White Star Capital Digital Assets Fund - Newsletter #135
The Rise of Fractional Investing: How Blockchain Revolutionises Access to Physical Assets
The Rise of Fractional Investing: How Blockchain Revolutionises Access to Physical Assets
Fractional investing is a growing trend in the investment world that is reshaping the way people can access and invest in valuable assets. And blockchain technology is at the forefront of innovation in the space.
What is Fractional Investing?
Fractional investing enables individuals to own fractional shares of an asset rather than purchasing 100% of it. So instead of requiring large sums of money to purchase the entire asset, fractional investing platforms enable investors to buy a portion of an asset, proportional to their investment, thereby democratising access to expensive assets that were previously limited to a select few. Fractional trading enables the transformation of bulky, expensive and non-fungible assets to fungible assets that can be traded via order book based transactions. This would mark a big development for consumer fintech- even though there is still a need for over the counter agents to ensure authenticity of the items; trading could finally happen for niche & illiquid assets at scale.
Examples of Start-ups in Fractional Investing
Art: Platforms like Masterworks offer fractional ownership in art pieces. These companies acquire valuable artworks, tokenize them, and then allow investors to purchase fractional shares. Investors can benefit from potential appreciation in the value of the artwork and participate in the art market without the need for substantial capital.
Property: Start-ups like Pacaso, meanwhile, provide opportunities for fractional ownership of real estate properties. These platforms pool funds from investors to purchase commercial or residential properties, and investors receive returns based on rental income and property value appreciation. Fractional property investing allows individuals to diversify their investment portfolio with real estate assets that were traditionally out of reach. In White Star Capital’s Early Growth Fund, we invested in Fractal.
The Role of Blockchain
Blockchain technology plays a significant role in facilitating fractional investing by offering transparency, security, and efficiency. By leveraging a blockchain's decentralized ledger, fractional investment platforms can create digital tokens representing fractional ownership rights. Investors can trade these tokens on blockchain-powered marketplaces, enhancing liquidity and eliminating intermediaries. Blockchain also enables fractional investing platforms to ensure accurate ownership records and streamline the investment process, reducing friction and improving investor trust. Some early examples of fractional share companies leveraging blockchain are Baxus and Koia.
What are the Business Models?
Business models vary according to investor profiles and asset types. Some assets, for example, are more volatile (e.g. trading cards may have significant price movements within a day), whilst others are more suitable for long term appreciation (e.g. a bottle of fine wine).
Additionally, some are harder to value than others (e.g. questions such whether a comic book is in good condition, whether the Rolex is indeed rare, or whether the Porsche has all of its original interior are all easy to assert and value, in contrast to fine art where perceptions of value are subjective and in flux).
Combined, this leads to two business models. 1) Those that enable short term, day trading and charge trading fees on primary and secondary sales, and 2) those that build portfolios of illiquid assets intended to be held for a long time, and charge management and carry like a traditional asset manager.
Key Challenges for the Sector
There are two key challenges for blockchain-enabled fractional investing companies. Firstly, regulatory complexity. Blockchain fractional investing platforms must navigate complex regulatory landscapes across different jurisdictions. Compliance with securities regulations and ensuring investor protection can be challenging, potentially limiting the growth and scalability of these platforms.
Secondly, volatility and liquidity. Most players are currently batching buy and sell orders to concentrate trading activity during specific periods, because liquidity is low. For the business models based on fees on transaction volume, this is a concern, and is self-reinforcing as investors are less likely to buy shares if low liquidity means they risk being forced to hold their investment for an indefinite period. This is a classic example of the cold start problem, and the winner in this space will have a unique go-to-market approach to ensure a secondary market that is as liquid as the primary one.
But if it can overcome these early challenges, fractional investing companies are set to revolutionise the investment landscape, enabling broader access to previously exclusive assets and creating new opportunities for investors. We’re excited to watch this space.
🔦 White Star & Portfolio Spotlight
Ledn is introducing excess collateral redemption
Ledn has launched "excess collateral redemption" as a new feature based on customer requests. Eligible borrowers can now unlock their excess BTC collateral when the loan-to-value (LTV) ratio falls below 30%, and utilize the redeemed collateral for interest-earning, trading, or obtaining a new loan.
Index Coop releases on-chain structured product report
Index Coop, the largest provider of on-chain structured DeFi products, has published the inaugural state of the industry report for onchain structured products. The report explores major protocols, product types, market trends, and future possibilities, showcasing the significance of this emerging sector in the crypto market.
Liquality is introducing wavGAME, a digital trading card music experience
Experience the wavGAME, a digital trading card music game developed by wavWRLD and Liquality. Collect cards from 8 emerging artists, level up through trades, and unlock unique rewards, including a chance to win a trip and a personalized concert. The game is designed to be accessible to all, with a user-friendly experience facilitated by the Liquality SDK, requiring no prior crypto knowledge.
Multis is integrating Arbitrum for enhanced scalability
Multis is thrilled to announce the seamless integration of Arbitrum tracking and payments within the Multis platform. This integration empowers users with lightning-fast and highly scalable transactions, significantly enhancing transactional efficiency.
Safello Business is now available on their mobile app
Safello recently announced that its Safello Business platform is now accessible through their mobile app. This feature enables users to conveniently manage their crypto business.
🏦 Enterprises & Institutions
Telegram merchants gain access to in-app crypto payments for first time
Wallet, built on the TON blockchain, enables merchants on Telegram to integrate cryptocurrency payments into their bots, supporting tether (USDT), bitcoin (BTC), and toncoin (TON) for easy transactions within the app.
Google Play eases restrictions on blockchain apps
Google Play has approved select blockchain-based apps like NFT games, crypto exchanges, and wallets, but banned crypto mining apps. Compliance with local regulations and restrictions on promotions and advertising are required for blockchain apps on the platform.
Google will let Android Play Store Games and Apps offer NFTs
Google's Play Store has introduced rules for blockchain games and apps, requiring developers to disclose blockchain status and in-app NFTs. While NFTs can unlock in-app content, developers cannot promote crypto trading activities or allow wagering and sweepstakes mechanics.
Bank of China tests SIM card NFC payments for digital yuan
Bank of China is testing offline payments using SIM cards linked to the digital yuan (e-CNY) in collaboration with China Telecom and China Unicom. Users in pilot regions can make payments by bringing their phones close to point of sales terminals, even when the phone is turned off.
⚖️ Government & Regulation
UN blockchain standards group to outline best industry practices
The UN, Internet Governance Forum, and Government Blockchain Association formed the Dynamic Coalition on Blockchain Assurance and Standardization to research and propose best practices for blockchain across industries. This initiative aims to distinguish legitimate blockchain projects from fraudulent schemes and guide governments and companies interested in implementing blockchain solutions.
EU regulators bolster efforts for compliant blockchain industry ahead of MiCA rules
EU regulators are stepping up efforts to create a compliant blockchain industry before the introduction of MiCA rules. The European Banking Authority (EBA) has issued non-binding guidelines for stablecoin issuers, emphasizing transparency and risk management in preparation for the forthcoming legislation.
EU announces 'web4 and virtual worlds strategy'
The EU has introduced its "web4 and virtual worlds strategy," bypassing web3, to align with EU values and principles. This strategy integrates artificial intelligence, blockchain, virtual worlds, and augmented reality, enabling the integration of digital and real objects and enhancing human-machine interactions.
UK Treasury starts consultation on five-year Digital Securities trial
The UK Treasury plans a 5-year pilot program to ease regulations for digital bonds and equities based on DLT, aiming to enhance market efficiency and transparency. However, unbacked cryptocurrencies like bitcoin and ether are excluded from the pilot, as the government focuses on ensuring regulatory safety in the evolving digital asset landscape.
Former SEC Chair says Bitcoin ETF could be approved—If these conditions are met
Former SEC Chairman Jay Clayton suggests that a spot Bitcoin ETF has a strong chance of approval in the US if it can show similar functionality and effectiveness to a futures ETF. Demonstrating comparable benefits to the futures market is crucial for regulatory acceptance.
💰 Funding & Exits
Sound.xyz Opens to All, Raises $20m to Help Artists Make a Living from Their Music
Sound revolutionizes music by empowering musicians to release songs directly to a community of collectors, bypassing streaming platforms. With a $20 million Series A funding round led by a16z crypto and participation from investors like Scalar Capital and Collab + Currency, Sound is poised to transform the industry.
Alluvial drives global adoption of Liquid Staking with $12M Series A raise
Alluvial raises $12M in Series A funding, led by Ethereal Ventures and Variant, for their liquid staking protocol Liquid Collective. The investment will accelerate the adoption of enterprise-grade liquid staking, enhancing liquidity and capital efficiency in web3, while bridging the gap between DeFi and TradFi.
Ambient Finance raises $6.5M in Seed round for development of decentralized trading platform
Ambient Finance (formerly CrocSwap) has raised $6.5 million in a seed round led by Blocktower, with participation from Jane Street, Circle, Tensai Capital, Naval Ravikant, and others. The funding will fuel the growth of the team and the development of their decentralized trading platform, which aims to provide faster, easier, and more sustainable liquidity while offering an enhanced user experience.
CryptoQuant secures $6.5M in Series A funding, expanding operations globally
CryptoQuant, a data analytics platform, has raised $6.5 million in a Series A funding round led by Atinum Investment. The funds will be used to expand operations in South Korea and internationally, bringing the total capital raised to $9 million, including previous investments from Galaxy Interactive and Mirae Asset Capital.
Shardeum raises $5.4M in strategic funding for mainnet launch and ecosystem development
Layer 1 blockchain Shardeum, employing dynamic state sharding, raised $5.4 million in strategic funding to enhance its ecosystem for the upcoming mainnet launch in late 2023. Notable investors such as Amber Group, Galxe, and J17 Capital participated in the funding round.
Gondi launches NFT lending platform with $5.35M Seed funding from Hack.vc
NFT lending protocol Gondi has gone live after raising $5.35 million in a seed round led by Hack.vc. The platform enables lenders to use NFTs as collateral for fixed-rate loans, while borrowers can leverage their NFT assets for financing or as collateral on NFT-based financial applications.
LunarCrush raises $5M in Series A funding to expand social media-driven crypto investment platform
LunarCrush, a social media-driven crypto investment platform, has raised $5 million in a Series A round led by Draper Round Table and INCE Capital. The Los Angeles-based company is launching its Social Search tool next week, enabling users to search and extract relevant content from various social media platforms.
Get Protocol raises $4.5 million to take on Ticketmaster with NFT tickets
Ticketing platform Get Protocol has raised $4.5 million in a seed round led by Flow Ventures and the Tezos Foundation. The platform aims to disrupt Ticketmaster with its "Web 2.5" ticketing approach and has already issued over 4 million blockchain-based tickets for events.
Olympix raises $4.3M in Seed funding to enhance Web3 security with AI
Olympix, a Web3 security startup, raised $4.3 million in a seed funding round led by Boldstart Ventures. The company utilizes AI to provide developers with real-time security suggestions, aiming to minimize smart contract vulnerabilities and save time and costs.
🚀 Project Launches & Updates
Polygon outlines launch of new POL token in latest network upgrade
Polygon, a scaling solution for Ethereum, is proposing an upgrade from MATIC to a new token called POL in its transition to Polygon 2.0. POL holders will have the opportunity to become validators, validating multiple chains and networks within the Polygon ecosystem.
BlackRock’s Bitcoin ETF application takes surveillance to the next level
BlackRock's spot bitcoin ETF filing includes an Information-Sharing Agreement that requires crypto exchanges to share trading data and personal information with regulators, potentially influencing the SEC's decision. The agreement allows regulators to access specific data, raising concerns about privacy and the ethos of crypto traders.
You can now earn Bitcoin for playing Minecraft
Bitcoin startup Zebedee has partnered with the Satlantis Minecraft server, enabling players to earn Bitcoin while playing. Withdrawals can be made to the ZBD wallet app, although the integration is not officially endorsed by Minecraft's developer or publisher.
🔥 Other Bits We're Excited About
Iconic Notorious B.I.G. Photo 'King of New York' auctioned as NFT Series
Photographer Barron Claiborne's "King of New York" series, featuring an iconic photo of The Notorious B.I.G., is being auctioned as an NFT alongside a physical copy. The auction, starting at 50 ETH ($93,500), includes a one-of-a-kind Ethereum NFT and a phone call with Claiborne, while limited edition NFTs of the animated version of the portrait are also available for 1 ETH ($1,865) each.
Quantum computers could be even more powerful with latest discovery
An unusual superconducting state in uranium ditelluride (UTe2) could revolutionize quantum computing by overcoming challenges. UTe2 enables electron flow without resistance, paving the way for more stable and practical quantum computers that can maintain quantum states during computations.
Chainalysis debunks popular crypto myths in new report
Crypto's $1.18 trillion market cap dispels myths and misconceptions, as per Chainalysis. The report clarifies that crypto investments are not gambling, blockchain analysis tools enhance transparency, and crypto usage continues to rise despite varying transaction values.
Hedge funds are showing robust confidence in crypto, PwC says
Confidence in crypto assets' value and long-term sustainability remains robust, according to a PwC report. Traditional hedge funds, though fewer in number, are committed to crypto with plans to maintain or increase exposure, but regulatory uncertainty is a barrier for further investment.