Summary Points (TLDR):

• Invictus Alpha is offering crypto loans that include liquidation protection i.e. your BTC or ETH collateral will not get liquidated if the market falls below your LTV liquidation price.
• You may borrow 50% of the initial value of the BTC or ETH deposited.
• You will pay the same borrowing rate as other market providers where you still run the risk of getting liquidated
• Borrowing may be in selected stablecoins or in-kind (i.e. BTC or ETH).
• The borrowing term is fixed, according to quarters (March, June, September, December)

Crypto users can now, for the first time, borrow against their crypto secure in the knowledge that their collateral will not get liquidated.

Invictus Alpha (the trading company of Invictus Capital) has engineered a new product that is offering users the opportunity to borrow USD-based stablecoins (or BTC and ETH) against BTC and ETH with no risk of liquidation.

Why we are offering liquidation protection

There is natural demand from long-term crypto HODLers to borrow against their assets rather than sell since borrowing creates additional liquidity (extra capital) for the borrower. The borrower is then free to use this additional capital productively without triggering a tax event which a sale would. The problem is the lenders will liquidate borrowers if the collateral falls below a certain threshold.

Liquidations pose a huge risk to long-term capital management for crypto holders. In an April 2021 flash crash over 1 million traders had their positions liquidated with over $US10 billion lost.

In addition, exchanges impose restrictive liquidation requirements on traders meaning that capital gets locked up on exchanges.

In other lending markets, however, this is not the case. Banks, for example, do not simply liquidate homeowners when housing prices dip. Instead, the loan is paid back over a long period of time at a fixed rate, allowing the borrower to pay back without fear of losing their house (their collateral). This allows homeowners to manage their investments better and make flexible, long-term decisions with their capital.

We believe that for crypto to flourish, we need an effective way for investors to access liquidity over the long term, without fear of loss of their crypto assets.

How does liquidation protection work

A loan with liquidation protection means that your collateral will not be liquidated if the price of your collateral falls below a certain level.

Let’s, for example, assume you use 1 Bitcoin (BTC) and you use it as collateral to take out a USDC loan. You are quoted a 50% loan to value (LTV) for 12 months at an interest rate of 9%. If at inception, the BTC price is $40,000 then you would receive a loan worth $20,000.

The table below shows the terms of a normal vs. a loan with liquidation protection.

What is immediately clear is that every term is the same except that you don’t have a liquidation price, nor do you have any margin management requirements.

With the current lending products in the market, if the BTC price falls below $20,000 then you would need to either top up your collateral (in BTC) or repay USDC (reduce your outstanding loan) in order to avoid liquidation.

What we are offering

Invictus Alpha is testing the market for a new borrowing product that allows users to borrow against their crypto assets with competitive terms to existing products but with the added benefit of no-liquidation.

The core terms of the offering are:

If a borrower wishes to extend the loan, then the same loan terms (6, 9, 12 months) will be on offer. Notice to extend the loan must be given at least one calendar week before the loan expiry. The interest rate used for the new period is set by typically two weeks before the start of the new loan.

This offering is consistent with the other providers in that there are no origination fees and no credit checks required from the borrower. The interest rate charged at 9% is extremely competitive with other products in the market that have liquidation features.

Loans and interest are repaid in a bullet payment at the expiry of the loan. Should the value of the collateral at loan expiry not cover the full value of the loan (plus interest), the client is not required to repay the loan.

Continued innovation

This is the first lending product on offer from Invictus Alpha, building on the success of the Invictus Vault. We will continue to iterate offering new features, more LTVs, and more collateral options to this product as the market develops.

To enquire about this product, please complete this form.

Disclaimer: Please note that this offering is under ongoing development and subject to legal due diligence and/or regulatory approval.

We are proud to announce the launch phase of our new fund — the Invictus Bitcoin Alpha Fund. To register interest in the fund, please follow this link.

The Bitcoin Alpha Fund is an innovative product that aims to outperform Bitcoin by utilizing options and lending strategies to offer both downside protection and yield. The Fund is suitable for investors who want to hold Bitcoin long-term but want limited downside and enhanced returns.

It is important to emphasize that no trading of Bitcoin is involved — the Bitcoin Alpha Fund always holds long exposure to Bitcoin. Using our proprietary lending software we generate enough return, along with the sale of a deep out-of-the-money call option, to offset the cost of purchasing a put option at 10% below the strike price at the beginning of the month.

This put option effectively allows BTC downside to be capped at a maximum of 10% of the US dollar value of the Fund per month. Significant Bitcoin gains are made during any period of drawdown exceeding 10%, and the Fund has, historically, strongly outperformed its benchmark of BTC.

Why a Bitcoin fund

Bitcoin is just over a decade old and has already left an indelible mark on the world. It has offered its earliest investors truly outstanding returns. An investment just five years ago would have returned well over 20 times the initial capital.

This Fund is for those who want long-term exposure to Bitcoin, but with the peace of mind that comes with knowing the maximum drawdown in any given month is targeted to be just 10% of the US dollar value of the Fund.

Several factors have led to Bitcoin’s success, as listed below:

• The first and most dominant cryptocurrency. Bitcoin is the oldest and most established cryptocurrency and thus has a first-mover advantage. Whilst arguably better technologies have emerged to challenge this dominance, Bitcoin remains the first investment of many new entrants and holds significant brand recognition.
• Portfolio diversification. Historically, Bitcoin has shown low correlation to most major asset classes (including equities, bonds, and commodities). This means that it has the potential to improve the risk-adjusted return of traditional investment portfolios.
• Asymmetric return potential. Bitcoin, and cryptocurrencies more generally, represent a fraction of global wealth. By comparison, Bitcoin’s entire market capitalization is less than 5% that of gold. If Bitcoin were to capture a material share of this wealth, it would translate to gains in the multiples of its current worth.
• Insurance against a collapse of the traditional financial sector. Bitcoin exhibits antifragile properties which make it a useful hedge against certain risks of the traditional financial system. Most recently the US Dollar experienced its biggest monthly drop in a decade as concerns mount about the impact of central bank quantitative easing. Bitcoin, by technical design, has limited supply and can thus serve as a bulwark against the inflationary pressures faced by fiat currencies.

While Bitcoin offers these substantial benefits, it also suffers from extreme price volatility which is a challenge to growing adoption. Many investors are put off by the large drawdowns. The Bitcoin Alpha Fund aims to provide investors with upside exposure to the Bitcoin price whilst mitigating capital drawdown.

Fund Summary

The Bitcoin Alpha Fund has the following features:

• 1x Long Bitcoin exposure.
• A target of 10% maximum monthly drawdown. This protection is provided through the purchase of an out-of-the-money put option.
• Portfolio margin agreements allow the fund to engage in lending activities of the USD collateral to generate interest returns as per the Invictus Margin Lending (IML) Fund. These yields will be applied to offset the cost of the purchased put.
• The fund will charge no management fee. A 20% performance fee will be charged on outperformance of spot Bitcoin.
• Backtested performance of the fund strategy over the past two years shows strong outperformance against the Bitcoin spot price, particularly in market drawdown.

How the launch phase works

As is typical of the investment launch phase, we will first raise an initial tranche for the fund before it is fully tokenized in Q4 of 2020. The launch phase will run until the end of the quarter or until the fund is available for investment in the portal.

To register fund interest please follow this link.

Alternatively, to find out more about the fund, please join our Discord or Telegram community and speak directly to the team and fellow community members.

Kind regards,
The Invictus Capital team

To date, we have developed a platform that has helped over 15 000 individuals access investment opportunities that would typically only be available to the top 1%. In order to continue our mission of democratizing access to alternative investments, we are looking to involve our community more closely in the development process.

We have received multiple requests for certain investment management tools across our various communication channels to enhance the experience of being an Invictus investor.

We are proud to announce our Community Developer Program, guided by the feedback received from discussions and surveys with our community. The purpose of the program is to engage with technical members of our community to fund the development of tools by the community, for the community.

To start the process, we sent out an email survey last week to find out what features the wider community would find most valuable. The top features voted for were:

1. A portfolio tracker (62%)
2. A tool to swap between funds (55%)
3. An investment accounting tool (48%)
4. A feature to compare performance between funds (44%)

Based on these results, we’ve set out a grant scheme below for each of these features.

Grant breakdown

We have listed below the features with a short description and an estimated grant per item. This is a very basic overview of what would be expected and we encourage you to use your own ingenuity to design something innovative and exciting.

Please note this is not an exhaustive list and we are looking forward to receiving additional ideas and proposals outside of that described below.

You may have noticed that we left out “a tool to swap between funds”. We are currently engaging with liquidity providers (centralized and decentralized) to make this happen however, if you have an idea you would like to share then please submit it to the email address below. Apart from the ideas listed above, if you have other great technical proposals you would like to share with us please submit those to our address below.

Submission process

Before you embark on your development, please first submit an outline of your idea to the community developer program address — communitygrant@invictuscapital.com — for approval. Included in your submission should be a basic description, a list of features and functions, the proposed tech stack, your CV and a budget estimate.

Half of the grant will be paid upfront and half upon the completion of agreed upon acceptance criteria. We are only currently looking to fund one feature per category but we will relax this condition if the submission is exceptional.

In order to move forward quickly with the proposals we will require that submissions are made before Friday 10th July. Thereafter we will be making our selections and communicating the next steps with the chosen projects.

Good luck and we looking forward to receiving the proposals!

Stablecoins have massively increased in popularity of late with the likes of Tether (the largest stablecoin) now regularly trading more volume than bitcoin on a day to day basis. This is because stabelcoins offer a number of key benefits to trades that include:

1. Price stability
2. A useful transfer mechanism
3. A lending tool for earning high interest rates

Let’s look at each of these individually.

1. Price stability

Stablecoins, and in particular, Tether (a USD-backed stablecoin) gained popularity in late 2017 as the crypto market exploded. Users saw this particular asset as a tool to hedge price risk as the volatility of bitcoin and many other cryptocurrencies spiked wildly.

The market capitalization of Tether (a measure of the total value of Tether in circulation) went from approximately $10m at the beginning of 2017 to over $1.3bn by the end of the year, a 130x increase.

Source: Tether (USDT) price, charts, market cap, and other metrics

Many stablecoins have followed the success of Tether. These include USDC, TUSD, DAI, PAX and more recently exchange-specific stablecoins such as Binance USD (BUSD). What is clear is that all the most popular stablecoins have one consistent trend: the peg to the USD dollar.

This is due to the fact that the dollar is widely considered to be the reserve currency of the world and is commonly used as the de facto pricing unit for international trade.

As much, most crypto traders are most comfortable using USD-backed tokens as their trading currency.

2. A useful transfer mechanism

Stablecoins have become an increasingly popular way of transferring value across the cryptocurrency ecosystem. So popular in fact, that the top six stablecoins (USDT, USDC, PAX, DAI, and GUSD) as of January 2020 surpassed native currency ETH in terms of value transferred across the Ethereum network.

Stablecoins in terms of transaction volumes are even starting to challenge FX providers such as Venmo. Stablecoins volumes grew at a quarterly rate of 300% compared to 23% of Venmo, which is considered a high growth start up in its own right.

This suggests that stablecoins could usurp traditional payment providers in the future, moving beyond just being a trading tool into a payment method.

3. A lending tool for earning high interest rates

Loan providers such as Celsius Network and Nexo have innovated to provide investors the ability to earn interest on their stablecoins. They do this in a similar way to banks by accepting USD stablecoin deposits and then lending those deposits to traders for a predetermined interest rate with the loan backed by crypto collateral.

The interest rates are higher than savings rates you would get on traditional savings accounts because the perceived risk is higher — i.e. crypto is a very volatile asset class so there is a risk your collateral is liquidated.

Will the Cryptocurrency Industry be Dead or Alive? | Data Driven Investor

The rates the lenders can provide have been well above 6% on USD stablecoins since the lending platforms have launched. In some cases like the Invictus Capital Margin Lending fund, the rates have exceeded 20% on USD which are typically the types of returns you will only see with hedge funds.

It is clear that stablecoins offer investors a number of great benefits and the sector is only set to grow.

Ultimately, you should choose the stablecoin and investment product that suits your needs and, as always, do your own research!

Investing in stablecoins was originally published in DataDrivenInvestor on Medium, where people are continuing the conversation by highlighting and responding to this story.

Margin lending in traditional markets

Margin lending has been a popular service offered by traditional stockbrokers for decades. It is a process whereby brokers lend either securities or cash to their clients for trading purposes. Lending rates offered by traditional brokers (e.g Charles Schwab) typically vary between 5.5% to 11% depending on the broker and the loan value.

Swiss based ETP enters the Crypto trading market | Data Driven Investor

For brokers, lending is a wonderfully profitable business. Given that Charles Schwab only pays a paltry 0.18% on their high yield savings product, it is no wonder that 57% of their revenue comes from net interest income (i.e. lending interest earnings after deducting interest paid to account holders) according to their 2018 10-K SEC filing. Despite the fact that they are a broker and not a bank, only 40% of their revenue comes from asset management and trading fees.

Lending in cryptocurrency markets

Blockchain technology has become synonymous with the democratization of financial opportunity; this is also true in the margin lending space as anyone is able to lend out their cryptoassets and earn the rates that brokers and institutions have been enjoying for years. Platforms such as Celsius Network, Nexo and Invictus Capital have enabled interest revenues to be passed directly on to the retail audience at interest rates that are, in some instances, 10x what is available in the traditional market.

The development of cryptocurrency lending platforms can largely be attributed to the maturation of cryptocurrency market post 2017. The latest report by Credmark, a cryptocurrency credit bureau, highlights that the lending market has expanded to over $6.4bn in loans originated by Q3 2019. This is up from a mere few hundred million just a few years before. Additionally, the lending market is experiencing quarter on quarter growth of 497 in new loans originated.

In the cryptocurrency sector, the lending market mainly functions with a few significant participants, namely miners, traders, high net worth individuals, and institutions. The most significant driver of demand for loans (especially loans provided via margin lending), is from traders.

Most of the large cryptocurrency exchanges facilitate some form of margin trading on their platforms. Some exchanges such as Bitfinex and Poloniex, however, enable peer to peer lending using a matching engine to bring liquidity providers and traders together. Exchange lending volumes are growing as traders seeking quick, affordable liquidity options and lenders look for attractive returns.

Market volatility continues to drive margin lending activity

Cryptocurrency volatility is the key driver of margin lending volume growth since higher volatility motivates more trading activity.

Spikes in lending rates often correlate to bitcoin price swings as traders look to increase their market exposure. As an example, the 30% surge in the bitcoin price on the 25th of October 2019 caused a corresponding surge in the USD lending rates, with annualized rates escalating as high as 20% pa during the month.

While the USD lending rates track the volatility of the crypto market, USD margin lending does not expose trading capital to price fluctuations of the underlying crypto market. In addition to no capital drawdown risks, margin lending returns provide diversification benefits.

Introducing the Invictus Margin Lending Fund

Invictus Capital has a distinguished track history within the cryptoasset space with the launch of index funds CRYPTO20, Crypto10 Hedged and Hyperion, (a blockchain VC fund). Invictus has further developed an innovative margin lending fund to allow investors to earn passive, high-yield dollar-based returns. The Invictus Margin Lending Fund (IML) offers investors a unique opportunity to take advantage of a nascent market that has to date provided consistent returns well above traditional money market yields.

With the current best US short term savings rate at 2% APY, the IML fund provides a unique opportunity to earn yields in excess of 10%.

Along with returns, the fund also has compelling structural benefits, including 24/7 liquidity through automated smart contract subscriptions and redemptions. Investors are able to redeem their tokens for TUSD (the operational currency of the fund) as and when they wish to realize returns.

With the continued growth of the lending market, and increasing buy-side demand — it is expected that USD lending returns, and thus the returns of the IML fund will continue to remain impressive.

Margin Lending: Earn the best interest rates in the cryptocurrency lending market was originally published in DataDrivenInvestor on Medium, where people are continuing the conversation by highlighting and responding to this story.

Not all investment opportunities are created or distributed equal

As globalization accelerates, investors are seeing a significant uptick in the types of opportunities available to them. From derivatives, art, venture capital and beyond, investing is as dynamic a field as it has ever been. Unfortunately, while the opportunities may be new, the old, arbitrary restrictions on who has access to them remain.

Political and structural issues, around the world, still prevent many investors from participating in the best investment opportunities. This is a problem with several dimensions. As a case study, we shall focus on the US market to highlight some of these dimensions, but the same ideas apply in most developed economies.

Persistently low interest rates limit investment opportunities

First, in developed markets, sustained artificially low interest rates since the 2008 recession have propped up asset prices in public markets as cheap capital seeks yield unavailable in the savings or bond markets. This has been a boon for those invested in public stocks and disastrous for those holding their capital in savings.

Officials from the US Federal Reserve expect that long term interest rates will settle at 2.5% which, when taking out the effect of 2% inflation, leaves investors with a paltry 0.5% real return. This is compared to the mid 2000s and the 90s where real rates were closer to 3–4% (Figure 1).

In effect, the recent decade of low Fed rates has effectively meant negative real (post inflation) rates of saving. This has a pronounced impact on the younger generations, in particular millennials, the majority of whom are risk averse having lived through the 2008 recession and chose to hoard cash rather than invest (Figure 2).

Older generations and those with the means to invest, have used the low interest rates to gain an ever greater advantage. The flood of capital has pushed public stock markets to all time highs, with the likes of S&P500 and Nasdaq indices seeing 25% gains in 2019 alone. This is significant, especially considering that the returns over the past decade have averaged

13.8%. Along with the stock market, the overall US economy officially recorded its longest expansion period in history, as of mid 2019, heavily enriching those who owned a piece of it.

More than 50% of Americans, however, do not own stocks and are thus not participating in the gains. The top 1% of Americans now hold as much wealth as the middle and upper-middle classes combined. This concentration of financial opportunity has translated to extreme wealth inequality that is divided by age and wealth brackets.

Private opportunities are becoming more attractive but are only available to the wealthy

Second, as public asset prices rise and savings rates remain low, investment options that offer attractive yields become more limited, causing capital providers to rush to seek options in private markets.

Private markets, by definition, are exclusive and are fraught with obstacles such as high investment minimums, legal accreditations and long lockup periods that restrict participation by retail investors.

Investment minimums for alternative investments such as real estate, venture capital or hedge funds are often $100 000 or more, amounts that are completely out of the accessible investment range for the average investor. In addition to the minimums, in the US in particular, only accredited investors may invest in alternatives. To become an accredited investor you need to have a net worth of at least $1m or annual income exceeding $200 000. This means that most Americans are legally excluded from making certain investments which, according to SEC estimates, is 96% of the US population.

These structural limitations make it both costly for issuers of alternative investments to raise capital and limits the participation by the general public into many investments.

Investors in emerging markets are excluded from global investment opportunities

The third dimension that prevents many investors from participating in the best investment opportunities — beyond issues with accessing private markets — is that of geography. Until now we have only spoken about the lack of financial inclusion in developed economies; in their emerging market counterparts, the lack of financial inclusion is even more apparent.

Investors from emerging markets primarily have their wealth depleted through the negative impacts of high inflation. In addition, they are excluded from investing in promising investment opportunities due to regulatory factors such as capital controls or structural financial problems such as high cross border payment costs.

Venezuela and Zimbabwe have seen their economies decimated by hyperinflation this year, with current annual inflation rates as high as 10 000%+ and 500%+ respectively. And if you want to get your money out of an emerging market, the average cost of a cross border payment can be well above 10% of the remitted amount, severely limiting the global investment opportunities in those markets.

Severe capital controls in emerging markets also limit the investment options available to local investors. Capital controls are principally used by governments to limit capital outflows and manage foreign exchange rates. China is perhaps the best known example of restrictive capital controls where citizens, who are only allowed to transfer $50 000 out of the country each year, have been denied sending money overseas for obscure reasons such as being too old. Recently, controls have become tighter and limit any purchase of foreign property or insurance. This leaves investors highly exposed to the performance of the local economy and little chance of diversifying their wealth.

With the limited investment options in emerging markets, coupled with the effects of high inflation, remittance costs, and restrictive capital controls, it is no surprise that many investors turn to digital assets as investment alternatives. South Africa, Nigeria and Ghana have some of the highest global crypto-asset ownership rates at 10.7%, 7.8% and 7.3% respectively. The desire to earn a return and protect their capital has exposed the emerging market investors to unnecessary degrees of risk.

The net result of these three dimensions is that an entire category of investors are systematically left out of financial opportunities. Among other deleterious impacts, this exacerbates a growing inequality by quite literally allowing the rich to get richer while denying others the opportunity to benefit.

A new investment platform for a new global investor

We at Invictus Capital, however, believe that these investors (from both developed and emerging markets) should not be excluded from investing in these opportunities due to geographical or wealth impediments.

We’ve built a suite of tokenized fund offerings that would ordinarily only have been available to high net worth or institutional investors. Our funds represent an expansive range of alternative investment asset classes including private credit, venture capital, digital currencies and energy infrastructure. Typically these categories preclude the majority of investors from participating due to factors such as high minimums and multi-year lock-ups. We seek to change this paradigm with our investment platform.

We’ve developed our platform using a blockchain-based layer blended with a simple intuitive UI. This combination offers our community unparalleled benefits:

• Instant onboarding. Our platform caters to a global investor audience and the only simple requirement is an internet connection and browser. Investor onboarding is completely automated and can be completed within a few minutes.
• 24/7 liquidity. Subscription and redemption from traditional funds can take days if not weeks. Using smart contracts, we offer investors the ability to redeem their investments within hours rather than days.
• No investment minimums. We have facilitated hundreds of micro investments of less than $10 dollar into investment products that have typically only been available to the extremely wealthy.
• Transparency. Traditional asset managers rely on central custodians to manage asset holdings. Blockchain allows individuals to hold the keys to their own investments and adds an additional layer of public transparency that enables investors to track the number of available tokens and their holders.

This type of functionality is crucial to achieving inclusive, democratic access to financial services. These benefits are echoed in the responses we received in a recent survey we conducted with our community.

Key findings are:

• 74% of respondents say they do not trust banks or local investment institutions.
• 80% of investors would prefer to make investments outside of their local currency and;
• 50% invested in our funds to protect savings from local inflation. Investors in territories suffering from hyper-inflation rely on investments that are not denominated in local currency so as to preserve capital value.

Our platform provides a powerful opportunity to disrupt the traditional asset management sector by offering access to global investment opportunities at extremely low costs. According to a Deloitte study, blockchain tech can reduce fund administration fees by up to 80%.

We are uniquely positioned to take advantage of this transition, having developed our blockchain-based platform and launched 5 tokenized funds to date. Our community of 15 000 retail investors from 150+ countries have cumulatively invested over $40m across multiple funds, helping us guide the way to more financially inclusive world. We hope to expand on this vision by offering more innovative products across multiple asset classes.

A glimpse of the future is available today — with Invictus Capital you can build wealth from anywhere in the world with just a smartphone and an internet connection, and with that we hope to be one step closer to bridging the immense gap in global financial equality.

To find out more visit the Invictus Capital website or our social channels: Telegram and Discord.

Kind regards,
Nick & the Invictus Capital team

Democratization of Financial Opportunity was originally published in DataDrivenInvestor on Medium, where people are continuing the conversation by highlighting and responding to this story.

There is a distinct narrative shift happening in how the cryptocurrency and blockchain space looks at emerging markets. Up until recently, emerging markets have been lumped into the category of beneficiaries of outside technology and pointed to as a prospective user base, in the process being used to justify speculation or, in some cases, argue for regulatory approval.

The reality is that emerging markets represent more than pseudo-charitable beneficiaries of external technology. Emerging markets represent some of the world’s most exciting financial opportunities, which, thanks to tokenization, are poised to be more accessible than ever before.

What’s more, emerging market participants are not monolithic. Many of them are likewise looking for access to the world’s best financial opportunities, to which they have previously been denied access in large part due to the antiquated structures of the financial world.

A Quick Guide to Investment Algorithms | Data Driven Investor

In short, the narrative is shifting to recognize this group as part of a new class of global investor, not just a beneficiary for remittances or an unbanked waiting to be banked.

The Previous Narrative Of Emerging Markets And Blockchains

Over the last several years, the notion of emerging markets as they relate to cryptocurrencies and blockchains have fallen into several narrative tropes.

The first of these tropes is the idea of “blockchains, not cryptocurrencies.” In this view, what makes the movement interesting is not cryptocurrencies, per se, but the world of applications for the distributed ledger technology that underpins it.

This perspective has been common established institutions of economic development like the IMF and World Bank. The “blockchain not crypto” perspective has also been the standard refrain from enterprise working groups like IBM who were happy to spin up new divisions to explore blockchain business opportunities — both in the emerging markets and beyond.

While those who have been in the bitcoin or cryptocurrency space can often be cynical about the “blockchain not crypto” narrative, the interest in the potential applications of DLT in emerging markets makes sense.

Developing economies are often hamstrung by logistical process, under-developed legal and economic infrastructure, and opaque processes entirely controlled by centralized administrators.

Blockchains promise something quite the opposite, painting a vision of a new economic infrastructure that replaces centralized control with decentralized, peer-to-peer models and opacity with structural transparency.

What’s more, there was an easy narrative analogy for the potential to build something totally beyond the old financial establishment. If the telecommunications infrastructure around the world could leapfrog the landline era, why couldn’t the new banking infrastructure do the same? In fact, given how robust the existing mobile payments and mobile money infrastructure was in many places, wouldn’t these users be quicker to adopt new technologies than even some who were already plugged in to the credit and debit card infrastructure of the developed world?

Yet if the leapfrog analogy was there, many of the applications these institutions looked into were not money-focused but on other aspects of society. Some of these focused on simple core infrastructure of civil society, such as cost reduction in government bureaucracy.

In a 2017 piece for the Harvard Business Review entitled “How Blockchain Could Help Emerging Markets Leap Ahead,” Vinay Gupta and Rob Knight wrote about Dubai’s plan to move more than 100 million documents annually to a blockchain in order to spur innovation and experience major cost savings.

Other initiatives focused on tamping down on corruption in areas that has historically seen significant problems — such as property rights and land registry. A Knowledge@Wharton piece profiled both an Indian national think tank project to implement blockchain projects including land titling, supply chain records and health care with the Andhra Pradesh state, while also telling of a ConsenSys pilot project managing land rights information in Chandigarh city.

Yet still, the money-centric applications of blockchains never really left the emerging market conversation. During the heady ICO days of tokenize the world, another narrative around emerging markets and crypto emerged which had to do with cross-border transactions like remittances.

It doesn’t take one being a blockchain advocate to come to the conclusion that the current system of remittances is in desperate need of an overhaul. According to the World Bank, 2018 saw the highest ever transmission of remittances to low and middle income countries, coming in at $529 billion, up nearly 10% from the year before.

The fees for this sort of economic transfer can often be exorbitant and hit the world’s most vulnerable. Authorities use the figure of the cost to send $200 as a benchmark. The average combination of fees eats up $14 — or 7% of that.

That’s why numerous crypto projects set out to change that, using a tokenized approach that promised to dramatically lower fees for moving money across borders.

The challenge of those types of tokenized approaches is that they require a network effect large enough for tokens to have the liquidity such a use case demands. What’s more, even if one were to use tokens with significant liquidity, the inherent volatility of the crypto markets creates major opportunities for slippage and lost value between when the value is transferred and received. Perhaps it makes sense then that it would be a particular stablecoin that took this narrative to the next level.

When David Marcus sat down to testify before Congress in June about Libra, the new global digital currency project he was leading for Facebook, it was clear that he had one major narrative to push: banking the un- and under-banked.

The world’s financial system, Marcus repeated over and over, was simply failing to serve a huge portion of the world. This group either didn’t have access to key financial services at all, or dramatically overpaid if they did. A digital currency like Libra could make a fundamental difference.

Unlike small crypto projects, Libra — with its consortium of members and billions of out-of-the-gate potential users — would have the liquidity to make the network work. And unlike volatile cryptos like bitcoin, Libra would be pegged to a basket of cryptocurrencies and held stable, making it a much better tool for use cases like remittances.

Libra’s emergence onto the scene did a few things for the emerging markets narrative within the blockchain and crypto context.

First, the narrative of banking the unbanked reinforced the idea that emerging markets were primarily a use case for and the beneficiaries of blockchain technology being built elsewhere, rather than another financial stakeholder. Particularly in the hands of Facebook, the narrative wasn’t dissimilar from the type of thing you’d hear from a global economic development organization or charity.

Second, Libra functioned a bit like a starting gun for governments around the world in both developed and emerging markets to think about building their own digital currencies.

China’s response in particular has been aggressive, with the country accelerating both their R&D and their PR efforts around a forthcoming digital yuan. Other countries have responded as well. In Europe, countries like France and Europe have started exploring their own digital currencies. Looking around the world, the last few years have seen a huge array of development and even more is now anticipated in the wake of Libra and China’s digital yuan.

In some ways, this has validated the notion of the potential impact of cryptocurrencies in emerging markets (and on national economies in general).

At the same time, we believe that the true potential of emerging markets is yet to be unlocked, and that it may not in fact be obvious (if important) solutions for issues like remittances, but a fundamentally new conception of emerging markets that tokenization enables.

What tokenization can really do in emerging markets

As is clear from the above, most of the blockchain and cryptocurrency space has thus far looked at the technology’s implications for solving economic and social development problems. We believe the narrative is shifting now in two ways that treat emerging markets not as beneficiaries of global do-goodism but as full market participants — both in terms of how existing global investors participate in emerging market opportunities and how a new class of global investors are invited to participate in the world’s best financial products.

Smarter Exposure To Emerging Market Opportunities

Today’s developed market investors face a set of challenges. Since the 2008 crisis, interest rates have been artificially low, with one impact being an inability to capture yield in the savings or bond markets. The result of this is that capital has flooded away from public markets with limited yields towards private markets looking for ever more exotic opportunities for yield. By definition, private markets have higher barriers to entry and are more complicated to navigate. To read more about this dynamic, see our recent essay “The Democratization Of Finance.” The net result of all of this is that many investors are beginning to look to alternative spaces, including emerging markets.

Gone are the days when sophisticated investors look to emerging markets as too small to be interesting. Indeed, as the global economy continues to interlink, many of the world’s most interesting financial opportunities are to be found in developing economies that have the potential to leapfrog entire infrastructure and technology paradigms.

Take, for example, the opportunity around solar energy. Solar is one of the fastest growing energy sectors, predicted to overtake all other forms aside from gas by 2040. Emerging markets are expected to account for 90% of all energy demand growth by 2035, and importantly, already represent 63% of new investments in wind and solar (more, for example, than the United States).

To provide international investors exposure to this market, Invictus has recently launched the Emerging Market Solar (EMS) fund. The fund builds on infrastructure provided by Sun Exchange, a peer-to-peer market enabling individuals to buy and lease solar panels to schools and small businesses in Africa, using the bitcoin blockchain as payment distribution infrastructure. The EMS fund intends to optimize returns by adding an additional layer of vetting while leveraging scale investment incentives.

We reference this fund not to pump ourselves up, but because we believe that it reflects shifts that we believe will not only make today’s investors more comfortable with new categories of alternative investments like solar, but shifts that investors will simply come to expect across the investment products they use.

Simply put, investors want to be more nimble and able to gain exposure to new categories without the same restrictive minimums; with ongoing liquidity rather than burdensome lockup periods; with transparency around fund holdings; with easy on boarding. This is precisely what blockchain-based fund management enables.

New Opportunities for a New Category of Global Investor

The developed market investor isn’t the only type of investor facing challenges as they look for new opportunities. Many people in emerging markets represent a new category of global investor. Historically, however, this group has also faced a number of profiles that ultimately come down to an accident of their geography.

The first of these problems has to do with inflation. In many parts of the world, inflation is a defining force that robs people of their wealth in ways nearly unimaginable in developed nations.

Inflation in itself is not the only problem, as government responses to inflation often create even more challenges for investors looking to diversify their holdings and get their wealth out of the country. Throughout this year, Argentina has continued to ratchet up capital controls, for example, trying desperately to keep holdings in the peso while Argentine’s simply trying to make for a better life are attempting to diversify.

Even those who have enough wealth after inflation and mechanisms to get around capital controls don’t necessarily have good places to put their money. One need look no farther than the percentage of people in key emerging markets with crypto holdings to understand that there is a demand for global investment opportunities.

According to a 2019 Statista Global Consumer Survey, the 5 countries with the highest percentage of cryptocurrencies are Turkey, Brazil, Columbia, Argentina, and South Africa. In a Globalwebindex survey from 2018, 13 of the 16 countries that had more than the worldwide average of cryptocurrency users came from emerging markets.

To us, these numbers reflect not only an interest in cryptocurrencies, but an interest in gaining access to investment opportunities that extend beyond the physically proximate.

In the same way that tokenized funds simplify emerging markets access for existing global investors, we believe that the benefits of tokenized, blockchain-based fund management — including the elimination of investment minimums and 24/7 liquidity — can give this category of investor access to the world’s best financial products which previously they would have been fundamentally blocked out from.

One example of this is Invictus’ Margin Lending Fund or IML. The IML fund is a dollar-based fund that 1) protects wealth (since it is US dollar based) and 2) encourages savings by providing investors predictable returns of 8%+. This product is available to a global investor audience and helps investors earn great returns in a stable, well recognised global currency.

We have only just begun to see what blockchain-based financial technologies can do for emerging markets. We believe that while the idea of cryptocurrencies as ways to solve issues like remittances and blockchain applications for government and civil society may still have legs, there is a narrative shift happening as we begin to understand both the financial opportunity inherent in emerging markets as well as the dignity and sovereignty of investors from those markets.

A New Narrative For Emerging Markets & Blockchain Enabled Finance was originally published in DataDrivenInvestor on Medium, where people are continuing the conversation by highlighting and responding to this story.

For the modern investor, the abundance of choice can be overwhelming. The scale of investment options and new asset classes has coincided with a similar expansion in fund offerings to provide convenient entry into these investments. Exchange-Traded Funds (ETFs) in particular, have dramatically grown in popularity in the past 20 years.

“The 21st Century began with fewer than $100 billion in Exchange-Traded Fund assets and now counts $4.7 trillion and an ever-expanding number of products.” — BlackRock, May 2018

But what are investment funds? And why would an investor choose a fund over a single asset investment?

Investment funds are vehicles used to pool capital from multiple investors and used to collectively purchase investments. These types of vehicles provide considerable benefits over investing in individual assets.

1. Diversification

It is well documented that diversification lowers investment risk. On a risk-adjusted basis, single assets do not match the performance of a well-diversified portfolio.

Most funds will invest across a wide variety of assets in order to mitigate the downside risk of holding single assets.

It is human nature to back winners. This means that investors are more likely to invest in assets that are already performing well without considering that these assets may be close to their peak. Funds can provide investors with natural, automatic diversification by holding groups of assets independent of individual performance.

The Rise of Data-Driven Investing | Data Driven Investor

The benefit, from a practical perspective, is that funds invest in dozens and in some cases hundreds of assets which would be difficult for investors to individually acquire and potentially rebalance. In a fund structure, you can access all these investments through a single convenient instrument.

2. Economies of scale

Consolidating investments gives a fund purchasing power. This means that funds can take advantage of their size to lower transaction costs and benefit from volume rebates on trades.

Firms that broker securities will often charge the same fixed commission for the trade of a single asset or multiple assets. This means that a fund can significantly lower the costs of trading by moving larger trades than retail investors.

Funds also rebalance fairly frequently (e.g. weekly, monthly, quarterly) which would result in significant trading costs for individual investors attempting to replicate the fund’s asset allocation — not to mention that it would be extremely time-consuming, essentially a full-time job!

3. Professional management

Many people lack the skills, knowledge or time to make investments. By employing a dedicated manager, investors in a fund receive the benefit of the skills and risk management oversight that a professional fund management team brings to the table.

While fund managers cannot guarantee better returns, the research and dedicated time they provide can certainly improve the due diligence and the asset selection process.

4. Liquidity

Liquidity is essentially the time it takes and the cost of converting an investment back into cash. This is an extremely important consideration from a financial planning perspective since limited liquidity may mean realizing an investment at a discount or not at all.

High volatility typically impairs liquidity. This is because it is harder for a trader to exit a position at their desired price since spreads widen during times of volatility. Funds, however, can improve liquidity for investors simply through diversification as a basket of assets is less susceptible to broad market swings. Most funds provide this liquidity through systematic subscriptions or redemptions and in some cases via secondary market trading.

5. Convenience

Purchasing a wide variety of investments can be a cumbersome and costly process. Funds provide a mechanism to own a broad basket of investments without having to acquire the underlying assets individually. The rebalancing and portfolio composition is managed by a professional team on the investor’s behalf.

Other benefits of funds can include low investment minimums which mean that retail investors can invest small, frequent amounts instead of having to wait to accumulate funds to purchase the entirety of some of these assets on their own.

“Sweeping developments within the investment management industry are putting ETFs on course to gather more assets over the next five years than in the previous 25 years combined.” — BlackRock, May 2018

It is clear that there are a number of benefits to using funds as investment vehicles. The fund industry continues to grow in leaps and bounds as investors better understand the advantages of using these vehicles to better manage their investment portfolio.

Published by Invictus Capital a leading innovator in the asset management space, offering investors the benefits of using investment funds coupled with the significant efficiency gains derived from using blockchain rails.

Top 5 Advantages of Investment Funds was originally published in DataDrivenInvestor on Medium, where people are continuing the conversation by highlighting and responding to this story.

“Solar looks poised to become one of the major investment themes of the next 10 to 20 years. “ — EY (2018)

On the back of the recent launch of our Emerging Markets Solar Fund (EMS), we want to outline some of the top reasons to consider including solar in an investment portfolio.

Solar has become one of the most cost-competitive and fastest-growing energies in the world. The industry is developing so rapidly that solar power installations in the last decade have exceeded even the most aggressive projections.

Far removed from the days when solar was viewed primarily as a niche for the environmentally conscious, top investors (such as Warren Buffet) are betting big on the sector given the strong growth forecasts and reliable returns.

In this article, we outline 5 reasons why solar power makes a great investment.

1. A stable, reliable return linked to inflation

Solar is a lower-risk investment that is 100% asset-backed and offers investors predictable, long-term, inflation-linked returns contracted through power purchase agreements (PPAs). PPAs are a financial agreement entered into between a solar developer and a customer whereby the customer purchases the energy output of the panels over their economic life (generally 20 years).

In addition to long term, stable returns, solar investments also provide direct exposure to the substantial potential upside from increasing power prices, which are forecast to increase both in developed (8–12% in North America and the EU) and developing markets (20% in India and China) by 2030.

“Recent research suggests that solar investments have the potential to generate average annual expected returns on investment of between 6.6% and 10.1% over the next 35 years.” EY 2018

2. Global growing demand for energy

Solar energy is fast becoming a primary source of global power. The International Energy Agency (IEA) predicts that installed solar will overtake other forms of energy, apart from gas, by 2040.

Even in the short term, the IEA forecasts that renewable energy will grow at 50% per annum over the next 5 years, of which 60% is attributed to solar. To put this in perspective, this increase in energy generation is equivalent to the total current power capacity of the United States.

3. Technology is improving, driving lower prices & improving returns

Solar power is already cheaper than most renewable energy sources and in many countries has already achieved grid parity (meaning the levelized cost of producing power is equal to or less than the price of power from the grid). China, one of the world’s largest consumers of energy, achieved solar grid parity earlier this year according to research in Nature magazine.

A key driver in achieving solar grid parity is declining capital costs. Since 2010, the cost of solar has declined 75%; the greatest of all alternative energy sources. The IEA forecasts that the costs will decline by a further 15% to 35% in the next 5 years.

4. Environmental & social impact

Solar power has a significant impact on reducing both carbon emissions and pollution. Fossil fuels, such as coal, produce a large amount of carbon dioxide and methane that contribute to climate change and lower air quality.

Extreme air pollution is a growing problem, notably in emerging markets such as India. According to UN estimates, deaths from air pollution in India are expected to rise from 1.1 million in 2015 to 1.7 million in 2030 if nothing is done to combat the current crisis.

Solar power also has a social impact through job creation. According to a recent National Solar Jobs Census, the solar industry creates jobs substantially faster than the overall economy in the United States.

5. Portfolio diversification

Energy infrastructure investments (such as solar) are attractive to investors due to the diversification benefits they bring to an investment portfolio.

Typically energy investments exhibit low correlation to traditional assets such as stocks and bonds and provide a hedge against inflation since the revenue generated from the underlying contracts is linked to inflation.

While solar investments currently comprise less than 1% of total allocations in institutional investor portfolios, this is expected to change significantly in the next 20 years whereby over $10 trillion in new investments will pour into the sector.

Invictus Capital has launched a solar fund, the Emerging Markets Solar Fund (EMS), which offers long-term returns whilst contributing to global clean energy production through the financing of solar energy infrastructure projects, which are insured and repaid through a fixed-term lease.

The Fund provides investors with an opportunity to raise living standards in emerging markets, provide access to modern energy services, reduce global reliance on fossil fuels and offset their carbon emissions.

To find out more about the fund, visit our EMS fund page.

If you wish to invest, click here to enter your details and one of our business development representatives will be in contact to guide you through the process.

Kind regards,
Nick & the Invictus Team

Emerging Markets Solar Fund — Launch Announcement

We are proud to announce the release of the litepaper for our new open-ended fund.

The Emerging Markets Solar Fund offers long-term returns whilst contributing to global clean energy production through the financing of solar energy infrastructure projects, which are insured and repaid through a fixed-term lease.

Global demand for energy is growing, driven by population and economic growth. Emerging markets are expected to account for 90% of energy demand growth by 2035. The rising demand creates challenges such as higher greenhouse gas emissions, which contribute to global warming. At the same time, there is an unacceptably large number of people in these economies without access to electricity. These challenges create opportunities.

Solar energy is perfectly positioned in emerging markets to solve these challenges. A lack of legacy energy infrastructure, particularly in Africa, provides a unique opportunity for renewable energy such as solar to leapfrog developed nations in renewable energy adoption. This is already happening as emerging markets account for 63% of new investments in wind and solar, overtaking both Germany and the United States. This growth is driven both in terms of need and increasing cost efficiencies.

Introducing the Emerging Market Solar Fund

The Emerging Markets Solar (“EMS”) Fund has teamed up with a launch partner, Sun Exchange, to initiate the Fund. Sun Exchange is a US-domiciled company operating out of Cape Town, South Africa and is the world’s first global, peer-to-peer, micro-leasing online marketplace for solar-cells. Sun Exchange has a strong presence in Sub-Saharan Africa, an in particular, in South Africa

The Fund provides investors with an opportunity to raise living standards in emerging markets, provide access to modern energy services, reduce global reliance on fossil fuels and offset their carbon emissions.

The primary objective of EMS is to generate stable and consistent returns for investors over the long term. The projects within the Fund are analogous to annuity products from a cash flow perspective. At the outset, there will be a capital expenditure (outflow) that will be utilized to purchase and install the solar infrastructure. The Fund will then receive monthly payments (inflows) in return. This income will escalate by a predetermined percentage each year for the next 20–25 years, bringing in an annuity income stream to the Fund, which will be reinvested in new projects. The monthly lease payments to the Fund will be facilitated via Bitcoin and converted to USD or equivalent stablecoins.

Since launching four years ago, Sun Exchange have deployed over a dozen projects with historic IRRs of between 10% to 12% (denominated in local currency). The EMS Fund intends to optimize these returns by vetting the list of prospective projects, generating returns on unallocated capital through the Invictus money market fund IML and minimizing the amount of time before lease payments begin by investing during the final phase of a crowdsale. Sun Exchange further offers tiered, volume-based incentives to members who enjoy purchase discounts and premium lease rates. By participating in the fund, investors in the Invictus EMS Fund will benefit from the highest volume tier incentives and thus earn a higher IRR than they would by investing individually.

The EMS fund levies no performance or management fees.

The first $250,000 invested into the fund during the SAFT period will receive a 3% incentive bonus up to the first $25,000 per investor. This incentive is funded by Invictus Capital and is not dilutive of other current or future investors.

The Fund will officially open for subscriptions today, in parallel with the release of the litepaper. Subscriptions will initially be accommodated via Simple Agreements for Future Tokens (“SAFT agreements”), after which automated dealing into the Fund will be facilitated via the Invictus Investor Portal. Initial token issuance and automated dealing will commence during Q1 2020.

The minimum entry for the pre-token phase via SAFT is $2 500 and this restriction will be lifted once tokens are issued, after which no minimum investment will apply. Payments will be accepted in BTC, ETH, TUSD or USDT.

For further information, please find a link to download the litepaper here.

Apply to participate in the fund before the token launch here.

Kind regards,
Nick and the Invictus Capital team