A newly founded fintech company hopes to use the token sale model for investments in real assets. But it is different from many previous projects.
Two Prime, based in Hong Kong, (founded by Marc Fleury) refers to the sale as Continuous Token Offering or CTO, in contrast to an Initial Coin Offering or ICO, where almost all tokens are traded at an earlier stage. The goal is to use the funds raised to make crypto a suitable new asset class that appeals to the financial world.
The company will initially release five million tokens (only five percent of the total 100 million to be created) on the secondary markets, the rest will be released in the next 10 years. This is similar to Ripple’s approach to its XRP sales, and the company said the process is similar to that of raising capital.
At the end of February, Prime’s two FF Accretive Tokens (FF1) will initially be traded on the Japanese crypto exchange Liquid. Prices start at $ 3 per token, the company said.
“One of the greatest successes of cryptocurrencies has been the rapid formation of funds, as demonstrated by the initial boom in coin offering,” said the company’s chief operating officer, Alexander Blum.
According to Blum, seed financing for start-ups through token offerings on exchanges overtook private equity in 2017. “Since VCs generally avoid the seed phase, [ICOs] filled a niche that traditional financial players have not addressed,” he said.
According to Two Prime, the token offers a purchase option that “combines the features of a closed-end fund, an asset-backed token and a secure store of value”.
CEO Fleury has invested $ 2 million of his personal wealth in the fund. The company also announced to CoinDesk that Hong Kong-based private equity firm SIB Investment Ltd. is the first external investor.
Fleury founded JBoss, a Java-based open-source application server, in 1999. The company was sold to Red Hat in 2006 for $ 420 million. Red Hat is now owned by IBM.
As with other startups venturing into token deals, the company must also avoid getting on the wrong side of investors or regulators.
Ripple, which has raised billions from the sale of XRP and equity financing rounds, has been involved in a class-action lawsuit filed by investors accusing the company of selling unregistered securities.
A number of companies have launched ICOs, which are later charged by the United States Securities and Exchange Commission with failing to register their tokens as securities.
Two Prime reported that it has consulted with law firms in various jurisdictions and has developed an approach that will reduce the potential challenges for financial regulators.
The company will first list the tokens on the Asian trading exchanges to determine how much grip the investment could earn from traders. Then it will be set up for Special Purpose Vehicle (SPV) in the United States to offer the tokens as security.
Unlike many other ICOs, the fund’s tokens are backed by real assets that, according to the company, are managed by professional portfolio managers. The underlying assets include a structured portfolio of debt, cryptocurrencies and equity instruments.
The first investments are focused on the blockchain sector, while according to Blum, the company could in future expand to other sectors such as green technology and smart city management.
“Our goal is to create a new asset class by applying traditional investment models and theories to crypto and giving the industry confidence and professionalism,” said Fleury.