Startup Laureate Digital Securities looks to launch trading in digital securities that will enable institutional investors to rebalance their alternative portfolios without waiting for the assets to roll off their balance sheets.
“When they invest in private equity, venture capital, or real estate funds, they are usually locked up for five to seven years,” Lawrence Newhook, founder and CEO of Laureate, told Markets Media.
The planned exchange would enable institutional clients to rebalance their portfolios any day of the week, he added.
The first digital securities Laureate expects to trade on its platform will be a series of fiat funds created by its sibling asset manager Alpha Innovations.
"We do not have any announcement to make at this point," he said. "but there are real synergies between Laureate Digital and Alpha Innovations."
Laureate expects to partner with other asset managers from around the globe to trade their offerings on its platform.
Although the technology and trading methodologies may be new, Newhook views digital assets as the latest step in securitization. “Wall Street has been doing this for decades, the only difference is that is going to be recorded on a blockchain, which facilitates the trustless transaction,” he said.
The firm has turned to AlphaPoint for its tokenization technology and to develop its smart contracts and provide the exchange’s investor portal. “If an investor wants to subscribe to any of our digital securities, they would do so via a portal where they enter all of their KYC information so that they can be whitelisted and we can issue tokens to their wallets.”
Laureate is in the midst of evaluating various custody options but has not decided on which approach it will take.
The digital securities themselves will be based on the ERC-20 standard, but the startup is keeping the door open for other blockchain architectures.
“It is hard to predict what will be available in two years,” said Newhook.
Laureate is a Bermuda-registered company, and Newhook does not expect to have a US footprint for the company.
"In the US, there are rules on the books, but they are all subject to interpretation," said Newhook. "I think that interpretation will continue to change over time, which makes it hard to build a business with that uncertainty."
He noted that Bermuda already passed its Digital Business Act, which governs digital asset exchanges and crypto banking. "It's a stricter jurisdiction unlike other jurisdictions vying for this business, but they are strict by design," Newhook added. "They want to be sure that the players that are operating under Bermuda are top quality."
