Copper Catalyst

Over the past few years, one thing has been made clear within digital securities.  This would be a need to develop services which ‘bridge the gap’ between traditional markets, and those of the future.  Simply creating new services and offerings will not, necessarily, spur adoption.  Rather, by providing an easy transition for those already enveloped in financial markets, seems to be a more prudent path to follow.

With this in mind, Copper has announced the creation, and launch, of a new service, dubbed ‘Copper Catalyst’.

Simply put, Copper describes Catalyst as providing the ability to ‘enable crypto funds to create and issue securities on digital assets rapidly, and cost-effectively’.

What does it do? And How?

Catalyst allows for institutional investors to gain access/exposure to cryptocurrencies – all while removing the need for self-storage.  This is done through the use of actively-managed certificates (AMCs).  As a result, by using AMCs, Copper is enabling cryptocurrency indices to be treated as clearable securities.

Bringing even greater appeal to Catalyst, is the use of Swiss ISINs – meaning the securities will be fully bankable (easily converted to cash).  As a result, access will be provided through various regulated European exchanges.

To date, Catalyst is the only service of its kind.  Depending on its success, there will surely be competitors that arise in the future.

ISIN

ISIN is short for ‘International Securities Identification Number’.  These numbers are attached to specific issuances of stock, and provide information on the underlying product.

Think of an ISIN as being similar to a VIN (Vehicle Identification Number) on your automobile.  When decoded, a VIN will provide information, such as date of manufacturing, options, and etcetera.  Similarly, when decoded, an ISIN will provide information, such as a stock identifier, issuance country, etc.

An ISIN is used primarily to identify the underlying product, reducing the risk of various forms of fraud.

Cost Savings

Beyond offering the various capabilities discussed above, Copper notes another major draw towards Catalyst – cost savings.

They attribute this cost savings, primarily, to the ‘initial and on-going regulatory compliance’.  By offering various services, surrounding KYC/AML, trade management, and more, Copper surmises that clients will save, both, time and money.  For example, they provide the following comparisons between utilizing the Catalyst suite vs. independent sourcing of services.

Catalyst

• £25K
• Completion in days

Independent

• £100K+
• Completion in months

Commentary

Upon announcing the launch of Catalyst, Copper CEO, Dmitry Tokarev, took the time to comment.  He states,

“The crypto fund industry has shown enormously promising growth over the last decade, with impressive strategies and excellent return for investors. But it is no secret that there has been a clear barrier to their graduation into the investment mainstream: the lack of feasible securitisation options. With sky-high costs and extensive compliance issues associated with most available structures, there is a gulf between traditional financial markets and this next generation of funds: a gulf that Copper Catalyst will bridge.”

Growing Suite

With the launch of Catalyst, Copper now has a well-rounded suite of services.  The following are just a few examples.

• Catalyst
• ClearLoop
• Custody

As this product suite rounds in to form, Copper has the potential to become a leader in a sector rife with potential.

Series A

The development, and launch, of Catalyst is a promising sign.  It shows that Copper is not squandering their recently completed Series A.

We recently covered the success of this funding round, as Copper was able to generate $8M in investments through a variety of companies.  To learn more about this round, and those that participated, make sure to peruse the following article.

Custodial Specialists ‘Copper’ Draws $8M in Investments through Series A

Copper

Founded in 2018, Copper maintains headquarters in London, UK.  Above all, the team at Copper is working to develop a comprehensive suite of services, tailored towards digital assets.

CEO, Dmitry Tokarev, currently oversees company operations.

Past Looks

While their services have expanded well beyond simply that of custody, this is certainly an area of speciality for the company.  Over the past year, we have touched on various instances of adoption, including that of SWARM, as they turned to Copper to custody security tokens.

Copper to Provide Security Token Custodial Services to SWARM

Blockchain Capital launched the first security token back in April 2017, this was to be the first tokenized venture fund. This STO event raised $10M USD.

Today they announced that the net asset value (“NAV”) of each BCAP token as of June 30th, 2020, is $4.47, based on the NAV of the underlying venture capital fund, Blockchain Capital III Digital Liquid Venture Fund, LP. Weekly NAV updates can be found at: http://www.loop.blockchain.capital/

The BCAP NAV finished up 25.6% for the second quarter of 2020. The Q2 increase was driven by the liquid/token portion of the fund’s portfolio. The NAV is up 22.8% year-to-date.

The BCAP portfolio is up 347.0% since inception, post-STO from April 2017, and has a Net IRR of 59.0%. Performance figures are net of all fees and estimated carry.

The composition of the portfolio as of June 30th, 2020 is as follows:

While there are plenty of traditional cryptocurrencies in the portfolio, some special companies to note are Securitize and Harbor which are heavily involved in the digital securities and security tokens space.

About Blockchain Capital

Blockchain Capital was founded in 2013 with the mission of helping entrepreneurs build world-class companies and projects based on blockchain technology – providing founders with the tools they need to succeed: capital, domain expertise, partnerships, recruiting and strategy.

Blockchain Capital is one of the earliest and most active venture investors in the blockchain industry and has financed 90+ companies and projects since its inception.  The company invests in both equity and tokens and is a multi-stage investor.  Blockchain Capital also pioneered the world’s first ever tokenized investment fund and by extension the blockchain industry’s very first security token, the BCAP, which the company sold through a security token offering in April of 2017.

The company’s view is that blockchain technology holds the promise to disrupt legacy businesses and create whole new markets and business models. Blockchain Capital believes its network of entrepreneurs, investors and advisors brings unrivaled resources to founders who want to leverage blockchain technology to change the world in profound ways.

The cryptocurrency space was borne out of a desire to bring about a better financial system and infrastructure that is inclusive for anyone, anywhere.

The crypto industry has matured significantly since 2010 when Bitcoin kicked off a new wave that today spawned a whole new industry. The crypto community continually progressed with new tools and capabilities being gradually built up.

Nonetheless these capabilities that promise quicker settlement times, trustless global accessibility and granular asset control have mostly remained gated within the crypto realm.

Bringing Together Real-World and Crypto Assets

Now, the ambition is to bridge the gap between real-world assets and cryptocurrencies. Specifically in the DeFi space, that aims to provide a borderless financing infrastructure, the first steps are being made to bring real-world assets as collateral for loan issuance.

The community of MakerDAO, that is behind the DAI stablecoin, arguably one of the most popular DeFi projects, has confirmed the vote on whether to allow real-world assets to be included as collateral options.

This comes following the effort led by the startup Centrifuge, that developed a protocol that lets users turn real assets into securities against which ERC20 tokens can be issued. This enables real world asset securitization as these tokens are interest-bearing and will be issued as NFTs (Non-Fungible Tokens).

DeFi applications built mostly on top of the Ethereum blockchain promise to give more people access to borrowing, lending, and other services because they eliminate the need to go and transact through a financial institution. 

In the case of MakerDAO, the system built with Maker (MKR) and DAI lets users deposit cryptocurrency-denominated collateral to take out loans denominated in the U.S. dollar-pegged stablecoin DAI. 

While recently the DeFi space celebrated a huge milestone with $1 billion locked in various applications across the board, participation in DeFi today is limited because it requires that users have purely crypto-native assets.

Getting real-world assets involved in the DeFi industry is what Centrifuge is pursuing with its Ethereum Dapp called Tinlake. The app allows for the securitization of real-world assets and have these represented on the blockchain as tokens, which can in turn be used to gain access to DeFi services.

What is Asset Tokentization?

Asset tokenization refers to the act of turning the ownership of a real-world asset into a digital token. This can be done in various ways, but all result in the legally-upheld bridge between the physical asset and its representative token.

Deeds, titles, and certificates are all traditional versions of a token. A deed to a house represents ownership of that house. The token refers to the digitally native asset which represents the real-world asset itself.

 The first two types of assets that are available for tokenization are music streaming royalties enabled by PaperChain and ConsolFreight’s freight shipping invoices.

With the positive vote from the MakerDAO community, now anyone – be it individuals or companies – is able to utilize future cash flows from music streaming royalties or shipping invoices as collateral to take out loans for example.

Centrifuge’s Lucas Vogelsang notes the partnership could be the world’s first application of DeFi to a real-world business issue. Particularly, the solution helps ensure quick liquidity for artists and supply chain firms, without the hassles of going through traditional ways of financing. 

MakerDAO’s Rune Christensen has also shared a highly optimistic vision as the two proposals represent the first step towards the expansion of DeFi’s field of application:

“These should be seen as the first two [RWAs] in the greatest portfolio of assets that’s ever been built. It’s just the first step. Thousands and thousands of assets will exist alongside them.”

There are still issues and restrictions when it comes to securitization of real-world assets and introduces new risks to the DeFi space.

For instance, Centrifuge’s tokenization process through its app still falls under the securities law. Since both Paperchain and ConsolFreight are based in the U.S. only accredited investors will have access to these assets.

Another compromise that was made in order to bring real-world assets to DeFi is Centrifuge setting up a special purpose vehicle (SPV) that will have the assets associated with, from a legal touchpoint. Lenders, in the event of default, would have to rely on the legal system to enforce their rights to the collateral, rather than an automated smart contract that can do so with on-chain assets.

While this is necessary to have a claim for the tokenized real-world assets, it represents a single-point of failure. But this is a trade-off that Centrifuge’s Lucas Vogelsang says is necessary in order to bring real world assets on-chain.