White Star Capital Digital Assets Fund - Newsletter #134
The Future of Tokenisation and Why I've Joined White Star Capital as an Entrepreneur in Residence
The Future of Tokenisation & Why I’ve Joined White Star Capital as an Entrepreneur in Residence
By Jack Chong
Continued innovation in the digital asset space presents a paradigm shift in how software is eating financial services. With each shift, a whole new category of products emerges:
FinTech 1.0 — Paypal and Stripe focused on Payments, the transfer of money as a singular unit from one party to another
FinTech 2.0 — Plaid and Cross River focused on Banking, the transfer of data in and out of bank accounts as a singular unit
Fintech 3.0 — focuses on Tokenization, the transfer of value in Capital Markets via programmable assets as a singular unit?
I believe that capital markets software is the next frontier of financial technology, and blockchain-based solutions present an opportunity for customers, builders, and investors to leapfrog and reap benefits from building an open, composable, efficient financial software stack.
This hasn’t arrived out of the blue (BCG 2016), it is an opportunity years in the making that has now ripened for adoption.
Looking ahead to the next cycle of innovation, the tokenization of ‘real world assets’ is particularly interesting as an emerging category. It has captured the attention of both crypto-natives and traditional financial institutions, and will be the clear entry point into Decentralized Finance/Digital Assets, especially for institutional investors.
As I embark on my journey to build a groundbreaking company in tokenization, I’m thrilled to announce that I have joined White Star Capital’s Digital Asset Fund (DAF) as an Entrepreneur in Residence (EIR). White Star Capital is a prominent global technology investment platform with an active presence across North America, Europe, Asia, and the UAE.
Over the past few months, I’ve worked closely with the exceptional DAF team at White Star Capital, providing me with the opportunity to engage with the GPs, collaborate with the team, and tap into the extensive White Star global network. The team employs a thesis-driven approach and provides hands-on support to founders, making them an ideal partner for me. Their unwavering confidence in the industry and dedication to supporting founders is truly inspiring.
The future of tokenization
While tokenization might be an inevitable trend, the opportunity presents itself differently depending on your vantage point: are you an incumbent or a challenger?
Tokenization has the opportunity to disrupt the traditional relationship between Issuers, Servicers, Investors, and the underlying Financial Markets Infrastructure (FMI). Or, it could consolidate their existing moat, deepen customer pain points, and strengthen their pricing power, to the end-customers dismay.
Consider the different approaches that Franklin Templeton, Northern Trust, and SS&C, alongside JPM and BlackRock, are taking towards tokenization, compared to startups such as Ondo Finance, Centrifuge, Figure Technologies, or Securitize. Perspectives on how disruptive tokenization could be are highly dependent on one’s role in the capital markets ecosystem.
Nonetheless, the tokenization of real-world assets has received much attention lately, especially since the total value of private credit brought to the blockchain has now exceeded $500M+.
The current dominant business models seem to fall under two categories:
Building a protocol or a marketplace for capital in a specific asset class
This protocol/marketplace would handle relationships with originators that source assets in the real world while handling the digital middleware and attracting investors via different distribution channels.
Examples include Centrifuge, Figure, Goldfinch, Credix, Maple, Ondo etc.
2. Building a regulated financial market infrastructure
These are companies that are in the 2018 Security Tokens Offering (STO) vintages, that then sought regulatory licensing specifically Broker Dealer/ATS designations in the US, or equivalent thereof in other jurisdictions.
To some extent, regulated banks also developed their in-house tokenization platforms. That could fall under this category too. See JPM’s Onyx, Goldman Sachs’ DAML and SocGen’s Forge.
Examples include Securitize, tZero, INX, Figure, Oasis Pro etc.
A larger opportunity set remains to be explored…
I believe that a third category exists that could open up a larger opportunity set.
Taking inspiration from how Stripe reinvented payments by empowering e-commerce use cases, Plaid by hyperscaling banking connections, and stablecoins by disrupting cross-border payments, the killer use cases of tokenization are slowly forming. And there are opportunities in enabling the great work that current startups in the space are doing, such as Figure, Securitize, Ondo, Centrifuge, Goldfinch, Credix, and Maple.
Just as Stripe enabled the GDP of the Internet to grow and Plaid enabled the composability of fintech applications, tokenization should now enable new types of issuer—servicer—investor relationships. Nascent asset classes, new types of servicing, and emerging groups of investors all pose interesting focus points for the apps of the future to provide solutions for.
But to get there, a few hurdles remain.
Stay tuned! I’ll continue to publish additional research on tokenization and institutional adoption of digital assets. If you come from an enterprise fintech (Stripe, Plaid, Modern Treasury etc.), or capital markets software (growth-stage, or PE-backed), I would love to chat. The intersection of Web3 and the solutions you are working on has more overlap than you might think.
Feel free to reach out to me at jchong@whitestarcapital.com.
🔦 White Star & Portfolio Spotlight
Safello becomes the first Nordic platform to offer Circle’s euro-backed stablecoin
Safello plans to list Euro Coin, a fully-reserved, euro-backed stablecoin by Circle. This expansion into stablecoins aligns with Safello's growing focus on the digital asset class, and the listing of Euro Coin on Ethereum and Avalanche networks enables multi-currency digital finance and near-instant exchanges for users, simplifying cross-border settlements and enhancing convenience.
Ledn introduces Dual Cryptocurrency Notes (DCNs)
Ledn introduces Dual Cryptocurrency Notes (DCNs), offering higher returns and increased client control for growing digital wealth. Users automate their BTC price view, strategically selling high or buying low with customizable options for Strike Price and maturity date.
Thala enhances data gathering and user experiences with Sentio blockchain indexer
Thala leverages Sentio, a blockchain indexer, to gather data, enhance user interfaces, and make data-informed decisions. By transforming blockchain data into valuable metrics and providing developer-friendly APIs, Sentio empowers Thala to address data challenges and improve user experiences.
Multis introduces accountant role for streamlined financial collaboration and reporting in crypto businesses
Multis introduces the accountant role to enhance collaboration by granting special access to financial data, enabling real-time collaboration, document exchange, transaction reconciliation, and expert insights. This streamlines financial reporting, empowering organisations to focus on expanding their crypto businesses.
Superfluid launches June Wave Pool with Lens Protocol
Superfluid launches June Wave Pool with Lens Protocol, offering alpha access to their Checkout Widget and Builder. This open-source toolkit enables seamless acceptance of crypto subscriptions and donations through Superfluid streams.
🏦 Enterprises & Institutions
Nasdaq files for Valkyrie bitcoin ETF, lists Coinbase as surveillance sharing partner
Nasdaq has filed for Valkyrie's spot bitcoin ETF, joining other firms in partnering with Coinbase for surveillance sharing. This move comes as asset managers like BlackRock and Fidelity include Coinbase in their filings, fueling the excitement and price surge in the bitcoin market.
Bank of England teams up with wallet maker for CBDC privacy
The Bank of England is partnering with Nuggets, a payment platform, to examine monitoring and privacy risks in relation to central bank digital currencies (CBDCs). Nuggets is working on designing a privacy layer for the UK's proposed retail CBDC that incorporates untraceable connections and Zero-Knowledge proofs to safeguard user data and maintain privacy while adhering to anti-fraud and anti-money laundering regulations.
Largest bank in Southeast Asia is adding support for China's CBDC
DBS Group China, the mainland subsidiary of DBS Bank, is introducing a payment solution that allows businesses to receive payments in China's digital yuan (e-CNY) and seamlessly convert them into fiat currency. This initiative aims to promote the widespread use of e-CNY among Chinese clients and support financial market innovation in China.
TBD
JP Morgan has conducted its inaugural blockchain transaction in Europe using its JPM Coin. Siemens AG made a Euro-denominated payment on JP Morgan's permissioned blockchain, highlighting the bank's focus on leveraging blockchain for secure and efficient settlements.
⚖️ Government & Regulation
Israel advances bill to exempt foreign residents from crypto capital gains tax
Israel's parliament is making progress with a bill that seeks to exempt foreign residents from capital gains taxes on the sale of digital currencies and reduce taxes on crypto options for employees. The bill, which has passed a preliminary reading, is backed by Israel's coalition government and aims to provide equal benefits to investors in the blockchain industry compared to the traditional high-tech sector.
Hong Kong urged to issue stablecoin to compete with Tether and USDC
The Hong Kong government is being encouraged to issue HKDG, a stablecoin pegged to the Hong Kong dollar, to compete with USDT and USDC. The proposal highlights the advantages of a government-backed stablecoin, such as reduced costs, enhanced payment systems, de-dollarization, and strengthened fintech capabilities in Hong Kong.
TBD
Switzerland's central bank will pilot a wholesale central bank digital currency (CBDC) on the SIX digital exchange to test real transactions with market participants. The pilot will focus on interbank, wholesale use and won't include a public, retail version initially.
Coinbase celebrates win at US Supreme Court over arbitration
The U.S. Supreme Court ruled 5-4 in favor of Coinbase, allowing the exchange to pursue arbitration in customer disputes. Coinbase celebrated the victory as it faces a separate regulatory battle with the U.S. Securities and Exchange Commission.
IMF shifts stance on cryptocurrencies and CBDCs in Latin America
The IMF has changed its stance on cryptocurrencies, shifting from advocating for bans to emphasizing the importance of regulation. In a recent report, IMF economists highlighted the benefits of cryptocurrency adoption and examined the progress of CBDCs in Latin America.
💰 Funding & Exits
Bitpanda Pro spins out as One Trading, raises €30 Million in Series A Round
Bitpanda Pro, a unit of the Austrian crypto firm, has spun out as a separate business named One Trading. The new entity has raised €30 million in a Series A round led by Peter Thiel's Valar Ventures and aims to become an institutional-grade platform offering capital-efficient spot and derivative products.
Fableborne secures $5.5M funding and prepares for closed playtest
Fableborne, Pixion Games' ARPG and base builder, has raised $5.5 million and is ready for its closed playtest. With its blend of multiplayer combat, base building, and resource management, Fableborne promises a captivating and strategic gaming experience.
Superstate secures $4M funding to bring regulated financial products to blockchain
Superstate, founded by Compound Labs creators, raised $4M to develop regulated financial products for blockchain. Their first offering is a government bond fund held in a crypto wallet, benefiting crypto-native funds and enabling access to traditional finance markets.
Startale and Sony Network Communications form capital alliance to build global Web3 infrastructure
Startale Labs, a Singapore-based tech company, has received $3.5 million in funding from Sony Network Communications for Web3 infrastructure development. Sony Network Communications' President, Jun Watanabe, will join Startale Labs as a director, and the companies will collaborate to establish global Web3 infrastructure.
Privacy startup Ola raises $3 million in seed funding
Web3 privacy startup Ola raised $3 million in seed funding led by Web3.com Ventures and Foresight Ventures, aiming to develop a hybrid zero knowledge rollup for optional privacy in the crypto industry. Ola plans to launch testnets soon and make privacy a fundamental right for web3 users.
Hook raises $3 Million for NFT options protocol and launches treasure hunt incentives
NFT-native options protocol, Hook, raises $3 million led by Collab + Currency and Lattice, with participation from various investors, to unlock yield, hedging, and speculation opportunities for NFT holders. The launch of the Hook Treasure Hunt incentives program offers early adopters rewards for creating liquid options markets and discovering valuable treasures within the protocol.
Mind Network secures $2.5 Million in seed funding for Web3 data security innovation
Mind Network, a Web3 data security platform, raised $2.5 million in seed funding from investors like Binance Labs, Comma3 Ventures, and SevenX Ventures. Their technology offers users control over personal data and financial transactions through zero-trust security, zero-knowledge proofs, and adaptive fully homomorphic encryption, driving industry adoption.
Privacy-focused ID verification solution Outdid raises $2.5 million in Seed funding
Privacy-centric ID verification solution, Outdid, raised $2.5 million in a seed round led by Jump Crypto and Superscrypt. Outdid's zero-knowledge proof technology ensures fraud-resistant verification while maintaining data privacy, making it a versatile and cost-effective option for industries like finance and e-commerce.
AlloyX launches real-world DeFi asset vault after $2 million pre-seed round
DeFi protocol AlloyX launches real-world asset vault after $2 million pre-seed funding round led by Hack VC. The vault, created in partnership with Credix Finance, provides access to real-world asset liquidity in DeFi, offering diversification beyond crypto-based lending and liquidity opportunities.
🚀 Project Launches & Updates
Decentralized Exchange dYdX launches Public Testnet on Cosmos
dYdX, a decentralized exchange (DEX), has launched its public test network on Cosmos, marking its transition away from the Ethereum-based version. Users can now engage in market orders, generate private keys, and place limit orders with advanced options on the dYdX testnet, which currently includes bitcoin and ethereum markets and is expected to expand to over 30 markets.
Ethereum Layer 2 network Starknet plans 'Quantum Leap' upgrade on July 13
Starknet, an Ethereum Layer 2 network, is gearing up for a major upgrade called 'Quantum Leap' this month, aiming to substantially boost its transaction processing capacity. The upgrade, currently in testing and awaiting community validation, is expected to enhance scalability, reduce latency, and open doors for future advancements like lower transaction costs and innovative integrations within crypto applications.
Binance and Coursera link up to tap into demand for blockchain developers
Binance Academy has partnered with Coursera to offer crypto education courses to over 124 million registered learners, addressing the demand for blockchain developers and closing the knowledge gap in the industry.
🔥 Other Bits We're Excited About
Hollywood legend Steve McQueen honored as 'King of Cool' in new NFT collection
On July 14, a new non-fungible token (NFT) collection paying tribute to Steve McQueen's affinity for motorcycles and his iconic status as the "king of cool" will be launched. The collection consists of 1,000 generative art collectibles, offering holders exclusive access to token-gated content, events, and games that celebrate McQueen's love for motorcycle racing.
Canadians appear willing to embrace CBDC: Survey
A recent survey suggests that a majority of Canadians are open to the idea of adopting a central bank digital currency (CBDC). However, concerns about privacy, fraud, cyberattacks, and loss of financial control still exist among the respondents. While 59% expressed their willingness to use a CBDC, only 5% exhibited strong enthusiasm, and a quarter of participants were not willing at all.
Crypto Twitter unleashes the 'Ratioing' fury on SEC Chair Gensler
The crypto community on Twitter has found a unique way to express their discontent with SEC Chair Gary Gensler by "ratioing" his tweets, flooding them with critical comments compared to likes. This form of protest reflects the frustration and opposition within the community towards the SEC's intensified scrutiny of the cryptocurrency industry, as traditional avenues for dissent seem limited.