Blockchain based assets are here to stay – accessibility and acceptance of associated services are on the rise.  This was recently made evident when U.S. based Valentus Capital Management, in conjunction with Realio, announced its intent to develop a digital securities platform called Valentus Digital.

Valentus Digital

Powered by a tech-stack developed by Realio, Valentus Digital will operate as an investment portal.  It will provide various types of investors with access to opportunities in the form of digital securities.

The first product scheduled to undergo tokenization through the platform is a $250M fund, built on a variety of assets (including real estate, debt instruments, and more)

By tapping into Realio and its tech-stack, Valentus gains the ability to tokenize this fund.  This is done through the sale of digital securities, known in this case as ‘VAL1’ – each of which will provide its holder with proportionate exposure to the funds underlying assets.

While a partnership between these companies has already been struck, interested investors will have to remain patient.  It is expected that the sale of these digital securities will take place leading up to early 2021.

Wider Net

When discussing the rationality behind tokenization, rather than hosting a more traditional fund, Valentus Digital described the choice as ‘opening wall street to main-street’.  Essentially, the company is looking to cast a wider net, attracting a broader range of investors to its offerings.

Minimum investment requirements are noted as an example of how tokenization allows for a wider net.  This digital fund will see a $10,000 minimum investment, compared to a $2,500,000 minimum in its traditionally structured funds.

Next Steps

Moving forward, Valentus indicates that it expects the upcoming Valentus Digital platform to become registered with the SEC as a private equity firm.

Furthermore, the company is also currently considering the creation/launch of its very own digital security – one which would provide its holders with exposure to profits realized by the company itself.  At this time, however, this is simply a consideration, and not a given.

Commentary

Upon announcing both, Valentus Digital and its inaugural fund, representatives from each company took the time to share their thoughts.

Derek Boirun, CEO of Realio, stated,

“We are thrilled to partner with Valentus and kick off Valentus Digital…Providing broad, global access to top-tier private equity opportunities is not just the vision for our platform, but also something that the markets are demanding, as evidenced by the surge of capital flowing into blockchain technologies and decentralized finance. The benefit also extends to larger investors who will enjoy increased liquidity of the asset.”

Behzad Taufiq, Founder of Valentus Capital Management, stated,

“Partnering with Realio is an exciting stepping stone…Having a Valentus fund token in this ecosystem will create tradability of the fund that wasn’t available before. Its transparency and flexibility will benefit institutional and retail investors alike, and we are excited to break this new ground.”

Valentus Digital

Founded in 2020, Valentus Digital is a subsidiary of Valentus Capital Management.  Through its headquarters in New York City, it will act as an investment portal for investors looking to leverage the benefits of blockchain technology.

Founder and CIO, Behzad Taufig, currently oversees operations.

Realio

Founded in 2018, Realio maintains operations in New York City.  The team at Realio have developed a suite of services which allow it to act as not only a fund manager, but tech provider, as well.

CEO, Derek Boirun, currently oversees operations.

by Mara Schmiedt, Global Strategy and Business Development Lead, ConsenSys Codefi

This is a two part article.  Part 1 can be found here.

Summary

• The emergence of delegate work entities present a critical development to drive broader end-user adoption and participation, simultaneously posing new challenges to decentralization and token distribution in the evolving chapter of on-chain governance
• Token distribution strategies, as a result of the above, have seen a proportional increase in use-focused distribution mechanisms including proof of use and interactive airdrops

Trend 3: The New Kids on the Block

THE EVOLVING ROLE OF VCS AND DELEGATE WORK ENTITIES

With the rise of Proof-of-Stake, on-chain governance and other protocol-native work functions, networks require active user groups that have both the expertise and/or technical resources required to provide network-specific services and infrastructure. At the same time, these productive crypto-assets present new value accrual opportunities for entities with crypto-native business models that play an active role in network participation and adoption.

On one hand, traditional venture models are increasingly evolving into crypto-native hybrids. Capital providers with long-term holding strategies such as Multicoin Capital and ConsenSys Labs recognize the opportunity to create additional alpha by supporting networks in their portfolio through the provision of infrastructure and performance of crypto-native operations. These entities are uniquely positioned to support teams that are building decentralized protocols to bootstrap and jumpstart network effects.

Well designed agreements and incentives can ensure that all token holders involved in early stage project funding in the protocol’s development lifecycle can be valuable supporters that earn rewards from their own and ongoing participation and contribution to the network.

On the other hand, there has been a proliferation of another stakeholder group – so called ‘delegate work entities’ (see article by Ben Sparango). Delegate work entities are network stakeholders elected by a token holder to perform network-native work functions, such as staking and voting, on their behalf.

The premise of earning rewards on productive crypto-assets in exchange for contributions to the network is an attractive one, yet not all token holders necessarily have the time, desire, or technical ability to perform the required tasks themselves. This is where delegate work entities come in. Today, delegate work entities including non-custodial (Staked, Stakefish) and custodial (e.g. Binance, Coinbase, Anchorage) providers are largely focused on providing staking services to both institutional and retail clients. I believe custodians, exchanges, funds and independent delegate work entities will play a critical role in driving broader institutional and retail adoption of productive crypto-assets.

Source: PoS Bakerz, 2020

Recent developments such as Katalyst, Kyber’s 2020 protocol upgrade, reveal the increasing relevance delegate work entities will play in the governance realm either as direct actors in the voting process or by offering proxy voting functions on a token holder’s behalf.

I expect to see further growth and diversification in delegate work entities and other service providers as the Proof-of-Stake landscape continues to expand and believe these entities will continue to play a critical role in driving broader adoption and maturation of the industry. A research study conducted by ConsenSys in March revealed that across almost 300 active token holders 41.4% would like to participate in on-chain governance directly while 28.2% would like to delegate their vote to a representative.

Source: ConsenSys Codefi

It is important to note, however, that delegate work entities, particularly custodians, exchanges and funds with large and accruing token allocations, could result in centralization risks particularly as Proof-of-Stake systems increasingly co-evolve into on-chain governance.

Trend 4: Evolving Token Distribution Strategies

THE FUTURE OF USE-FOCUSED TOKEN DISTRIBUTIONS

As network participation data indicates, having a broad distribution is not enough and it is critical that distribution aligns incentives amongst all network stakeholders. Healthy networks have a representative and actively engaged network of stakeholders.

How have the aforementioned trends manifested themselves as design considerations in more recent token distribution models?

There has been a proportional increase in public token distribution mechanisms focused on targeting actively contributing users.

Source: Smith & Crown, 2019

These have come in the form of both interactive airdrops, such as Livepeer or Edgeware, as well as different implementations of proof-of-use enabled token distributions such as NuCypher, Solana and SKALE that are focused on distributing tokens to actual users.

I believe that designing distribution models that factor in self-selected productive efforts beyond capital contributions in a sale or (pseudo)-random selection in a passive airdrop is essential to:

• Maximize regulatory compliance by ensuring that a token is being used for its intended purpose on the network, rather than a speculative holding.
• Filter for participants most likely to participate in the network to disincentive short-term speculation, price volatility and dumping.
• Effectively bootstrap the network at launch, whilst enabling early adopters to familiarize themselves with the network and earn token-based rewards for their efforts.

Conclusion

With the technical maturation of token-powered networks, particularly in the context of rising Proof-of-Stake adoption, the industry is leaving its adolescent, wild west years behind as it enters the chapter of ‘actual’ use and utility.

The chapter of use also creates a new window of opportunity for stakeholders with crypto-native business models, including VCs and delegate work entities, that play a critical role in the adoption and maturation of productive crypto-assets and the decentralized networks they are a part of.

While there is still a lack of formal regulatory guidance on the blueprint for compliant token launches, I believe the emerging discourse, setting of industry best-practices and increasing focus on use-focused token distributions are steps in the right direction.

Despite the financial uncertainty posed by 2020, the tumultuous year has represented something of a prosperous one for the stablecoin market. Since the beginning of the year, the cryptocurrencies that have their values pegged to existing assets like gold or the US Dollar have seen a heavy flow of funding as more traders look to buy into stable assets as a way of keeping their money from depreciating.

While stablecoins have become a useful store of finance that promises stronger protection against the disruption threatened by COVID-19 and subsequent recessions, there’s reasonable evidence to suggest that the currencies are actively evolving beyond their role as a trading asset and are increasingly being looked upon as a means of transferring value.

Over the coming years, we’re likely to see a range of central banks and large corporations start to tap into the stablecoin landscape, with global behemoths like Facebook already signalling their intent with the shelved Libra Project. With large scale investment into stablecoins looking like an inevitability, what will this mean for the crypto world’s smaller, un-tethered assets, like Ripple?

The Rise and Rise of Stablecoins

Tether entered the fray as the world’s first stablecoin. Launched in 2014, it took a matter of years before the US dollar-backed cryptocurrency started to receive widespread adoption.

As Bitcoin made its famous rally towards the end of 2017, more and more cryptocurrency exchanges started to make the switch from fiat currency-to-Bitcoin trading pairs to Tether-to-Bitcoin – thus enabling crypto-only exchanges to build on market share gains.

The late 2017 boom opened the door for more stablecoins to enter the market, with countless projects surfacing in a bid to emulate Tether’s purpose and success.

The subsequent year saw the arrival of several major players in the world of stablecoins, from USD Coin, to Paxos and TrueUSD.

As the arrival of COVID-19 caused widespread financial uncertainty, the market capitalization of stablecoins swelled up collectively to over $7bn in value in a matter of three months – with almost $6bn comprised of Tether investments.

Since the spring time, the rise of DeFi protocols have caused stablecoin markets to swell up by as much as $100 million each day – leaving the industry’s market cap more-than doubling in size since the start of the year.

Furthermore, more emerging trends surrounding the acceptance of stablecoin projects among banks have led to a greater level of acceptance among investors. The Liechtenstein-based Bank Frick recently announced that it would be supporting USD Coin – allowing customers to send, receive and store the stablecoin using their bank accounts.

The meteoric rise of the stablecoin market, coupled with ever-increasing levels of interest in blockchain technology from both banking institutions and big businesses alike means that stablecoins are set to emerge as the cryptocurrency market’s primary form of banking coin. But what will this development mean for coins like Ripple and investors who look to switch their holdings in Bitcoin to Litecoin, for instance, in order to leverage fast transactions?

Eating Into The Crypto Market

Ripple’s formative years brought widespread excitement for the blockchain technology that the XRP coin was built on.

Payments using the coin were set to be swift and free of hefty processing fees that some early crypto assets commanded. The focus of the coin was set on interbank payments, but its early success caused Ripple to expand into a leading crypto payments network around the world.

At the height of its popularity, Ripple was easily accessible on leading crypto exchanges that allowed easy access to digital finance that could be easily traded.

However, Ripple also unwittingly formed the blueprint on how to build a successful stablecoin.

The implementation of stablecoins that are pegged to various assets designed to hold their value amid economic downturns while operating on an easy transactional framework with limited processing fees has placed numerous stablecoins in direct competition with Ripple.

With the arrival of other corporate-backed stablecoins like the JPM Coin and the Utility Settlement Coin Project, it’s clear that the old guard of XRP faces a significant battle to avoid being drowned out by the market’s new upstarts.

The financial might of corporate stablecoins means that Ripple’s swift payment systems may soon be bettered via new transactional developments.

However, there may be some hope for Ripple due to the coin’s longevity in a rapidly expanding market. Ripple has helped to onboard over 300 customers during its lifespan, and possesses a greater level of crypto experience compared to its competitors.

It’s clear that stablecoins are here for the foreseeable future, and even hold the potential to overhaul national fiat currencies in mainstream usage. With market caps inflating exponentially, the old guard of un-tethered cryptocurrencies may be at risk of losing out as more adopters look to find practicality and consistent prices within crypto assets.

For Ripple, the notion of competing to recapture its place as the industry’s preferred coin for transactions seems too whimsical given the financial might of these new players introducing stablecoins into the market place.

Instead, what was once looked upon as one of the world’s most promising cryptocurrencies will have to tap into its experience to adapt away from its swift transactional roots. The cryptocurrency market is based on natural selection, where only the most innovative survive. In this unforgiving climate, many of the pragmatic cryptocurrencies of yesterday will be required to explore new blockchain developments elsewhere to maintain their relevance to adopters.