Happy August. I hope many of my readers are receiving this week’s newsletter from somewhere paved with warm white sand and dotted with lazily swinging palm trees.
As we savour these warmer months of the year, I thought it would be the perfect time to take stock of the 2024 tokenization market by looking at all the money that went into funding this years’ tokenization startups. Where are investors putting their money?
The 3 key questions we are looking to answer:
Who are the investors behind these investments
What do their investment say about their belief re adoption path forward
What does the aggregate data tell us about hottest area of tokenization
As we will see, there is a distinct divide between the institutional focused startups and more crypto native players in deal size and product maturity.
Below is a summary table for funding data for the tokenization sector in 2024 using public deal data.
Let’s dive into the details.
Investor Profile
In total there were over 19 tokenization focused funding deals in 2024 so far totalling $310M+. Institutional tokenization market has seen 4 major deals with total funding over $210M. By contrast, there were 15 crypto-native funding rounds but with total capital invested just around $100M.
Perhaps not surprisingly, the heft commanded by investor names in the Institutional category projects is a sign of the breadth and the seriousness of global financial institutional interest in tokenization as a transformational technology.
The Notable Cap Table section of the chart above for Institutional projects reads like a who’s who list of global banking giants. JPMorgan, Citi, HSBC - these are the top 3 global systemically important banks (GSIBs) and they are all present in backing their own startups in the race. In particular, Fnality’s cap table reads like wikipedia of banking names.
In contrast, the crypto native deals could not command the same investor profile heft. The most recognizable names on their cap table are perhaps Ripple and Stellar. For my less crypto-native readers, they are two public blockchains that were launched around the same time as Ethereum.
Ripple is perhaps best known for its cross-border payment focus while Stellar is best known for its focus on emerging market financial empowerment efforts. However neither was the lead investor for their respective deals, signalling the deals were likely to be part of efforts to boost each blockchain ecosystem’s tokenization credential.
Interestingly, in the crypto native category, Haun Ventures and Galaxy were both investors in Plume Network. Both are thought of as more of the institutional tribe in crypto native markets, signalling a more sophisiticated focus of the project perhaps?
Investors’ Perspective on Tokenization
Show me how you spend your money and I will show you your beliefs.
From the way the money is invested, we can see there is a clear difference in investor’s view on tokenization GTM and PMF between the institutional and crypto native investors.
While the institutional investors are mostly focused on projects creating tokenized settlement assets and rails between banks and custodians to improve payment settlement and intraday repo efficiency, crypto native investors concentrated their bets on tokenization as a service and tokenization marketplace business models.
Another difference is that while institutional investors mostly concentrate their efforts on securities that already have deep liquidity such as US Treasuries and cash, all of crypto native deals were in niche or private credit space such as trade receivables, auto ABS or revenue based financing.
These differences signal a clear divergence in the adoption path and areas of interest that institutional and crypto native investors see going forward.
You can read more about the opportunities and challenges associated with both approaches here.
Hottest Tokenization Area
If you believe data provides clarity then there is no doubt what all the data is pointing towards. While all 9 crypto native deals were in the alternative credit tokenization sector, market traction data do not show the same enthusiasm.
The tokenized private credit space has been in stagnation since late 2022 when the short-end rates surged above long-end rates. There has been little or no net new capital flowing into tokenized private credit. Why take duration risk when you can clip short end risk-less coupons? Why take further lock up risk, credit risk, FX risk and recovery risk in case of defaults in private credit when you are NOT a private credit fund by mandate?
By contrast, tokenized liquid assets such as cash, deposit, US Tbills and MMFs are seeing growth across the board driven by usage such as 24/7 instant payments, cash management, and more efficient collateral management.
If you want to more exclusive tokenization adoption insights, join the Insiders Club and stay tuned.
Disclaimer: This content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.
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