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Tokenizing Investments for Accredited Investors

Blackmoon Blockchain

Launched in 2014, Blackmoon Financial Group began with providing marketplace lenders access to investors interested in purchasing loans. The company initially raised $2.5 million. Its pivot to blockchain is focused towards creating a “framework for tokenized investment vehicles” and bringing “blockchain flexibility to any financial instruments”.

Blackmoon raised $30 million in an ICO in September 2017 for its blockchain platform to provide alternative liquid investments.

The Market Gap

In a conversation with Sergey Vasin, COO of Blackmoon Group, Blockchain Times discussed the major issues faced by investors and asset managers. In its research, Blackmoon found that most investors do not have access to certain investment opportunities due to regulatory restrictions. This hampers the opportunity to access different investment options, therefore hurting diversification. Asset managers are constrained because of the complicated KYC and AML processing. Launching new funds is cumbersome, as they need to execute the KYC and AML of the investors all over again. This is required even if the investors have already gone through the process for a previous fund.

Even investors who have access to different investment options are afraid to invest in lucrative options like real estate and venture capital because of liquidity concerns. Currently, investors are stuck with a fund for a minimum of 5-7 years. There is no viable secondary market liquidity for such investments.

The Blackmoon Platform

Realizing the pain of both investors and asset managers, Blackmoon Financial Group developed a blockchain platform to enable access and power liquidity in this trillion-dollar market.

The platform also pays keen attention to staying compliant with local regulations as the founders respect the legal framework and believe that in order to make the platform viable, they need to follow legal guidelines for each jurisdiction. They realize that every country has local regulations and, in accordance with those regulations, they diligently get the KYC done for clients before giving them access. All reporting is validated under MiFID regulations with Blackmoon becoming the only Blockchain-based project to do so. In an even stronger push to be compliant with multiple regulators, it has applied for relevant licenses in Malta and for the regulatory sandbox under the Virtual Financial Assets (VFA) Act. Most importantly, they are entering the massive US market with a Reg D exemption for accredited investors.

Operations and Strategies

The platform is live with 10 investment opportunities in crypto, indexing, and hedge fund segments. Its most notable token releases include the BMxXMI asset token to invest in the Xiomi IPO and the Prime Meridian Real Estate Lending Fund token. Currently, the platform is offering six crypto strategies for the broader investor base looking for sophisticated exposure to crypto. These include:

‘One Day Most Volatile’ Investment Strategy
This strategy is highly influenced by price fluctuations. An automated process monitors the performance of crypto currencies with decent liquidity, available on top exchanges. Then, the currencies with the highest volatility in the last 24 hours are selected for investment. This is one of the most risk-on strategies but has performed exceptionally well and has outperformed both BTC and ETH.

‘Top 20 Market Cap’ Strategy
This strategy lets investors invest in cryptocurrencies with maximum capitalization. It selects 20 cryptocurrencies with highest market capitalization in the past three months. These currencies are selected on the basis of back testing and live trading. This strategy has also outperformed BTC and ETH and offers high returns on both short-term and long-term investments.

‘Daily Delta Rebalancing’
In this approach, investments are made only in the top six market cap coins. But it shuffles between these six currencies and USD on the basis of market behavior. In a bullish market, this strategy tries to profit from the trend and switches from cash to crypto. And if the market is bearish, it exits crypto and enters into cash in order to yield positive results in case of a crypto market meltdown.

The company has recently introduced three new crypto strategies. These strategies employ mean reversion theory to overweight those coins that are likely to outperform as well as the trend protection similar to Daily Delta Rebalancing strategy.

How to Invest?

The platform includes a combination of hot and cold wallets. To invest in a strategy, an investor has to first register himself on the platform and pass the verification process. US persons have to prove their accredited status. Investors then can select a strategy token to invest in. Its price is determined by the value of its underlying assets. The valuation and investment is a fully automated process and requires no manual input.

The tokens generated are already liquid. The creation and redemption process is continuous. Investors can create and redeem new tokens at will. They can ‘buy and hold’ or just ‘buy and sell’ the tokens. However, there is a limit for daily redemption because redemption is done automatically on the blockchain via smart contracts. Its number depends on the amount of ETH stored on the smart contract. It means, for example, that investment and redemption of 1000 ETH is allowed provided the smart contract holds 1000 ETH.

The company is also working to develop a secondary market that will allow investors to unlock liquidity for assets which are not liquid by design. The secondary market will operate along with the token creation and redemption process to determine the underlying value of the tokens and will alleviate the liquidity limitations of smart contracts.

Currently, the company has 42 professionals on board with the majority of them in IT. The company has also hired aggressively for its commercial and compliance team, designing team, operations team, and data science team.

Revenue Model

The company generates revenue in three ways. The token issuance for investments, on average, has a 0.5% fee for creation and 1.5% for redemption. It also acts as a tech provider for tokenizing assets. It charges a fixed setup fee and a percentage of the funds raised as a success fee. It also provides legal and compliance support to its clients. It has also applied for a broker license, which will help the company generate revenue through trading in the secondary market.

The company is also running its original lending platform for online lending and has tied up with a number of loan originators.

The Future of Blackmoon

Blackmoon Blockchain is a phenomenal platform for investors and asset managers as it executes access, liquidity, and compliance all in one place. Its focus on getting regulated, not only in the EU but also the US, and a $30 million ICO fund raise has positioned it to become a dominant player in the tokenized-investment-vehicle industry.

Author:

George Popescu
George Popescu

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Allen Taylor

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