Seattle-based real estate investment firm iCap Equity has turned to Harbor, an alternative assets platform, to tokenize four real estate funds collectively worth over $100 million USD on Ethereum.
Announced on September 16th, the meld will allow iCap to open up a private secondary marketplace for these funds, which together have more than 1,000 investors and nearly 20 registered placement agents to their names.
The moves are all about bringing more liquidity to iCap’s investments, as Chris Christensen, the company’s chief executive officer, said on the news:
“iCap provides high-yield investment opportunities for investors, but those investments typically come with a 3 to 5 year lock-up period because they are based in real estate. Now, with Harbor, we are able to provide the same strong returns, but also an option for investors to more easily liquidate if desired. It provides the best of both worlds, and is a game-changer for not only real estate-based investments, but the entire alternative investment industry.”
Indeed, iCap — which invests in properties ranging from single family residences to condominiums — knows well just how illiquid alternative assets markets can be “because of the transfer cost, legal process, friction, and escrow delay in the current paper-based transfer processes,” the company noted on Monday.
That’s where blockchain tech comes in — it can considerably decrease the friction around a digitized asset while also ensuring all compliance needs are met.
“Ultimately, we believe more liquid alternative investments will allow investors to allocate more of their portfolio to higher-return private assets,” Harbor CEO Josh Stein said.
Big Organizations Are Putting Big Trust in Ethereum
The iCap tokenization effort is only the latest intriguing bout of tokenization the Ethereum ecosystem has seen in recent days.
For example, last week Banco Santander — the 16th largest bank in the world — revealed that it had launched the first the first end-to-end blockchain bond on Ethereum. The entire offering totaled $20 million worth of bonds, with each bond providing a “quarterly coupon of 1.98%” through the bank’s Securities Services department.
John Whelan, the head of digital investment banking at Banco Santander and chairman of the Enterprise Ethereum Alliance, later revealed the Ethereum accounts associated with the bond’s creation on Twitter, adding that smart contracts were used to ensure related tokens didn’t escape from Santander’s purview:
“Other smart contracts were used too – a whitelisting smart contract allowing only entities properly KYC’d and onboarded to hold tokens (bonds or cash) and an exchange contract that acted as the escrow until the Issuer accepted the transaction triggering the atomic DvP.”
The security itself still exists as an off-chain legal document that is essentially a set of rights and obligations to certain assets and/or cash flows
— John W. 🇮🇪🇺🇸🇪🇸🇪🇺 (@_JohnWhelan) September 14, 2019
Another major bond development occurred a few months ago when Societe Generale — another one of the largest banks in the world — announced that it had rolled out €100 million EUR in bonds on Ethereum.
“Many areas of added value are predicted, among which, product scalability and reduced time to market, computer code automation structuring, thus better transparency, faster transferability and settlement,” the bank said at the time.
What’s Needed for the Next Leg Up?
Ethereum is still an evolving project, but Santander’s and Societe Generale’s recent work shows that the platform is indeed capable of serving as public infrastructure. Though what’s needed to make even more institutions consider building things like bonds on Ethereum?
“We still need to solve for listing these instruments, secondary markets (who wants to build a DEX), liquidity, privacy, etc.,” Whelan argued last week.
Yet the Santander official said these problems are solvable, and they are worth looking into for the financial innovation that can ensue from building on neutral public blockchains whose uptime is currently unmatched.
“Tokenized cash from high quality financial institutions is still in its infancy but we will likely see an explosion in bank coins over the coming years,” Whelan said.