There are not so many purely crypto-native investment opportunities, but those that exist often excite the interest of investors outside the circle of crypto enthusiasts. To name the main ones:

• Speculative investment into ‘coins’ with the expectation of their market value appreciating. The main and most famous in this category is, of course, Bitcoin.
• Investing into trading strategies, often robotic, on crypto exchanges. The crypto exchange Binance is particularly famous for an abundance of traders offering to try your luck in letting them trade a dedicated account for you or let you into a robotically managed pool.
• Investing into various yield generation strategies under the general rubric of ‘DeFi’ (decentralized finance).
• Venture investments into purely crypto businesses; such businesses would prefer to accept USDT or similar money surrogate as investment rather than regular money.

It is easy investing into all the above if you have USDT (or similar stablecoin) and feel comfortable managing (and safeguarding!) a crypto wallet. Many traditional investors (high net-worth private portfolio owners, family offices, investment funds, broker-managed portfolios etc.) would rather not risk creating their own crypto investment and holding infrastructure (for the fear or hacking risks, but sometimes also for regulatory reasons), but would happily invest through a traditional investment instrument, such as an ETF or a tradable security (with ISIN).

This challenge has driven the need for securitization of crypto assets. By converting crypto assets or strategies into familiar, regulated financial securities, this process serves as a crucial bridge, allowing conventional investors to gain exposure to the digital asset market using their preferred, established investment vehicles.

We are proud to be at the forefront of developing innovative solutions in the securitization of crypto assets and making those instruments as comfortable as possible to invest.

The Need for Crypto Securitization

Securitization addresses two main hurdles for traditional investors: accessibility and operational ease.

1. Accessibility and Familiarity: Traditional investors prefer to hold assets through familiar, regulated instruments like securities or fund shares, rather than directly holding crypto assets and managing private keys. Securitization packages the unique risks and returns of crypto into a universally understood financial product.
2. Operational and Currency Simplicity: Investors often prefer to deal entirely in ordinary fiat currency, investing in and receiving proceeds in their base currency without personally handling the technical processes of purchasing, custodying, converting, or moving crypto assets. Securitization handles all these operational and technical layers behind the scenes, offering a seamless fiat-in/fiat-out experience.

Since the launch of the first securitized Bitcoin instruments, the market has expanded significantly, covering a vast investment universe encompassing thousands of private or exchange-traded products based on single crypto assets, baskets of assets, or complex investment strategies.

Instruments Used in Crypto Securitization

The securitization process converts the exposure to the underlying crypto asset or strategy into a security issued by a dedicated entity. The choice of instrument depends on the specific investment objective:

• Tracker Certificates: Ideal for providing simple, passive exposure to a single crypto asset (e.g., Bitcoin or Ethereum) or a defined basket of assets, where the certificate’s performance mirrors the price movement of the underlying.
• Actively Managed Certificates (AMCs): These instruments are suitable for dynamic strategies, such as actively managed crypto portfolios or strategies involving frequent trading and asset rebalancing.
• Strategy Notes and Portfolio-Linked Notes: Designed to give investors exposure to more complex, income-generating strategies, such as staking, lending to DeFi protocols, or running sophisticated robotic trading algorithms on crypto exchanges.
• Asset-Backed Notes: Securities whose value and cash flows are collateralized by the underlying crypto assets, offering a structured form of investment.

The Crypto Securitization Process

The structuring of a crypto-linked security involves several critical steps to ensure the security is functional, compliant, and comfortable for the target investor base.

1. Strategy and Execution Determination:

• • Identify the entity or party responsible for acquiring the underlying crypto asset or executing the specified income strategy (e.g., managing DeFi protocol investment or running the trading algorithm). This party holds the market-facing and strategic responsibility.

2. Safety and Custody Measures:

1. • Establish robust security protocols for the underlying crypto assets. This includes determining the process for currency conversion and, crucially, identifying the parties responsible for holding the keys to the crypto wallets.
   • In many cases, an institutional crypto custodian is engaged. The custodian is responsible for the secure storage of private keys, significantly mitigating the technical and operational risks for the issuer and, by extension, the end investors.

3. Settlement and Clearance Integration:

1. • Retain a paying agent to handle distributions and redemptions.
   • Determine the clearing systems (e.g., SIX-SIS, Euroclear, or Clearstream for European/Swiss-listed issues) through which the security will be introduced. Integration with these systems is essential for making the security tradable and settleable within the traditional financial infrastructure.

4. Issuance and Placement:

1. • Formal issuance of the security (e.g., a note or certificate) to the market.
   • Placement of the instrument with the target investor base, completing the conversion of the crypto asset exposure into a liquid, tradable security.