Ben Strack

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.&nbsp;&nbsp;



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.&nbsp;



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 <a href="https://www.nrs-inc.com/resources/whitepapers/investment-adviser-industry-snapshot-2021-evolution-revolution-reimagined">$110 trillion</a> in assets in the US.&nbsp;



Read more: <a href="https://blockworks.co/news/eaglebrook-ceo-advisors-the-lowest-hanging-fruit-for-crypto-market">Eaglebrook CEO: Advisors the ‘Lowest-Hanging Fruit’ for Crypto Market</a>



“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.”



<h2 class="wp-block-heading">Tokenization takes another step</h2>



<a href="https://blockworks.co/tag/securitize">Securitize</a>’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.”



“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 <a href="https://www.blackrock.com/corporate/investor-relations/larry-fink-annual-chairmans-letter">letter</a> to investors that <a href="https://blockworks.co/news/blackrock-ceo-us-lagging-innovation-tokenization">the tokenization of assets</a> 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 <a href="https://blockworks.co/news/wisdomtree-blockchain-native-app">“early mover status in tokenization”</a> after the launch of its blockchain-enabled consumer app.



More recently, Adapt3r Digital <a href="https://blockworks.co/news/on-chain-investors-us-treasury">launched a tokenized fund on decentralized marketplace Archblock</a> that allows access to short-term US Treasury yields.&nbsp;



Read more: <a href="https://blockworks.co/news/2023-year-of-asset-tokenization">Asset tokenization is shaping up to be crypto’s theme of the year</a>



<a href="https://blockworks.co/news/morgan-stanley-blockchain-capital-lead-48m-funding-for-securitize">Morgan Stanley-backed</a> 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.&nbsp;



“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 <a href="https://blockworks.co/news/private-markets-investment-firm-hamilton-lane-to-tokenize-3-funds">Hamilton Lane partnered with Securitize</a> that October to tokenize funds offering exposure to equities, private credit and secondary transactions.&nbsp;



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



<h2 class="wp-block-heading">Significance of the deal?</h2>



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.&nbsp;



“Matching Securitize&#8217;s recent headway tokenizing private funds with the distribution capability of OnRamp&#8217;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&#8217;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&#8217;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.&nbsp;



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

<div id="highlights-block_633d87ebfea2e" class="highlights">
 <ul>
 <li>Hamilton Lane funds to be available on a yet-to-be-determined “reputable” blockchain, spokesperson says</li>
 <li>Securitize revealed tokenized version of a KKR health care fund on the Avalanche blockchain last month</li>
 </ul>
 
</div>



Private markets investment firm Hamilton Lane is making three of its funds available via tokenized feeder funds as it expands access to the vehicles beyond just institutions.&nbsp;



The firm, which managed or supervised $832 billion in assets as of June 30, has partnered with digital asset securities firm Securitize to tokenize funds offering exposure to equities, private credit and secondary transactions.&nbsp;



Securitize CEO Carlos Domingo said in a statement that Hamilton Lane’s products, historically only available to institutions, will now be available to qualified US-based investors.



“Tokenization now makes it possible for individual investors to participate in private equity value creation for the first time in a digitally native way,” Domingo said.



<blockquote class="wp-block-quote">“We are at the beginning of a process through which individual investors can access the same kinds of opportunities as university endowments or sovereign wealth funds, and that is very exciting,” he said.</blockquote>



The Hamilton Lane funds are set to be tokenized by Securitize’s digital transfer agency and managed by its digital asset management arm. The crypto firm intends to make them available for investment via its brokerage platform, Securitize Markets, this quarter.



The investment firm teamed up with ADDX earlier this year to tokenize a class of shares issued by the Hamilton Lane Global Private Assets Fund for investors in Asia.



The news comes a few weeks after Securitize revealed the launch of a fund tokenizing an interest in <a href="https://www.kkr.com/" target="_blank" rel="noreferrer noopener">KKR</a>’s Health Care Strategic Growth Fund II on the Avalanche public blockchain. KKR, which offers alternative asset management, as well as capital markets and insurance solutions, had $491 million as of June 30.&nbsp;



Securitize also made available <a href="https://www.youtube.com/watch?v=KXtC1KdYJjg" target="_blank" rel="noreferrer noopener">a tokenized art fund</a> from Artory and Winston Art Group on its platform last month. The $25 million closed-end fund is actively managed and is on the Polygon blockchain.



The Hamilton Lane funds will be on “a similarly reputable” public blockchain, a spokesperson told Blockworks, though the companies have not yet determined which one.



“This collaboration with Securitize is our latest step toward enabling access to the strong returns and performance opportunities generated within the private markets space for a newer set of investors, while increasing usability and transparency through the use of blockchain technology,&#8221; Victor Jung, Hamilton Lane’s head of digital assets, said in a statement.



Though the funds are not available to the broader retail investor segment, DQYDJ reported that 10.6% of American households were accredited in 2020. Those households controlled roughly $73 trillion of wealth.&nbsp;



“We are looking into how this market may evolve and be more inclusive of retail investors in the future, but we are not there yet,” a Hamilton Lane spokesperson told Blockworks.



<a href="https://cms.blockworks.co/arca-labs-and-securitize-partner-on-tokenized-us-treasury-fund/" target="_blank" rel="noreferrer noopener">Arca Labs partnered with Securitize</a> last year to bring a tokenized United States Treasury fund to market. The companies revealed at the time that shares would be issued through ArCoin digital asset security tokens, and that records of token ownership would be maintained off-chain.&nbsp;



A few months prior, <a href="https://cms.blockworks.co/morgan-stanley-blockchain-capital-lead-48m-funding-for-securitize/" target="_blank" rel="noreferrer noopener">Securitize raised $48 million in a funding round</a> co-led by Morgan Stanley and Blockchain Capital.



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Private Markets Investment Firm Hamilton Lane To Tokenize 3 Funds

Casey Wagner

<div id="highlights-block_627c1be7d35e7" class="highlights">
 <ul>
 <li>Algorithmic incentives for stablecoin pegs remain an unsolved problem, head of portfolio management at Securitize said</li>
 <li>Regulators have promised rules to protect investors, but lawmakers haven’t yet found a path forward</li>
 </ul>
 
</div>



As Terraform Labs and community members scramble to rescue stablecoin TerraUSD, regulatory experts say the collapse might be the end of algorithmic stablecoins as we know it. 



“It is a sad ending to this innovative algorithmic stablecoin experiment,&#8221; Adil Abdulali, head of portfolio management at Securitize, said. &#8220;Algorithmic incentives for stablecoin pegs remain an unsolved problem.”&nbsp;



UST collapsed dramatically this week, de-pegging its goal base-price of $1 and reaching a low of $0.298 earlier today, according to CoinGecko. The token’s adjacent cryptocurrency, LUNA, plummeted from $86 last week to around $1.27 at time of publication.



The situation is real-time proof that lawmakers’ concerns about the stablecoin industry are justified, according to <a href="https://cms.blockworks.co/secretary-yellen-stablecoins-pose-significant-risk-to-financial-stability/" target="_blank" rel="noreferrer noopener">US Treasury Secretary Janet Yellen</a>.



“It&#8217;s quite common that we wake up to regulation only when we have a crisis,” said Jonathan Dharmapalan, CEO of eCurrency, which provides technology for central banks to issue and distribute central bank digital currencies, or CBDCs. “A ‘call to action’ is probably what I would call this situation.” 



For months, regulators have promised that rules to protect investors are coming, but lawmakers across government agencies <a href="https://cms.blockworks.co/us-senator-proposes-looser-stablecoin-regulation/" target="_blank" rel="noreferrer noopener">cannot seem to agree</a> on a path forward. 



“Stablecoins are a form of private money,” Dharmapalan said. “The trouble with that is that stablecoin issuers make up their own rules, and nobody knows whether the rules are appropriate.”&nbsp;



Other stablecoin issuers should expect greater regulatory scrutiny, Abdulali agreed, but it is also important to consider the type of stablecoin. Reserve-backed tokens such as Circle and Tether have, at least <a href="https://cms.blockworks.co/coinbase-circle-to-move-usdc-reserves-out-of-high-risk-investments/" target="_blank" rel="noreferrer noopener">according to the teams behind the coins</a>, robust reserves of safe-haven assets, such as cash and cash equivalents. Algorithmic tokens, such as UST, rely on smart contacts that put incentives in place to maintain the price. 



“Algorithmic stablecoins still need work,” Abdulali said. “None have worked.”&nbsp;



A recent research <a href="http://www.wakeforestlawreview.com/2021/10/built-to-fail-the-inherent-fragility-of-algorithmic-stablecoins/" target="_blank" rel="noreferrer noopener">report</a> from Wake Forest Law Review went further, claiming algorithmic stablecoins are inherently designed to fail. These tokens require a support level of demand for operational stability and rely on independent actors with market incentives to perform price-stabilizing arbitrage, the report said.



“None of these factors are certain, and all of them have proven to be historically tenuous in the context of financial crises or periods of extreme volatility,” the report noted.&nbsp;



Other issuers should consider UST’s collapse as a warning, Dharmapalan said.&nbsp;



“One would assume, in good faith, that all stablecoin issuers have actually thought through what the risks are, and that managing those risks is an active part of what they are doing every day,” Dharmapalan said. “However, I&#8217;m going to guess that that is not really the case.”



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Terra Collapse Could Spell End for Algorithmic Stablecoins

Jacquelyn Melinek

<div id="highlights-block_6227ad008c97c" class="highlights">
 <ul>
 <li>Avalanche Multiverse’s program and investments will be divided into at least six phases to support new cohorts and projects</li>
 <li>Up to four million AVAX tokens will fund the program</li>
 </ul>
 
</div>



A non-profit fund for the Avalanche blockchain has rolled out an incentive program with millions of dollars earmarked for the proof-of-stake ecosystem.



Up to four million AVAX tokens, or about $290 million at the time of publication, will fund the program, also known as Avalanche Multiverse. 



The initiative will aim to grow its “subnet” functionality, which helps develop application-specific blockchains on Avalanche. Subnets are natively integrated with Avalanche’s broader ecosystem, available in an unlimited supply and allow for custom implementations — or the ability to tack on features from other chains.



Avalanche Multiverse’s program and investments will be divided into at least six phases to support new cohorts and projects but will not be constrained to a specific time period.&nbsp;It&#8217;s a non-profit organization that is run separately from Ava Labs. 



The first subnet to receive an investment from the program is DeFi Kingdoms, an NFT gaming project. It will get up to $15 million in incentives through AVAX tokens, as well as the game’s new Avalanche-native token CRYSTAL and existing token JEWEL.



Ava Labs, a core developer of Avalanche, will also partner with the Aave Companies, GoldenTree Asset Management, Wintermute, Jump Crypto, Valkyrie, Securitize and other organizations to build the subnet. This will allow regulated institutions that participate to leverage its subnets and access institutional DeFi (decentralized finance) after completing know-your-customer (KYC) checks.



“Avalanche Subnets enable us to create an ideal environment for institutions to migrate on-chain and experience the power of DeFi protocols first-hand as users rather than just as investors,” Stani Kulechov, founder and CEO of Aave, said in a statement. “This is a significant leap toward a future where the barriers between traditional and decentralized finance cease to exist.”



In November, Avalanche launched a <a href="https://cms.blockworks.co/avalanche-launches-200m-fund-to-support-ecosystem-growth/" target="_blank" rel="noreferrer noopener">$200 million fund</a> to support ecosystem growth on its blockchain. It also closed a <a href="https://cms.blockworks.co/?s=avalanche#:~:text=Avalanche%20Closes%20%24230M%20Token%20Sale%20Backed%20by%20Three%20Arrows%20Capital%2C%20Polychain" target="_blank" rel="noreferrer noopener">$230 million token sale</a>, backed by Three Arrows Capital and Polychain, a few months prior.&nbsp;



Avalanche’s native token, AVAX, had a price of $75.39 as of 1:30 pm ET on Tuesday, according to CoinMarketCap <a href="https://coinmarketcap.com/currencies/avalanche/" target="_blank" rel="noreferrer noopener">data</a>. The coin’s market capitalization is near $19.9 billion, which ranks the token as the 10th largest cryptocurrency, behind Solana (SOL) and ahead of Binance USD (BUSD), the data show.



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Avalanche Foundation’s ‘Multiverse’ Incentive Program To Invest up to $290M

<div id="highlights-block_621554cae25b9" class="highlights">
 <ul>
 <li>Securitize has acquired traditional transfer agent Pacific Stock Transfer</li>
 <li>The acquisition will help Pacific Stock Transfer clients raise capital and monitor trading activity through blockchain technology</li>
 </ul>
 
</div>



Crypto securities platform Securitize is out to bring blockchain technology to Wall Street.



In one of the first acquisitions of a traditional finance company by a digital asset firm, Securitize has acquired Pacific Stock Transfer, the companies announced Tuesday.



The acquisition of a transfer agent — which maintains shareholder records, compliance and corporate actions for companies — will help Securitize bring traditional companies into the blockchain ecosystem, the company said. Once the acquisition is finalized, Securitize will be among the top 10 transfer agents in the US, with over 1.2 million accounts.



Securitize currently offers solutions for private companies to raise capital and issue both traditional book entry and tokenized shares, among other services. The acquisition provides an opportunity for clients at Pacific Stock Transfer, which will continue to operate under its current name, and their shareholders to access new blockchain-based services, such as capital raising and secondary trading.



“This acquisition is a big step forward for Securitize in significantly increasing our ability to introduce new capabilities to more companies, as well as for the financial services industry in general with this major step in building and broadening a ‘blockchain bridge’ from a paper-based past to a digitally native future,” Securitize CEO Carlos Domingo said in a statement.



Bringing blockchain technology to the current securities market will bring security and transparency to the space, Domingo added.



“Public blockchains present a major opportunity to represent ownership of securities in a disruptive way, it is a public ledger that is immutable so you can have a irrevocable proof of ownership of the securities using tokens and wallets, no more issues tracking cap tables,” he said in a <a href="https://twitter.com/carlosdomingo/status/1496129044898889742?s=20&amp;t=0C1O84WI1Q3aoUSbDh-ZBA">Tweet</a> Tuesday.



Securitize, founded in 2017, creates shares as unique digital tokens and records them in a decentralized blockchain network, allowing businesses to know the ownership of each share and access all trading activity in real time. It is safer and more efficient than paper files or centralized databases, Domingo said.



“For over 38 years, Pacific Stock Transfer has been one of the most important companies most people have never heard of: from creating shares to tracking ownership to voting, tax, reporting and more, we do all the heavy lifting that enables businesses and shareholders to own and trade stocks,” Billy Miller, who is chief operating officer of Pacific Stock Transfer and will continue to lead the business at Securitize, said in a statement. 



“Integration with blockchain-based recordkeeping will enable us to provide significantly better and more efficient service to our clients and their shareholders in the future.”



The companies involved declined to disclose the terms of the deal.



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Crypto Goes After Wall Street: Securitize Acquires Traditional Transfer Agent

<div id="highlights-block_60d0edf77156c" class="highlights">
 <ul>
 <li>Securitize is adding Co-Head of Morgan Stanley Tactical Value Pedro Teixeira to its Board of Directors </li>
 <li>Participants in the investment round and existing investors will receive their shares in the form of security tokens, or digital asset securities, through Securitize’s platform</li>
 </ul>
 
</div>



Securitize, a digital assets securities firm, announced it has raised $48 million in a Series B fundraising round, co-led by Morgan Stanley and Blockchain Capital, the company said in a statement June 21.&nbsp;



The round marks the first time a blockchain technology company has received major institutional funding from <a href="https://cms.blockworks.co/?s=morgan+stanley" target="_blank" rel="noreferrer noopener">Morgan Stanley</a>, said Carlos Domingo, co-founder and CEO of Securitize, in a <a href="https://twitter.com/carlosdomingo/status/1406921691855458305" target="_blank" rel="noreferrer noopener">tweet</a>, “which is not only great for us but a great validation for the entire space that one of the largest US banks is placing this bet.”&nbsp;



Overall, it’s a good thing for everybody that large financial institutions are getting involved in crypto start ups like Securitize, and while they are the first investment in the space, hopefully they are not the last one, Domingo said to Blockworks.&nbsp;



In addition to Morgan Stanley&#8217;s funding, Securitize is adding Co-Head of Morgan Stanley Tactical Value Pedro Teixeira to its Board of Directors where Teixeira will join Domingo, Securitize co-founder and President Jamie Finn, SPiCE VC co-founder and Managing Partner Tal Elyashiv, and Blockchain Capital co-founder and Managing Partner Brad Stephens.



“We make long-term investments in businesses and asset classes that are ahead of the curve,” Teixeira said. “Our investment in Securitize is a sign that we believe in the growth and adoption of digital asset securities.”



The company was founded in 2017 and allows private companies to raise capital on its digital blockchain-based platform.&nbsp;



“Historically we’ve been viewed as a crypto and blockchain company because that’s the technology, but you’re going to see a shift to focusing less on technology and more on what we actually do,” said Evan Wagner, head of brand and communications at Securitize, in an interview with Blockworks. “Fundamentally, we help companies raise capital and we help investors participate in the private markets which have been closed off to them for the most part.” 



New <a href="https://www.securitize.io/about-us/investors" target="_blank" rel="noreferrer noopener">investors</a> include Ava Labs, IDC Ventures, Migration Capital, NTT Data and Sumitomo Mitsui Trust Bank and no valuation is currently being disclosed. The round also included existing investors including Blockchain Ventures, Borderless Capital, Global Brain, Mouro Capital, Ripio, Ripple and SPiCE VC.



The funding was oversubscribed for the Series B round as the initial target for funding was lower but demand was “quite high,” which resulted in the current funding, Wagner said.&nbsp;&nbsp;



Previously, Securitize raised over $2 million in a Series A round in October 2018, and more than $14 million in January 2020, Wagner said.



The company hopes to use the funds to continue expanding and scaling key existing areas for growth operations as well as launching Securitize Markets, which has no official release date, Wagner said.&nbsp;



Participants in the investment round and existing investors will receive their shares in the form of security tokens, or digital asset securities, through Securitize’s platform. The investors will join a group of over 300,000 verified investors and over 150 companies on the platform, according to the company.&nbsp;



“On the platform, you will be able to access a range of opportunities whether it’s crypto yield funds or startups or real estate developments, you&#8217;re going to see a broader universe of primary offerings as well as secondary offerings,” Wagner said. “Looking forward, that’s the evolution you&#8217;re going to see and as more people become comfortable with crypto, it&#8217;s going to become the means for providing services that is taken for granted in public markets.”&nbsp;