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On December 19th, 2019, Realio announced a partnership with YAD Capital involving the tokenization of a $5 million investment fund. Security tokens will be issued through the Fusion blockchain under the SEC’s Reg D and Reg S exemptions.
Realio is an end-to-end digital asset issuance platform. YAD Capital is an alternative asset management firm based in New York. The firm specializes in the niche product of Merchant Cash Advances in the U.S. credit market.
Realio is now looking to raise up to $5 million through a tokenized fund. The fund will participate in YAD Funding Opportunity V LP and will be powered by the Fusion blockchain.
The offering will leverage the U.S. Securities and Exchange Commission’s (SEC) Reg D 506(c) and Reg S exemptions. Both the Reg D and Reg S allow for a number of exemptions when it comes to registration requirements, while the Reg S enables offshore offerings to foreign investors.
YAD Capital is managed by Wall Street veterans from firms such as Goldman Sachs, MKP Capital, Deloitte, and Lehman Brothers. The company says it invests in products with an average duration of under two years, with expected returns in the “low-teens to mid-twenties”.
According to Derek Boirun, founder of Realio,
“We are excited to have the opportunity to work with such highly experienced and sophisticated partners on this digitization opportunity and to be able to offer our investors such attractive risk-adjusted returns, two things that have been noticeably absent in many of the digital securities currently on the market.”
Security tokens will be issued which represent economic ownership in the fund. The tokens will be recorded on the Fusion blockchain. The tokenization process is set to receive support from the non-profit Fusion Foundation as well. Support will include both active participation and technological assistance. Tokens purchased as part of the fund from Realio’s platform will be native Fusion tokens.
Dejun Quian, founder and CEO of Fusion says,
“We are very excited to provide a blockchain platform, advancing digital assets with our innovative partners Realio and YAD. As we head into 2020, we are certain this will be the first of many assets from these industry leaders.”
Investment funds exemplify just one regulated, real-world asset-type seeing the benefits of tokenization. Back in late 2018, the world’s first security token underwent a compliant peer-to-peer transfer on a public blockchain. The token, from SPiCE VC, represents ownership of an investment fund where all changes in ownership — and even certain aspects of asset and investor management — can be both recorded and facilitated via blockchain technology.
Since then, the security token industry has made notable progress. In addition to investment funds, assets to include equity, real estate, and even fine art have been compliantly tokenized. To date, the emerging industry has raised nearly $1 billion.
Initial Coin Offerings (ICOs) demonstrated the benefits that blockchain technology can bring to fundraising. Yet ICOs largely avoided the requirements established with raising capital.
In the U.S. for example, the SEC was created in 1934 — toward the end of the great depression — as part of an effort to protect investors and maintain fair capital markets. The organization still regulates those markets today, with various registration requirements for securities offerings.
SEC Chairman Jay Clayton has said nearly every ICO he has seen, with the one exception being Ethereum, constitutes a securities offering. Hardly any followed the inherent laws and regulations, however.
As a result, the SEC’s enforcement has become increasingly active in the digital asset space, diminishing the volume of ICOs. Yet the benefits of the emerging technology were too great, resulting in the ICO’s regulatory compliant alternative: the Security Token Offering (STO).
The STO is powered by the blockchain but acknowledges that it is indeed a securities offering. Therefore, it must feature regulatory compliance with the jurisdiction-appropriate securities regulators. Instead of an emerging technology creating a new asset type such as the ICO with the utility token, the STO features the integration of an emerging technology with the world’s existing financial securities infrastructures.
What do you think about Realio teaming up with YAD Capital through a $5 million tokenized investment fund? We’d like to know what you think in the comments section below.
Image courtesy of PRNewsWire.