STO Market Outlook 2019

Recap of 2018 STO activity and beyond

If 2017 was the year of the utility token, with ICO’s raising more than $5.6B, 2018 will be remembered as having paved the way for a new generation of security tokens. Issuers and investors continue to remain curious about the benefits of tokenization such as increased liquidity, fractional ownership, decreased issuance costs, innovative structures and greater pricing efficiency.

After conducting an independent study of 130+ STOs currently on the market, the following are some trends forming for 2019.

Market Trends

Deal Size: The current range of deals run from $2M for smaller equity fundraises for consumer tech companies to $1B for institutional venture capital deals.

Industry: The vast majority of STOs are are happening in the Real Estate, Finance, Tech and Energy sectors.

Structure: Revenue-share, tokenized funds and asset-backed deals are in the lead, with equities and bonds trailing behind.

Geography: Due to the nature of complex regulatory environments, US is in the lead for total STOs in the market, with Switzerland taking the second spot. Additional activity is noticeable in European countries, while Asian markets, although leaders in ICOs, are yet to catch up to STO activity. We expect untapped markets to continue to be curious about STOs, following the regulatory lead of the US.

Most Innovative Issuances of 2018

To illustrate the above trends, below is a list of some of the most notable issuances of 2018. Listed in no particular order, these case studies were chosen for their innovative structure, amount raised and brand name attached, and are meant to serve as as starting point for anyone embarking on their own issuance.

Aspen Digital — St. Regis

Industry: Real Estate & Hospitality

Structure: Digital common shares in a single real estate asset

Amount raised: $18M

The Aspen Hotel deal, although modest in size, is notable for being the first major commercial real estate transaction facilitated by blockchain. The digital security provided holders with equity shares in a portion of the 180-room Aspen St. Regis resort, world renowned for its skiing in the Rocky Mountains. What’s truly unique about this deal, however, is that it took digital securities out of a blockchain-based niche and into the mainstream by pairing it with the prestigious St. Regis brand and popular crowdfunding platform, Indiegogo.

Andra Capital

Industry: Venture Capital

Structure: Tokenized fund shares

Target Raise: $1B

Andra Capital is a late-stage, pre-IPO technology growth fund. The fund offered the ‘Silicon Valley Coin’ for its last raise in an effort to democratize investment. This structure is similar to other tokenized VC funds such as Blockchain Capital (BCAP), Science Blockchain and Spice VC. Andra Fund plans to invest 80% of the holdings into funding late-stage companies Series C or later, and retain 20% for opportunistic investments.

Maecenas — Andy Warhol

Industry: Fine Art

Structure: Asset-Backed Fractional Ownership

Amount Raised: $1.7M

Andy Warhol, known for his revolutionary contributions to art and culture, continues his legacy of pioneering, even after his death, through blockchain. Maecenas, a fine arts tokenization platform, pushes the blockchain industry forward with the successful execution of fractional ownership for fine art, with Andy’s 14 Small Electric Chairs (14SEC). Through dutch auction bidding on the Maecenas platform, 31% of the art piece was sold at a valuation of $5.6M. 14SEC has proven to be the first case of fractional ownership of fine art on the blockchain.

436 & 442 East 14th St, Manhattan

Industry: Real Estate

Structure: Digital common shares in a single real estate asset

Amount Raised: $30M

This luxury Manhattan condo was the first to be tokenized on the Ethereum blockchain, in partnership with Fluidity and Propellr, using AirSwap tokenization technology. Investors were given the option to receive either analog or digital interests in the property, indicating that concessions are still being made for investors weary of blockchain-based investments. The tokenization structure was described as the Two-Token Waterfall, a comprehensive framework designed for capitalization of real estate.

Lottery.com

Industry: Gaming

Structure: Revenue Share

Target Raise: $300M

Lottery.com, formerly AutoLotto, is a mobile lottery service. The company intends to utilize blockchain technology to enhance its services through instant payouts, transparency, flexibility, and expansion across international markets. Notable for trailblazing the rev-share token structure, the company is rumored to be nearing the completion of its $300M round.

tZero

Industry: STO Exchange

Structure: Equity with revenue participation

Amount Raised: $134M

TZero, led by Patrick Byrne in association with parent company Overstock (yes, the discount furniture retailer), was a pioneer in the ‘securities on blockchain’ trend by building one of the first STO focused financial exchanges. In order to finance the exchange, the company conducted the first STO on a decentralized network, and has been evangelizing security tokens ever since.

22x

Industry: Venture Capital

Structure: Tokenized Fund

Target Raise: $22M

Created for the 22nd batch of 500 Startups, a portfolio company of Spice VC (which itself is a tokenized fund), 22x pioneered a new tokenized fund structure backed by equity in 30 companies coming out of its accelerator program. The fund is run by Jamie Finn of Securitize and allows investors to own up to 10% equity in the current batch of companies.

Outlook for 2019

As we head into the new year, market adoption remains the greatest challenge to successful Security Token issuances. Highly dependent on traditional sources of capital such as family offices and asset managers, issuers continue to brace the uphill battle of educating investors on potential benefits of securities on the blockchain. Slow but steady, STO’s are expected to continue on an upwards trend through 2019.

Special thank you to Lori Corpuz for her assistance in researching this article.

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