Asset management firm Wave Financial launched its first bitcoin yield fund last month with the help of Vertalo, the tokenization solution company that helped PrimeTrust put cap tables on blockchain earlier this year. Wave touts the fund as the first crypto derivatives-based yield fund on the market, but the partnership is planning to expand to legacy markets.
The fund itself generates yield by selling call options on bitcoin held in the fund, generating premiums from the high volatility. The income pays out monthly by distributing a dividend of 1.5% of the native asset value each month. Wave said it expects an 18% annual target yield. Fidelity Digital Assets custodies the fund’s BTC.
On the tokenization front, Wave is issuing Fund Tokens related tot he yield fund that aren’t registered with the Securities and Exchange Commission, meaning U.S. investors will have to stay on the bench. In order to execute a tokenized fund, Wave said Vertalo had all the right connections. Dave Hendricks, CEO of Vertalo, said they’re the only player in the industry that could get this tokenization effort off the ground.
“There was no other provider on the market that could work with all of the other providers needed to make this fund happen,” he said. “We were already partners with the other participants they were working with, and we were the missing piece.”
Benjamin Tsai, managing partner and president at Wave, said that while there are a number of players in the space, Vertalo gives the fund flexibility to be more integrated with shared partners.
Hendricks explained that Vertalo’s role is essentially a stakeholder in data management or on-chain investor relations for the fund. In 2018, Vertalo began lining up partnerships.
One such player in Wave’s fund is PrimeTrust, which Vertalo worked with to put cap tables on a blockchain. Hendricks previously called this the first step to the coming tokenization revolution. Now, he said a lot of problems are being quietly solved.
“They’re not all announced because it takes a while, like the stuff we’re doing with Wave and the stuff we’re doing with PrimeTrust, it takes a while to bring these things to market,” he said.
Contrasted from an initial coin offering or tokenizing shares, tokenization of a fund or other ventures has more risk, according to Hendricks.
In fact, a tokenized bitcoin fund is just the start of the Wave/Vertalo partnership, according to both Hendricks and Tsai. Other ventures in the works are focusing on tokenizing indices and fractionalizing a variety of physical assets, like fine art, in addition to the tokenization of yield ventures, like the recent bitcoin derivatives fund.
Fractionalizing things people want to buy is at the heart of these ventures, according to Hendricks – not creating value through tokens but rather fractionalizing existing value.
“We bring the blockchain and tokenization revolution to come to the old stodgy legacy markets,” he said.
One of these legacy markets that some tokenization ventures have pursued is real estate has been the common entry point for tokenization, but Wave and Vertalo are widening their gaze to a variety of places, like whiskey barrel futures, clean water and racehorses.
“The boring way of saying it is we’re providing balance sheets to distillers and to participate in the upside of aging of whiskey,” said Tsai. “The exciting stuff to say is you can fractionally own an inventory of whiskey and as an agent it’s a great investment product because it has an attractive increase in value with a great investment curve or increase in value curve.”
While neither option is currently offered, teams are in place looking into possibilities in these areas and others, according to Vertalo and Wave. Vertalo and Wave teased tokenization ventures to come going forward that will reach beyond yield products. Fractional ownership could become more accessible in the near future.