to digitized financial products through expanded distribution — that is, meeting investors where they already are,” Finn told Blockworks. “And, second, continued digitization and improvement of other traditional asset classes.”

Tokenization takes another step

Securitize’s acquisition is the latest signal that tokenization — an idea that has gained considerable steam over the past year or so — is not going away, industry watchers said.

Ric Edelman, founder of Edelman Financial Engines and the Digital Assets Council of Financial Professionals, said there is no question tokenization is “the next big thing in crypto.”

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“Some could argue that it will dominate the crypto world in the next decade,” he told Blockworks. “Getting advisers engaged is essential for the growth of the tokenization market.”

BlackRock CEO Larry Fink said in a March letter to investors that the tokenization of assets could help in “driving efficiencies in capital markets, shortening value chains, and improving cost and access for investors.”

Executives at WisdomTree, a fund group with $97 billion in assets under management, said last month the firm is looking to take advantage of its “early mover status in tokenization” after the launch of its blockchain-enabled consumer app.

More recently, Adapt3r Digital launched a tokenized fund on decentralized marketplace Archblock that allows access to short-term US Treasury yields.

Morgan Stanley-backed Securitize, specifically, launched a fund tokenizing an interest in asset manager KKR’s Health Care Strategic Growth Fund II on the Avalanche blockchain in September 2022.

“When we announced our partnership with KKR, we were already having many, many conversations with other major institutions,” Finn told Blockworks. “KKR was just the first to move, and many conversations accelerated after they did.”

Private markets investment firm Hamilton Lane partnered with Securitize that October to tokenize funds offering exposure to equities, private credit and secondary transactions.

“Over the coming months, you will continue to see big institutions announce the digitization of their products,” Finn said.

Significance of the deal?

Todd White, partner at crypto advisory firm Architect Partners, said that while various players in the tokenization sector have focused on different asset classes, they have struggled to connect with investor appetite.

“Matching Securitize’s recent headway tokenizing private funds with the distribution capability of OnRamp’s RIA network makes a lot of sense,” White said. “The deal structure is also sensible, with initial collaboration as predicate to full acquisition, and their collective success could bring validation and momentum to the tokenization space as a whole.”

Colin Butler, global head of institutional capital at Polygon Labs, noted that the Securitize deal gives “mass affluent” investors — those with a net worth of between $1 million and $3 million — the ability to invest in private equity and hedge fund instruments for which, prior to tokenization, they didn’t have access.

Declines of new issuances in public markets suggest that asset managers are running out of assets to distribute in the form of investment products, added Ralf Kubli, board member at the Casper Association.

“Accessing private markets for instruments offered to a broader public, will require more efficiency overall and higher transparency down to the individual asset level,” Kubli said. “It appears that a number of players are seriously looking at [distributed ledger technology]-based infrastructure, due to the unique capabilities of blockchains.”

Digital Asset Research CEO Doug Schwenk said that while the deal represents just one step in the evolving tokenization space, it opens up an important path for better distribution. Still, the RIA segment likely needs more education around such products, he added.

“Many RIAs have been slower to embrace the cryptocurrency investment narrative and thesis, while it’s much easier for them to bring forward traditional assets in a new mechanism or wrapper,” Schwenk said. “The RIA market is sizeable and could bring significant demand should the right tokenized products be on offer.”

Edelman argued that Onramp’s penetration into the RIA community has been limited.

“Still, the transaction demonstrates that Securitize recognizes the importance of connecting with the advisory community,” Edelman said. “And that puts them ahead of many others in the tokenization business.”

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