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Wave Financial + TQ Tezos: State of Digital Securities

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Wave Financial recently authored a report on the state of digital securities in conjunction with TQ Tezos - a leading institutional-grade blockchain solutions developer with a focus on security and durability across technological generations.

Digitizing securities through blockchain technology can enable cost savings, economic value creation, and risk reduction. While the digital securities ecosystem is quite nascent, early examples from financial heavyweights like Santander and Franklin Templeton indicate that the potential benefits around compliance automation and cost reduction may be the driving forces of broader adoption.

In this report, we explore the advantages of digital securities, the global regulatory landscape, current challenges hindering widespread adoption, and leading digital securities initiatives.

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Wave Financial + TQ Tezos: State of Digital Securities

  1. 1. State of Digital Securities January 2020
  2. 2. 01. 02. 03. 04. Digital Securities Market Overview Regulatory Landscape Wave Financial is not a broker-dealer, and will not engage in any activities requiring registration as such. Wave Financial is not licensed to provide tax, legal or accounting advice and will not do so. Wave Financial will use its commercially reasonable efforts to reach the client objectives, but there is no warranty or guarantee that such can be achieved. Services requiring advisory registration are provided by Wave Financial LLC. About Wave Financial and TQ Tezos Challenges & Opportunities
  3. 3. Digital Securities Market Overview SECTION ONE:
  4. 4. 4 Digital Securities are already impacting current financial systems Digital Securities Market Overview The technology associated with this (security token) offering allows us to be a pioneer in providing access to assets classes that have historically been difficult for global retail investors to access… We are constantly exploring innovative ways to promote, democratize and encourage the development of financial and capital markets. Roberto Sallouti, CEO of BTG Pactual Through this initial application of blockchain technology, we begin a process that could revolutionize the core of capital markets infrastructure systems. The implications for settlement and outdated administrative functions are profound. Bob Greifeld, Former Nasdaq CEO This is the beginning of a new era for capital markets infrastructures. For us it is abundantly clear that much of what is going on in the digital space is here to stay and will define the future of our industry. The financial industry now needs to bridge the gap between traditional financial services and digital communities. Jos Dijsselhof, CEO of SIX Swiss Exchange “ ” “ ” “ ”
  5. 5. 5 Executive Summary Digital Securities Market Overview ● Digitizing securities through blockchain technology can enable cost savings, economic value creation, and risk reduction ● Despite the initial hype around Security Token Offerings (STOs) as a new form of crowdfunding, they are simply one aspect of the broader emerging trend of Digital Securities / tokenization ○ Harbor’s recent pivot from an issuance platform to tokenizing existing securities highlights this underlying market shift of issuance vs. tokenization ● While the Digital Securities ecosystem is quite nascent, early examples from financial heavyweights like Santander and Franklin Templeton point to the potential benefits around compliance automation and cost reduction ● This report will explore the early traction, advantages and challenges ahead for Digital Securities
  6. 6. 6 Defining Digital Securities Digital Securities Market Overview 1MIT Digital Currency Initiative report, “Tokenized Securities” 2ASIFMA “Tokenized Securities: A roadmap for market participants and regulators” A token is a digital representation of rights to any tangible (financial or otherwise) or intangible asset1 ● Digital Securities (also referred to as Security Tokens) can be generally thought of as regulated securities with a digital token wrapper ● Digital Securities share the same legal constructs as traditional securities but by virtue of being on the blockchain often enable additional technical features, such as automatic payments and a transparent / immutable record of ownership2 ○ Digital Securities are tokens (technology implementation) that act as a security (legal concept) ● While Digital Securities, Tokenized Securities, Security Tokens, etc. are often used interchangeably, the report will use Digital Securities throughout
  7. 7. 7 Evolution of Digital Securities Digital Securities Market Overview Pioneered by Blockchain Capital in 20171 as a regulatory compliant alternative to an ICO, Digital Securities have evolved into a means to transform new and existing financial assets 1 Source: Smith & Crown Security Token Overview Part 1 April 10, 2017 Blockchain Capital (BCAP) First sale of security token completed September 22, 2017 Science Blockchain (SCI) Second security token sale completed March 1, 2018 Spice VC Third completed security token sale May 1, 2018 Quadrant Biosciences First sale of tokenized corporate equity hosted on a blockchain June 28, 2018 OpenFinance Network First security token exchange opens January 24, 2019 tZERO Dedicated securities token exchange options August 1, 2018 Aspen Coin First sale of tokenized real estate ownership January 10, 2019 Sharespost First trade of digital securities by an ATS and broker dealer in which the ATS custodied the digital securities September 4, 2019 Franklin Templeton Announces proposed tokenized money market fund backed by government securities 2017 2018 2019 August 20, 2019 INX First security token IPO registered with the SEC
  8. 8. 8 Digital Securities Market Overview Examples Fiat Currency USD, CHF, EUR Commodity Gold, Silver, Oil Real Estate Funds, Single Property Art & Collectibles Paintings, Trading Cards Intangible Goods Ownership rights for music Tokenization Benefits Fractional ownership: New customer groups get access to previously unattainable asset classes for investments Increased liquidity of assets: Tokens have the potential to unlock Illiquid assets to be traded and transferred 24/7 all over the globe Faster settlement: Dramatic increase of clearing & settlement speed by leveraging blockchain technology Programmability: Smart Contracts enable an efficient management of rights and corporate actions over the blockchain Immutable proof of ownership: Blockchain secures traceability of every transaction and provides a “single point of truth” Source: Strategy& “ICO / STO - A Strategic Perspective Report” Digital Securities are blockchain-based representations of real world securities Financial Instruments Stocks, Bonds, etc. Lower costs: As intermediaries (banks, brokers, exchanges) may be removed from the value chain, related costs are lower or may disappear
  9. 9. 9 Benefits of Digital Securities Digital Securities Market Overview Issue iCap Equity, a Seattle based real estate investment firm, establishes real estate funds with an average lock up period of four to five years To satisfy investors’ need for liquidity the firm must facilitate secondary investor transfers, but this process is manual, time consuming, and expensive Opportunity To improve this process, iCap leveraged Harbor’s digitization platform to tokenize shares in the fund, enabling liquidity earlier in the fund’s lifecycle Smart contracts ensure that only compliant transfers are made by investors and brokers, and help automate the secondary transfer process while reducing transaction and legal costs Value Proposition Blockchain Enabled Features Cost Savings Dividend distribution Cap table management Decreased transaction costs Economic Value Creation Fractionalization Theoretically increased liquidity Risk Reduction Immutable audit trail Automated compliance Source: Harbor [Case Study] iCap Equity
  10. 10. 10 Digital Security Infrastructure Stack Digital Securities Market Overview ComplianceIssuer Issuance Exchange Custody Lifecycle Management Distribution Regulation (Country by Country) Layer 1 Protocol Legal
  11. 11. 11 Digital Security Stack: Issuers Digital Securities Market Overview CustodianExchangeDistributionIssuanceIssuer Regulation (Country by Country) Layer 1 Protocol Legal & Compliance *the infrastructure stack is constantly evolving, with various new players getting involved
  12. 12. 12 Digital Security Stack: Issuance Platforms Digital Securities Market Overview CustodianExchangeDistributionIssuanceIssuer Regulation (Country by Country) Layer 1 Protocol Legal & Compliance 1Wave Financial has investment interests in Securitize and Vertalo through Wavemaker Genesis Master Fund, Ltd 1 1
  13. 13. 13 Digital Securities Market Overview CustodianExchangeDistributionIssuanceIssuer Regulation (Country by Country) Layer 1 Protocol Legal & Compliance 1exchange Digital Security Stack: Exchanges & Custodians 1exchange KnØx *the infrastructure stack is constantly evolving, with various new players getting involved
  14. 14. Regulatory Landscape SECTION TWO:
  15. 15. 15 Regulatory Landscape Digital Securities Regulatory Landscape Framework for evaluating investment contracts of digital assets published April 2019. This document is not a legally binding document, but rather offers guidance to past and future token issuers on what will be considered a security by the SEC. USA MauritiusLaunches “Blockchain Law” in Q1 2019, which provides clarity on security token issuance and encourages the tokenization of all assets. Liechtenstein FINMA publishes guidance that further qualifies asset tokens and their treatment Switzerlan d On March 1, 2019 the FSC’s regulatory framework to license digital asset custodians became effective. Maritus is first jurisdiction globally to offer a regulatory framework for the custody of digital assets Japan The FSA amends the Act on Settlement of Funds and the Financial Instruments Exchange Act to apply to Digital Securities Singapore Monetary Authority of Singapore (MAS) has established a regulatory sandbox for Digital Security businesses (including issuance platform and exchanges) Regulator (EFSA) issues clarifications on Security Tokens - those which give investors the right to the issuer company or is tied to profits Estonia Malaysia Securities Commision Malaysia (SC) issued regulatory framework for Digital Security ecosystem in January 2019 Thailand Established comprehensive Digital Security legislation to legalize issuance, trading and custody of Digital Securities Hong Kong Philippines In March 2019 the Securities and Futures Commission (SFC) issues official guidance on the legal and regulatory requirements for parties engaging in Digital Securities related activities CEZA (Cagayan Economic Zone Authority) has provided licenses for Digital Security exchanges, issuance, trading and other-related DS infrastructure platforms FSC announces that it will introduce new laws regarding Digital Securities and momentarily prohibit equity-like tokens while research is underway Taiwan The Chamber of Deputies passes a bill to give blockchain securities legal status, and aims to make their transfer more efficient Luxembourg The FCA published final guidelines outlining the qualifications of digital securities and the applicable regulations United Kingdom
  16. 16. 16 Jurisdictional Digital Securities regulatory guidance EU: Recent regulations and clarifications regarding Digital Securities MiFID II: applies in cases where crypto-assets traded qualify as financial instruments - European Securities and Markets Committee Other relevant frameworks: ● Prospectus Directive ● Settlement Directive ● Payment Services Directive ● Electronic Money Directive AMLD5: Exchanges and walet custodians must perform KYC and AML, register with authorities, report suspicious transactions, and provide information to authorities Regulatory Landscape
  17. 17. 17 Switzerland: Following the EU’s lead February 16, 2018 - FINMA, the finance regulatory body of Switzerland, published guidelines on what outlines the treatment of asset (security) tokens: Regulatory Landscape ● According to the regulator, asset tokens are considered securities and trading is subject to security law requirements, as well as civil law requirements according to the Swiss Code of Obligations ● While not part of the European Economic Area, Switzerland has bilateral agreements with the EU and tends to follow in legislation in order to maintain access to EU capital markets, including with corresponding prospectus regulation Asset Tokens ● Represent assets such as participations in real physical underlyings, companies, or earnings streams, or an entitlement to dividends or interest payments ● In terms of their economic function, the tokens are analogous to equities, bonds or derivatives
  18. 18. 18 UK: Guidance on Cryptoassets ● In January 2019, the Financial Conduct Authority released a publication titled “Guidance on Cryptoassets” which provides more clarity into the qualification and treatment for security tokens ● Under this guidance, security tokens are classified as “specified investments” and therefore traders must have the proper qualifications under the FCA’s approval ● According to the FCA, firms can issue security tokens without needing a regulatory license as is the case with the issuance of shares. But in instances where the tokens are traded, the advisors and brokers handling the tokens, and the financial promotions regime, will need authorization Regulatory Landscape If a token is tradeable on the capital market, the FCA noted that it will be considered a transferable security under EU MiFID, and will be subject to resulting regulations as well
  19. 19. 19 Japan: 2019 provides regulatory clarity for Digital Securities Amendment to Act on Settlement of Funds (Act No. 59 of 2009) ● Previously, cryptoasset custodians (or wallet vendors) were not subject to regulation ● Now, those involved in managing cryptoassets for others must maintain proper registrations and licenses Amendment to Financial Instruments Exchange Act (Act No. 25 of 1948) ● Under the amended FIEA, Digital Securities must adhere to strict disclosure requirements on both itself and the product ● Requirements involve filing a securities registration statement and semiannual reports In May a bill was enacted to amend two pieces of legislation and is expected to come into effect in Apr 2020 Regulatory Landscape Japan STO Association On October 2nd, six major Japanese brokerages including Nomura and Daiwa announced they had formed the Japan STO Association - aimed to lobby for, promote and devise guidelines for security token issuance Security Token Research Consortium (SRC) On November 6th, Japan’s largest financial group - MUFG - announced that it would lead a research consortia to develop standards around security tokens. Securitize will be the single issuance platform for the consortia.
  20. 20. 20 Singapore: MAS publishes “A Guide to Digital Token Offerings” Regulatory Landscape ● MAS has since granted a recognized market operator (RMO) license to 1exchange, Singapore’s first private securities exchange that facilitates digital token trading. Singapore’s flagship stock exchange SGX is an investor in 1exchange ● It’s worth watching if MAS increasingly scrutinizes Digital Security offerings. In January 24, 2019 MAS issued a warning to an ICO issuer to halt operations after finding it violated securities regulations regarding advertising and issuing a prospectus In November 2018, the Monetary Authority of Singapore (MAS) published “A Guide to Digital Token Offerings,” which outlines that tokens representing capital market products, including securities, will be regulated as such
  21. 21. 21 Hong Kong: providing regulatory clarity around investment & management of digital assets In September 2017, the Hong Kong Securities and Futures Commission (HK SFC) released a statement on ICOs stating that, “digital tokens that are offered or sold may be “securities” as defined in the Securities and Futures Ordinance (SFO), and subject to the securities laws of Hong Kong” Regulatory Landscape In March 2019, the HK SFC released a “Statement on Security Token Offerings”, reminding operators that any person who markets and distributes security tokens is required to be licensed or registered for Type 1 regulated activity (dealing in securities) under the SFO 2017 2018 2019 Sources: State of Security Token Regulation in Asia and HK SFC Statement on Security Token Offerings In November 2018, HK SFC published a statement on the regulatory framework for digital asset portfolio managers, fund distributors, and trading platform operators In November 2019, HK SFC published a position paper following the November 2018 announcement. The paper focuses on digital asset exchanges, and outlines that exchanges trading one or more security tokens must acquire new licenses similar to those of brokers and can only sell to professional investors
  22. 22. Challenges & Case Studies SECTION THREE:
  23. 23. 23 Challenges Early challenges for the Digital Securities ecosystem: Nascent Infrastructure: ● Lack of liquidity across exchanges due to lockups and limited secondary markets / exchanges ● Investor educational gap (new processes around post-trade activities i.e custody, fund accounting) Supply and Demand Mismatch: ● Differing risk & return expectations among investor profiles. Per Josh Stein, CEO of Harbor, on their recent pivot: “The overlap between investors demanding tokens and investors interested in security tokens was zero.”1 ● While there have been over 100 security tokens created, investors have been slow to adopt. Successfully funded Digital Securities often had already sourced investors prior to an offering Regulatory Uncertainty: ● 63% cited lack of regulatory clarity in the US as the top challenge for Digital Securities (Greenwich Associates)2 ● Over 40 pending broker-dealer applications with FINRA as of June 2019 3 1 2 3 1 https://www.coindesk.com/harbor-tokenizes-real-estate-funds-worth-100-million-on-ethereum 2 Greenwich Associates 2019 Blockchain Study 3 https://www.coindesk.com/stonewalled-by-finra-up-to-40-crypto-securities-wait-in-limbo-for-launch
  24. 24. 24 Challenges Despite early challenges, Digital Securities provide significant advantages: “As a result of a 2013 class-action lawsuit, former Dole shareholders were entitled to a payout. The problem occurred when 49 million shares were submitted as eligible for the payout, while only 37 million shares were outstanding at the time. Theoretically, this would not have been possible if the shares were recorded on a blockchain.” - Greenwich Associates1 Exchange infrastructure continues to mature with multiple exchanges recently launched/planning to launch across next 12- 18 months (tZero, SIX Digital Securities, SharesPost, SGX/1exchange, INX etc.) “Because tokens are programmable, compliance with regulations can be programmed into smart contracts, reducing and automating the regulatory compliance burden. The smart contract will be able to execute, regulate and govern the token.” - ASIFMA2 2 Source: ASIFMA: Tokenized Securities - A Roadmap for Market Participants and Regulators 1
  25. 25. 25 Positive developments for Digital Securities in 2019 Case Studies Banco Santander Launches first end-to- end tokenized bond ($20m) Morningstar Credit rating agency announces plans to rate debt issued on blockchains, and two security token projects Vertalo + PrimeTrust Vertalo tokenizing existing PrimeTrust cap tables and connecting to secondary markets Fundament German security token issuer gains BaFin approval for tokenized real estate bonds Fatburger Cadence is tokenizing $30m bond offering backed by FAT Brands franchisee cashflows Figure Originated over $700m tokenized loans directly on Provenance blockchain Franklin Templeton Filed preliminary prospectus to tokenize money market fund shares SDX The digital arm of swiss exchange SIX announced it will issue an Initial Digital Offering in 2020 on the R3 Corda Network Fluidity Framework for real world assets to be pledged as collateral in decentralized credit facilities BTG Pactual Aiming to tokenize $1B of assets, ranging from real estate to global sports clubs on the Tezos blockchain Harbor Tokenizing four existing real estate funds worth $100m Societe Generale Issued the first covered bond (EUR 100m) as a security token on a public blockchain HSBC Announced PoC with SGX and Temasek to use blockchain for fixed income securities Elevated Returns After raising $18M for tokenized real estate resort in Aspen, plans to issue $1B more in tokenized real estate MUFG Japan’s largest financial group will lead a 22 member security token research consortia with Securitize as the issuance provider 1
  26. 26. 26 BTG Pactual and Elevated Returns tokenizing $2B worth of real estate ● BTG Pactual, along with partner Dalma Capital, announced in July 2019 an initiative to tokenize $1B of investments ranging from real estate to alternative investments including equity and debt interests in sports clubs - all on the Tezos blockchain ● After tokenizing the St. Regis Resort in Aspen, Elevated Returns announced it will switch from the Ethereum to Tezos Blockchain and plans to issue $1B of tokenized real estate issuances ● Overstock’s security token platform tZERO and the Tezos Foundation have partnered on a project that will tokenize £500 million ($643 million) in real estate from U.K based Alliance Investments ● BTG Pactual, Dalma Capital, Elevated Returns and Alliance Investments represent a huge opportunity for adoption in Latin America, the Middle East, Southeast Asia and the UK respectively ● By supporting $2.5B+ in potential digital securities, Tezos positions itself to become the leader in asset tokenization and security Case Studies
  27. 27. 27 Harbor tokenizes $100m worth of real estate funds ● Harbor recently pivoted from helping companies issue security tokens to helping them tokenize existing securities, starting with the issuance of tokens representing the shares of four real estate funds worth $100 million. ● Harbor outlines the significant benefits of tokenizing Real Estate funds: ○ “Real estate funds are part of the nearly $9 trillion alternative assets market. These private securities are almost completely illiquid today, in large part because of the transfer cost, legal process, friction, and escrow delay in the current paper-based transfer processes... ○ … a transition to digital private securities backed by blockchain technology brings efficiencies and automation to the secondary transfer process, allowing issuers to lift transfer restrictions while maintaining total compliance with laws and control of the process.” Case Studies iCap Equity Unlocks Liquidity for over $100M in Real Estate Debt Funds using Blockchain-Enabled Harbor Platform
  28. 28. 28 Santander completes first end-to-end tokenized bond ● On September 12, 2019, the Spanish Banco Santander issued a 20M USD tokenized bond with one year to maturity. The bond carries a quarterly coupon rate of 1.98%, which will be paid out in tokens. The bond was purchased by a business unit of the overall Santander group, with other aspects of the organization acting as custodian, dealer, and tokenization agent Case Studies ● While this transaction was internal to the bank, it demonstrates the potential of tokenization to make financial transactions, according to Santander, “faster, more efficient, and simpler” John Whelan, Head of Digital Investment Banking, elaborates on the potential impact:
  29. 29. 29 Franklin Templeton proposes tokenized money market fund ● Franklin Templeton, a global investment fund with nearly $700B in assets under management, announced that they will be launching a tokenized money market fund. The token is constructed to maintain a stable price of $1.00 and invest at least 99.5% of its AUM in government securities, cash, and repurchase agreements that are fully collateralized by government securities or cash Case Studies ● This is one of the first true steps into the world of tokenization and lays the groundwork for a potential swell of asset managers introducing the concept of a “tokenized” security to their large pool of potential investors. In comparison to Facebook’s Libra, which received significant regulatory backlash, Franklin Templeton’s has taken a different approach to issuing a stablecoin: ○ “We believe a registered money market fund that is backed by hard assets and registered with the SEC under the Investment Company Act of 1940, with its shares existing as native digital assets on a blockchain and held in a digital wallet, can be an ideal stable digital asset to be used in the new economy.” Franklin Templeton proposes tokenized government money market fund
  30. 30. 30 Fluidity introduces Tokenized Asset Portfolio (TAP) ● Fluidity executed a pilot using U.S. Treasury securities as underlying collateral in the MakerDAO’s multi-collateral Dai system, with the intention of leveraging the same framework for other assets, like real estate and corporate bonds. At the core of the model is a special purpose vehicle (SPV) that holds the asset, generating a token that represents a share of the T-Bill collateral. The token is then used as collateral in a collateralized debt position to generate Dai Case Studies ● This experiment is one of the first to bridge legacy finance with the emerging decentralized financial ecosystem and introduces an additional form of collateral to support MakerDAO and the DeFi ecosystem
  31. 31. 31 Morningstar announces two products for debt securities ● The credit rating agency Morningstar announced plans to be the first agency to rate blockchain based debt instruments ● The agency is working on two debt securities related blockchain products - a smart contract oracle to issue a credit rating on-chain and an on-chain rating model for investors to test the quality of their own investments Case Studies ● Blockchain based debt has the potential to make debt issuances more efficient, making it possible for organizations to issue debt on a smaller scale without sacrificing profit ● As a major player in the credit rating space, Morningstar can bring legitimacy to blockchain based debt issuances and speed their adoption
  32. 32. 32 Fundament secures BaFin approval to tokenize real estate bonds ● Fundament, a German security token issuance platform, received approval from regulatory agency BaFin to distribute the country’s first tokenized real estate bond ○ The bond will have an issued volume of €250 million, and a minimum investment of €1 ● In October 2019, Fundament also announced a partnership with leading German real estate developer Bauwens to tokenize billions of dollars’ worth of real estate across Germany ● In November the firm announced a partnership with the Tezos Foundation to use the Tezos blockchain for security token issuance, signalling another large allotment of digital securities to be represented on the platform ● BaFin has previously approved multiple compliant digital security activities, including BitBond’s tokenized bonds, demonstrating a potentially friendly environment for digital security innovation Case Studies
  33. 33. About TQ Tezos and Wave Financial SECTION FOUR:
  34. 34. 34 TQ Tezos (TQ) powers assets & applications in the Tezos ecosystem TQ Tezos | Overview TQ Tezos is a: Institutional-grade blockchain solutions developer TQ Tezos designs and develops solutions for enterprises, with a focus on security and durability across technological generations. Technology expert with end-to-end engineering capabilities and protocol experience A core member of the Tezos ecosystem, our software development team develops the building blocks for the global ecosystem to thrive. Global source of protocol intelligence TQ's integration across global digital securities projects uniquely positions our team to operate with insight at the core, while facilitating product development for our partners at global speed and scale. TQ supports adoption of Tezos by partnering with start-ups and enterprises across a wide variety of initiatives with blockchain innovation at the core. The New York-based team develops institutional-grade software products based on open- source infrastructure. As the entrypoint for Tezos, the TQ Tezos team enables partners to efficiently access our vetted network vendors. Want to learn more about Tezos? Contact Chris Lawlor at: chris@tqgroup.io
  35. 35. 35 Tezos is a blockchain protocol designed to be: Secure. Upgradable. Built to last. TQ Tezos | About Tezos Designed with governance in mind to deliver: Institutional-grade Smart Contracts Tezos smart contract languages are designed by experts in the fields of both finance and programming language design facilitating institutional-grade security through formal verification. Continuity & Upgradeability Tezos is architected to remain state-of-the-art — its modular architecture and formal upgrade mechanism enable continuous upgradability, allowing it to incorporate new innovations in computer science. Open Participation All stakeholders may participate in network upgrades by evaluating, proposing, or approving amendments. They help to secure the network (via baking or delegating) and avoid being diluted by inflation. Tezos is an open-source smart contract platform for assets and applications backed by a global community of validators, researchers, and builders. Tezos addresses key barriers facing blockchain adoption to date: smart contract safety, long-term upgradability, and open participation. Want to learn more about Tezos? Contact Chris Lawlor at: chris@tqgroup.io
  36. 36. Hard Asset Funds Kentucky Whiskey 2020 Investment vehicle providing exposure to barrelled Kentucky whiskey in tokenized fund format. Future roadmap includes Hard Asset Funds offering exposure to Japanese race horses, rare art, and real estate. Wave Financial is a diversified asset manager built to bridge the gap between institutional capital and the digital asset markets using liquid, tradeable private funds. Wave Financial Group | Wave Funds 36 Active Funds Wavemaker Genesis Early-stage crypto hedge fund started by the Founder of Wavemaker Partners, a ~$400M AUM traditional VC. Wavemaker Genesis is a crypto hedge fund that invests in both equity and tokens of early stage companies and invests its dry powder in ‘Large Cap’ cryptocurrencies. Index Funds Select 20 Index Offering exposure to the 20 largest crypto-assets by market weight in one convenient tokenized fund. Wave Index funds offer “Smart Beta” management, using lending, staking, registering, and other crypto-native passive strategies to drive index-beating returns. Yield Funds BTC Income & Growth Wave pioneered the packaging of crypto volatility into high-yielding funds, starting with Bitcoin. Wave has been approached by multiple protocols to develop similar products, and is currently in the process of creating novel derivatives markets for a top protocol. **Wave Financial LLC, a California Registered Investment Adviser is the Investment Manager of the Funds
  37. 37. 37PRIVATE & CONFIDENTIAL, NOT FOR DISTRIBUTION Lending Wave employs robust lending relationships to support “Smart Beta” across our Index Funds. These institutional relationships can be further used to maximize lending yields for Treasury clients. Wave Financial Group | Wave Treasury Wave Financial is a California Registered Investment Advisor (CRD#: 292343)*, offering treasury management services to a range of clients using bespoke strategies in managed accounts Cash Management The Wave team brings a deep traditional finance expertise to our clients across all the Wave Funds. We provide on-demand access designed for unparalleled cash management, hedging, and other investment strategies. Derivative Strategies Wave pioneered the use of crypto- derivatives to generate income in our line of Yield Funds. We can offer tailored risk profiles to high net worth and corporate Treasury clients utilizing custom derivative strategies. *For more information on Wave Financial LLC’s Registered Investment Advisor status, see the SEC website here https://www.adviserinfo.sec.gov/Firm/292343
  38. 38. DAVID SIEMER CEO david@wavegp.com TOM LOMBARDI Director tom@wavegp.com BENJAMIN TSAI President ben@wavegp.com Wave Financial, LLC, a Registered Investment Advisor in the state of California. Registration with the SEC or state authority does not imply a certain level of skill or training. Additional information about Wave Financial, LLC and licensed associated persons is available on the SEC’s website at www.adviserinfo.sec.gov ROY LEARNER Associate roy@wavegp.com ANDREW BALLINGER Analyst andrew@wavegp.com
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Wave Financial recently authored a report on the state of digital securities in conjunction with TQ Tezos - a leading institutional-grade blockchain solutions developer with a focus on security and durability across technological generations. Digitizing securities through blockchain technology can enable cost savings, economic value creation, and risk reduction. While the digital securities ecosystem is quite nascent, early examples from financial heavyweights like Santander and Franklin Templeton indicate that the potential benefits around compliance automation and cost reduction may be the driving forces of broader adoption. In this report, we explore the advantages of digital securities, the global regulatory landscape, current challenges hindering widespread adoption, and leading digital securities initiatives.

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