As the heady days of initial coin offerings continue to dim, proponents of digital securities are moving to leverage blockchain to issue digital assets in a regulated and compliant manner. In the US, if you issue a tokenized offering it is pretty much a security and thus must adhere to existing law.
A new legion of platforms and offerings are moving to take advantage of blockchain tech seeking to provide both trading and investing opportunities. For now, these offerings are largely available only for institutional and HNW/accredited investors.
Arca is one of these new digital asset platforms seeking to lead the transition from analog to digital. An asset manager and fund creator for digital assets, the company blends traditional finance and blockchain based securities. Arca currently has four different products and services:
- Actively managed private funds provide
- Arca Treasury Management
- Arca Digital Securities Structure
- Arca US Treasury Coin
Arca UST Coins, a stablecoin issued by Arca, is an industry first. A registration statement was filed with the Securities and Exchange Commission (SEC) last November with a goal of allowing it to trade publicly and potentially open to all investors. The coins or tokens are expected to have an average portfolio duration of around 8 years. The initial net asset value (NAV) is set at $1 with a minimum investment of $1000.00.
Crowdfund Insider recently reached out to two of Arca’s principles for an update. Arca CEO and co-founder Rayne Steinberg and CIO and partner Jeff Dorman. Our discussion with the two Fintech entrepreneurs is shared below.
Can you provide an update on the progress of Arca? Take up of UST coin?
Rayne Steinberg and Jeff Dorman: The US Treasury Coin is currently in the review process with the SEC to become a registered securities investment product. As this is a first-of-its-kind offering, we want to ensure all of the concerns from the SEC are addressed before creating a distribution plan. (see: prospectus)
Who are your biggest clients? Can you provide some insight into their objectives?
Rayne Steinberg and Jeff Dorman: Our biggest clients are sophisticated investors consisting of Family Offices & HNW individuals, but we are working directly with Pensions, Endowments and other large institutions as well.
Some thoughts include:
- Investors are 100% long the financial system right now. Even if investors moved to 100 percent cash across all of their investments, they are still 100 percent long the financial system (via the banking system). As we saw in the 2008 banking crisis, the 2011 European sovereign crisis, and the 2018 emerging market currency crisis, there is systemic risk out there that investors want to hedge against. Crypto offers investors exposure outside of the traditional financial system, and many argue it is actually more dangerous NOT to have some exposure to crypto than it is to have a small allocation.
- Crypto is both an asset class and an infrastructure. As an asset class, there are opportunities today to participate in the growth of emerging technologies. The pie is growing even as prices collapse and, with enough research, an investor can figure out which slices of the pie to grab. As an infrastructure, investors have to have time to wait. But they should familiarize themselves today because one day soon, every asset class may be represented in digital asset form (equities, fixed income, real estate, hard assets). Viewing the utility of cryptocurrencies through price alone misses the fundamental revolution. Cryptocurrency and blockchain have uses far beyond price.
Recently, I saw a tweet about David Nage meeting with family offices, HNWI and Asset Managers who in total control collectively over $1 trillion. That’s a big number. How did this meeting come about?
Rayne Steinberg and Jeff Dorman: David Nage joined the Arca team in January 2019. David has managed money for several family offices for over a decade before focusing on digital assets. He has spent the past two years helping educate family offices on digital assets.
As he spoke to family offices, he realized that family offices needed a tailored, guided educational experience and also a chance to discuss digital assets with like-minded family offices. He launched the inaugural FO256 event in Fall 2018 to much success. The feedback from the first event was universally positive and indicative of growing interest from Family Offices in the digital asset space. The second event, this Wednesday (April 10), has had much more interest and we are already quite oversubscribed. We are trying to accommodate all interested FOs.
Can you share more about the FO256 family office event?
Rayne Steinberg and Jeff Dorman: FO256 was created to help educate Family Offices about digital assets. We are bringing together the top minds in crypto, who either have a strong traditional financial background or are institutionally-aligned to discuss Family Offices’ most pressing concerns.
This is a purely educational event geared for family offices and institutional investors who want to learn about digital assets. Both crypto experts and novices are welcome. There is something for everybody.
Back in the ICO days, I used to see similar statements [about family office interest]. This is completely different. Is there a challenge with messaging?
Rayne Steinberg and Jeff Dorman: At Arca, we believe that crypto and blockchain, as an asset class, is most suitable for institutional investors for a couple of reasons:
- It’s a volatile asset class.
- So far the energy in the space has come from retail. Sophisticated Investors require a certain amount of operational excellence including custody, security, compliance, reporting, risk management, and legal controls. By creating products to meet the standards of sophisticated investors, it helps create the environment for individual investors to securely and safely invest in the space.
The biggest challenge in messaging involves a lack of education.
This asset class is unlike any other because it is a true combination of technology and finance. It is also too young to have the track record that investors usually rely on to evaluate different investment opportunities.
Because there is no standard way to evaluate the space, and therefore investment opportunities, many sophisticated investors have no idea where to begin. Though we are seeing interest by sophisticated investors as a cohort, no two investors are asking the same questions. So it’s up to Arca and other firms in the space to provide the context and tools to help investors evaluate the space and opportunities.
It’s also equally important that we create a strong two-way dialogue to understand what information sophisticated investors want to learn.
It’s very easy to get overwhelmed by the amount of information about crypto and blockchain and we’re hoping through a collaborative process to distill and focus on the information sophisticated investors need – and describe it in the financial terms they understand.
— David Nage🎯 (@DavidJN79) April 10, 2019
What type of blockchain based assets are you investing in? What are your expectations for more traditional assets and tokenization?
Rayne Steinberg and Jeff Dorman: We have different fund strategies for different types of investments. Each strategy aims to meet different investor goals and risk profiles.
Currently, within these strategies, we invest in liquid digital assets, private and pre-sale digital assets, and equity in blockchain or crypto focused companies.
We believe crypto is both a new distinct asset class as well as an infrastructure that will one day underpin a large number of existing asset classes.
As an asset class, some of the current tokens that exist today are going to be great investments, but we also look forward to a new crop of tokens that don’t exist yet but will be structured in a way that better captures value as the network or project grows.
Amongst these new tokens will be security tokens – traditional assets that become digitized or tokenized. This can be anything from hard assets represented on blockchain, to new revenue streams of existing companies that are separate from the corporation and accrue directly to token holders.
The reason this hasn’t happened yet is because crypto investors don’t care about 5-10% returns (they have more aggressive risk profiles), and traditional investors haven’t seen a security token yet that interests them enough to warrant entering the digital asset space (said another way, today’s offerings aren’t that attractive).
As soon as crypto investors begin to care about more traditional investment returns and/or big name companies decide to issue a token that entices traditional investors (like a FB, JPM or even a Twitter or Amazon coin), then it’s off to the races!
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