🌴 Larry & Blackrock Looking at Tokenization... Again

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Gooood morning, Rainmakers! ☀️

As always, we have two captivating topics for you to dive into:  

1️⃣ 🌴 Larry & Blackrock Looking at Tokenization... Again

2️⃣ 🇨🇳 Hong Kong Approves New Security Token Offering Platform

Without further ado, it's time to…

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🌴 Larry & Blackrock Looking at Tokenization... Again

In a recent annual letter to investors, Larry Fink, CEO of BlackRock, the world's largest asset management company, expressed his belief that tokenizing asset classes such as stocks and bonds could bring efficiencies to capital markets and improve investor access. Fink stated that BlackRock is currently exploring the digital asset industry, with a particular focus on permissioned blockchains and tokenization of stocks and bonds.

While the hype surrounding cryptocurrencies has died down amidst a crypto winter, Fink noted that fascinating developments are ongoing in the digital asset industry beyond these currencies. He believes that innovative applications for the asset management industry could emerge as the digital space continues to grow, and that the tokenization of asset classes offers the prospect of driving efficiencies in capital markets, shortening value chains, and improving cost and access for investors.

However, Fink also pointed out that developed markets like the United States are lagging behind in payment innovation, leaving the cost of payments much higher than in emerging markets like India, Brazil, and parts of Africa. He called for more precise regulation in the digital asset industry, which he believes would help investors become aware of the risks associated with the sector.

Overall, Fink's letter highlights the potential benefits of tokenization in the asset management industry, and suggests that the digital asset space could offer exciting opportunities for innovation and growth in the future. As BlackRock continues to explore this nascent industry, it will be interesting to see continued responses by other asset managers and financial institutions respond to these developments. 

For instance, Société Générale repackaged €3 million worth of unsecured bonds originated from the European Investment Bank as security tokens facilitated on the Ethereum blockchain, and AXA Investment Management purchased these tokens. The head of innovation management and strategic initiatives at AXA IM, Laurence Arnold, believes that blockchain technology can have a disruptive power for asset management processes, and this technology can improve customer experience by accelerating the treatment of financial transactions and facilitating the exchange and storage of data.

Additionally, Franklin Templeton, a $1.5 trillion asset manager, announced a blockchain-based fund that holds government money. Called the Franklin OnChain Government Money Fund, $1.85 million worth of underlying holdings and shares are settled on the blockchain as a result, investors can enjoy increased transparency, lower costs, and faster settlement times than traditional funds. The use of blockchain technology also reduces the need for intermediaries, making the process more efficient and secure.

Fink spoke publicly in favor of tokenization for the first time earlier, in 2022. Speaking at a New York Times DealBook event, Fink stated that "the next generation for markets, the next generation for securities, will be tokenization of securities." Although Fink is bullish about the future of tokenization, he does not believe most cryptocurrency-related companies "are going to be around" in the future. However, he did say that blockchain technology will be "very important." Regarding the FTX scandal, he said the exchange's fatal flaw was creating its own token. He clarified that the value of BlackRock's investment in the bankrupt exchange was $24 million, held in a subsidiary "fund of funds" and not in the "core part" of BlackRock’s business.

Despite Fink's wider cynicism towards crypto, he sees the benefits of tokenization and believes it won't disrupt BlackRock's business model. He also commented on several current economic issues, including the Russia-Ukraine conflict, China's changing role, and global inflationary pressures.

In conclusion, Larry Fink's annual letter to investors provides an interesting perspective on the potential benefits of tokenization in the asset management industry. While acknowledging the need for more precise regulation in the digital asset industry, he sees the future of finance being tokenized. While he is skeptical of most cryptocurrency-related companies and the hype surrounding them, Fink sees the potential of blockchain technology. As BlackRock continues to explore the digital asset industry, it will be fascinating to see how other financial institutions respond to these developments and what innovative applications will emerge.

🇨🇳 Hong Kong Approves New Security Token Offering Platform

Signum Digital, a joint venture of Coinstreet and Somerley, has received approval-in-principle from the Hong Kong Securities and Futures Commission (SFC) for its security token offering (STO) and subscription platform. The STO platform, called "CS-Pro," is a new type of virtual asset built on blockchain technology that represents ownership of tangible assets such as private equities, real estate, art, and collectibles. The STOs, which are linked to real-world assets, are expected to reduce risk for potential investors, facilitate their research process, and provide a foundation for the market value of the investment opportunity.

Signum Digital claims that its platform is a pioneering development in Hong Kong. The upcoming licensing system, which is scheduled to begin in June, mandates that digital currency exchanges submit applications for licenses that would let everyday investors trade specific high-capitalization tokens. The approval of Signum Digital’s STO platform is expected to further strengthen Hong Kong’s position as a leading hub for the digital asset industry.

Hong Kong has been showing interest in becoming a cryptocurrency hub and has been investing heavily in supporting the potential of technologies like Web3. In October 2022, Hong Kong's SFC announced that Hong Kong is willing to distinguish its crypto regulation approach from the Chinese crypto ban enforced in 2021. The move comes after the Hong Kong SFC invited firms interested in providing STO services to pitch proposals. 

Hong Kong has been proposing new initiatives for the city’s cryptocurrency and digital asset sector since last year when it invited firms interested in providing STO services to pitch proposals. Cryptocurrency exchange Huobi Global also announced last month that it is applying for a license to operate in Hong Kong, possibly moving its headquarters from Singapore to the special administrative region. Recently, Hong Kong has displayed a good deal of interest in becoming a crypto hub as it has invested heavily in supporting the potential of technologies like Web3.

In mid-December, Hong Kong launched its first two exchange-traded funds (ETF) for cryptocurrency futures, which raised over $70 million ahead of its debut. Hong Kong’s regulatory framework aims to strike a balance between investor protection and fostering innovation in the fintech sector, including virtual assets. The ETF issuance came soon after the head of Hong Kong’s Securities and Futures Commission announced in October that Hong Kong is willing to distinguish its crypto regulation approach from the Chinese crypto ban enforced in 2021. 

The upcoming licensing system, scheduled to begin in June, will require digital currency exchanges to submit license applications that would allow everyday investors to trade specific high-capitalization tokens. The move is a significant development for Hong Kong's digital asset sector, and the approval of Signum Digital's STO platform could prove pivotal in the city's bid to become a crypto hub.

💦 What else is Drippin’

The State of Security Tokens!  

This year's edition is all about the most significant moves in the institutional adoption of tokenized assets, and let me tell you, it's MASSIVE. We've got all the heavy hitters you'd expect, like KKR and JPMorgan, but also some exciting new players like AllianceBernstein, Figure & Provenance, and Regulated Liability Network (RLN).  

Trust us. You won't want to miss this deep dive into the world of institutional security tokens. So sit back, relax, and get ready to be wowed by all the action in The State of Security Tokens 2023 - Institutional Edition.👇  

Everything in this report is for informational and entertainment purposes only. Nothing in this report should be taken as financial advice or as an inducement to purchase or sell any security. Nothing in this market report should be used as legal advice. Always do your own research before making any decisions regarding financial transactions of securities.

Disclosures:

• No money or other consideration is being solicited, and if sent in response, will not be accepted;

 • No offer to buy the securities can be accepted and no part of the purchase price can be received until the offering statement is filed and only through the platform of an intermediary (funding portal or broker-dealer); and 

• A person’s indication of interest includes no obligation or commitment of any kind.