Tokenization News Roundup: Consolidation Coming

The idea of tokenizing real-world assets – everything from homes, gold, art and collectibles to instruments like U.S. Treasuries and contracts – is gaining pace. Each week, we’ll be rounding up the most important news, offering you a snapshot of developments in this burgeoning space. (For an explainer on real-world assets, please see our article here.)

The crypto incumbent has a strong balance sheet and is on the market for more acquisitions, CEO Carlos Domingo said.

The Story: Asset tokenization firm Securitize has acquired digital asset wealth platform Onramp Invest, which will enable a whole new cohort of registered investment advisors (RIAs) to help clients buy tokenized assets. The firm specializes in alternative assets classes such as private equity, private credit, secondaries and real estate. “Onramp already offered RIAs easy access to digital assets, so it is a very natural extension to offer them tokenized alternative assets to complement their portfolios,” Securitize CEO Carlos Domingo said in a statement.

The Takeaway: While much of the discussion around tokenization is framed around expanding access to alternative assets, the deal, which is set to close in the coming days, may indicate that a wave of consolidations may be coming. It’s possible firms focused on real world assets haven’t been hit as hard by rising inflation or the crypto market pullback, and could see an opportunity as venture capital funding has dried up and startup valuations have decreased. Domingo, who is looking for more dealflow, described this as a way “to accelerate the digitization of finance.”

A Kenya-based company defaulted on a DeFi loan after breaking the terms of service. Is the top crypto-powered microloan platform underpricing its risk?

The Story: Goldfinch, one of the most successful DeFi investment protocols extending credit to developing countries, has become something of a cautionary tale after a borrower in East Africa defaulted on a $5 million loan. Warbler Labs, the company behind the Goldfinch protocol, has accused its borrower – a Kenya-based motorbike finance company called Tugende – of making an unauthorized loan to a subsidiary in Uganda in violation of the loan agreement.

Warbler is now working to rewrite the terms of the liquidated loan in hopes it can earn back some capital — a rare example of a loan restructuring in DeFi and a first for Goldfinch. If the loan must be written off entirely, people who provided liquidity to Goldfinch are expected to see their expected payouts drop to 2% from around 8%. Goldfinch has about $100 million in active loans, primarily extended to small businesses in Latin America, Africa and Southeast Asia.

The Takeaway: Loan experts told DL News that Goldfinch’s loans are probably underpriced relative to the risk involved investing in firms in emerging markets. Was the writing on the wall or impossible to foresee? Tugende Kenya initially borrowed $5 million worth of USDC to finance expansion plans in 2021, and was due to finish its repayments in October 2023. It wrote on the Goldfinch governance forum that rising costs due to inflation and the war in Ukraine have limited its cash flows.

The Story: Frax stablecoin founder Sam Kazemian proposed using a U.S. shell company as a conduit for the algorithmic stablecoin startup to custody cash deposits, reverse repo contracts, Treasury bills and other traditional financial instruments backing FRAX. The plans are part of the project’s wider “real world asset strategy.” The entity, which would be called FinresPBC and domiciled in Delaware as a non-profit C corporation, would “provide the Frax Protocol access to safe cash-equivalent assets and near-Fed rate yields for the benefit of all without seeking to profit from this relationship or charge fees.” FRAX is the sixth-largest stablecoin with a market capitalization over $800 million.

The Takeaway: In his proposal, Kazemian wrote the company’s “sole public benefit mission is to give on-chain users access to offchain ‘cash-equivalent RWAs.’” This could be a way to differentiate FRAX from competitor stablecoins but would also have knock on effects for efficiency. Currently, Kazemian said, keeping the stablecoin stable requires frequent redemptions of “real-world fiat” and Treasuries. Although the proposal must still be voted in, Kazemian did hint at a relationship between Kansas-based Lead Bank for the effort — which shows either way the growing interconnections between DeFi and the real world.

The third-largest DeFi protocol is acting a bit more like a bank.

The Takeaway: MakerDAO, the Ethereum-based decentralized stablecoin issuer, attracted nearly $1 billion in investments in less than a week after a plan to increase the DAI Savings Rate to 8%. Like many of Maker’s recent plans, this idea was not without controversy as the increased yield payouts would be funded by Maker’s revenues, which at this point comprise a lot of real world assets including U.S. Treasuries. IntoTheBlock’s Lucas Outumuro notes that the customer acquisition strategy isn’t all that different from a bank increasing interest on savings accounts

This self-custodial, multi-chain and multi-signature wallet is being built specifically with tokenized securities in mind.

The Takeaway: It shouldn’t be a surprise that Republic, a retail investment platform that allows anyone to invest in startups, crypto, real estate and other asset classes, is thinking about the future of digital ownership. The company’s first purpose-built wallet that will serve as “one unified interface” for its crypto unit was built to accommodate the next wave of tokenized assets.

It could be a smart business play for Republic, which noted how blockchains can increase access and opportunities to invest in assets that are usually off limits to most people. “For millions of global retail investors, investing in private assets like startups, real estate, and fine art is opaque, highly illiquid, and mostly inaccessible,” Andrew Durgee said in a statement. “Tokenization solves all of these problems. It’s why we built Republic Wallet.”

The oil giant will contribute to climate rounds for the next year.

Gitcoin, a crypto-powered platform that blends crowdfunding and open-source software funding, announced it will collaborate with the multinational gas and oil conglomerate Shell PLC “to develop open-source climate solutions” over the next four quarters. “We’re excited to announce this collaboration with Shell as another key example of the real-life potential to scale transparent funding allocation via blockchain technology for real-world solutions,” Gitcoin head of impact Azeem Khan said in a statement.

Shell will donate as much as $500,000 to Gitcoin fundraising rounds that help bootstrap startups and crypto projects focused on building digital public goods and/or use crypto to build solutions in the real world. The oil giant will also contribute to a hackathon geared towards using blockchain for energy-related issues in the coming months.

While the tie-up could inject much needed capital into the “regenerative finance” movement, many accused Gitcoin of “greenwashing” for taking money from a known polluter.