Four Acquisitions for the Love of Tokenization
The world is a crazy place, and I don’t think anyone needs any evidence for that. Pick any topic and there is ample evidence out there.
Let’s look at the Tokenization topic which is inextricably connected to digital assets and more closely to stable coins.
Emotional Swings
Relief from the news (didn’t you wonder initially if it was fake news?) that the SEC dropped its case against Garlinghouse and Larsen of Ripple. This Christmas it would be three years since the Ripple/SEC saga started. Did Ripple Labs hold an illegal IPO when raising funds by selling XRP, because it was an unregistered security offering?
Upset from looking back at the economic cost of all this saga and questioning its purpose since regulatory clarity still hasn’t passed US Immigration. As Sandra Ro, CEO of GBBC put it this week in a LinkedIn post — ` Can someone please calculate the taxpayer $$ & lawyer fees spent during the multiple years on the Ripple/SEC case?
Disgust with the revelations during the SBF/FTX trial and the latest NY lawsuit for fraud against Gemini, DCG & Genesis (losses of c. $1b from the Gemini Earn product).
Excitement with the announcement of a milestone acquisition this week: DTCC is acquiring Securrency.
Let’s take a look at this deal. Let me know if you can feel the excitement too.
DTCC is US-based with global subsidiaries and acts as a centralized clearing and settlement company for different asset classes. In 2022, it processed $2.5 quadrillion in securities settlements.
As you can imagine compliance and interoperability is paramount for DTCC. Even if 10% of the TAM projections of tokenized Real World Assets (RWA) floating around, materialize, the DTCC wants to be part of it.
BCG and ADDX estimated the TAM around $16 Trillion (May 2022)
21.co`s latest report estimates the market value for tokenized assets will be between $3.5 trillion in a bear-case scenario and $10 trillion in a bull-case scenario by 2030
More importantly, the FINK ($10 Trillion AUM) has spoken and said at the New York Times’ 2022 Dealbook Summit
In the first WealthTech views report in Spring 2021, `How DLT & Blockchain is shaping the future o fasset & wealth management`
Securrency was profiled and Dan Doney (CEO at the time and now CTO) said:
I personally remember an early demo of the Securrency dashboard with an early version of their Digital Asset Composer which was a plain-language interface enabling users to leverage object-based tools. This dashboard can be used by Issuers of the digital assets, financial services providers, lawyers, and any other professionals to intuitively create any type of financial instrument.
This Digital Asset Composer is connected to the Policy Engine efficiently enabling users to define the regulatory and transactional parameters applicable to that asset, but also to update tokens if these rules change.
Securrency has also integrated a data oracle, the Attestation Registry, and the Digital Asset Registry which handles reporting, proxy voting, and other shareholder related items.
Read more details in the report about Securrency p. 31–34
My excitement also comes from another similar deal that was announced in August. DLTfunds was acquired by Deutsche Börse.
In both the 1st and the 2nd `WealthTech views report DLT & Blockchain — 2022` we profiled FundsDLT.
A Luxembourg based Fintech focused on the entire lifecyle of fund administration on new rails. FundsDLT was launched and owned by Clearstream, Credit Suisse Asset Management, the Luxembourg Stock Exchange and Natixis Investment Managers. The regulatory progress in Europe from MICA and DORA, but most importantly the German and Swiss governments legislations around DLT, have been significant enablers for these innovations to come to market.
FundsDLT provides a shared platform for asset managers, banks and financial advsiors, built on distributed ledger technology that generates efficiencies, transparency and better client experience all along the investment fund distribution chain.
Read more details in the 2022 report about DLTfunds p. 38–40
These two acquisitions may not be huge in deal size but they are important as they will be enabling significant changes behind the scenes through major incumbent players.
At the same time, there are more acquisitions over the past couple of months targeting a piece of the Tokenization of RWAs pie.
In May, Ripple acquired the Metaco and this acquisition is more than just about custody of digital assets. METACO’s main product, called Harmonize, is an orchestration system for Digital Assets to tokenize, manage staking and smart contracts, and connect to Defi.
Ripple is already serving several incumbent banks and financial providers globally.
Metaco is also profiled in our 2022 report p. 41–44
In August, Securitize acquired OnrampInvest. Securitize is a leading Fintech in the Digital asset securities space. I remember Carlos Domingo and their first tokenization of SpiceVC (tokenizing a VC fund) and then spinning it off to what is today Securitize.
Despite the messy crypto regulatory environment in the US, Securitize has been building, launching and growing. In 2019, it became the first SEC Registered Transfer Agent operating on the blockchain. In 2021, it started issuing tokenized funds and launched Securitize Markets to enable trading of digital asset securities. It has established several collaborations with incumbents to tokenize private funds (e.g., Hamilton Lane and KKR). I think of them as the US analog of ADDX in Singapore (Is ADDX the Betterment of the Private Markets?). Their acquisition of Onramp opens a distribution channel for tokenized assets to empower RIAs. It follows a partnership with Onramp providing access to private equity feeder funds from investment giants KKR and Hamilton Lane. Fractionalization and diversification of portfolio holdings through tokenization.
Conclusion
Changing rails doesn’t happen overnight.
Dematerialization of company shares (i.e. not maintaining them in physical form) was completed fairly recently. It started in the late 1960s and by 2010 at least in the US and Europe, it was 99% complete.
Remember the issue of the lost Stock Certificate in both the original 1964 Mary Poppins movie and the 2019 Disney production “Mary Poppins Returns” in which the missing share certificate is used to repair a kite.
Now we are roughly 6 months away from T+1 settlement becoming effective for US and Canadian securities, on the old rails. Will they break? Will this pressure help the transition to the new rails and how can that work in such a fragmented market?
I guess this will work its way through the usual scattered innovation approach that then gets bundled and acquired and integrated.
Watch the partnerships and the acquisitions for the love of Tokenization because it has huge impact on the bottom line (albeit behind the scenes mostly).
📌 Subscribe to my YouTube Channel with my insights and industry leader interviews. New video every Wednesday: https://www.youtube.com/EfiPylarinou
📌 Apple Podcast 👉 https://buff.ly/3P1Cp1Z
📌 Spotify Podcast 👉 https://buff.ly/3xPyWaV
📌 Twitter: https://twitter.com/efipm
📌 Linkedin: https://www.linkedin.com/in/efipylarinou/
📌 TikTok: https://www.tiktok.com/@efiglobal
📌 Web: https://efipylarinou.com/
