Tokenizing Securities and SPiCE VC

Casey Sparks
Nov 27, 2018 · 12 min read

Casey Sparks and Tim Alvarenga, November 27, 2018

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Note: This article initially omitted INX from the list of portfolio companies. This was an oversight and the article has been updated to reflect SPiCE VC’s portfolio at the initial publication date. We apologize for any confusion or concern caused by this mistake.

Security Tokens Have Started Trading

First, it’s important to note the significance of the timing behind this event. Initial coin offerings raised over US$5 billion in 2017 as the frenzy to purchase new tokens reached a peak. Unfortunately, the majority of these offerings did not comply with securities legislation and several are now facing SEC action as a result. Airfox and Paragon learned this the hard way, as the SEC made examples of these high-profile ICOs last week; the reality is most of the utility tokens sold during the ICO craze were offered illegally. The questionable legality of 2017's utility token ICOs and the bear market that followed have caused many such tokens to lose over 90 percent of their value. While investors are still excited about the far-reaching social and technological implications of blockchain technology, participation in the 2017 ICO craze has left a bad taste in their mouths.

We at Pink Sky believe that security tokens will make the management of securities more efficient as they allow for fractional ownership of an asset, may provide greater access to liquidity, and can be encoded with ownership rights and privileges between the shareholder and issuer—possibly removing brokerage charges and commission fees. We are excited by the potential that tokenized securities have to reduce the slow, complicated, bureaucratic, and inefficient processes associated with the trade of traditional securities. Ultimately, this shift could make investing in securities increasingly accessible to the public and non-accredited investors.

That is why the cryptocurrency market has been anxiously anticipating this moment since the first STOs in late 2017. At the time, complying with the SEC’s guidelines was a daunting task. However, innovation has moved faster than anticipated and security tokens are a source of light in an otherwise dark bear market. The first steps towards an investible and liquid security token market have been taken and it’s important to discuss the significance of such an event as its future impact may be tantamount to the long-term success of the token offering. To do so, we’ve organized some of our thoughts on the SPiCE token as a case study to help the industry become better informed on security tokens and how they work

Some Context on the Security Token Market

While relatively few security tokens have launched to date, Pink Sky expects a large market to develop quickly as more projects develop compliant technology to deploy and trade them. Many cryptocurrency puritans may be reluctant to accept the tokenization of financial securities, but reduced volatility risk, reduced counterparty risk, and increased liquidity present an attractive market for both cryptocurrency investors and traditional investors alike.

Many enterprise companies are currently exploring practical blockchain applications for their industries. These companies will likely adapt distributed ledger technology to financial securities once compliant and efficient protocols become sufficiently developed. Today, we want to examine a project that we believe is ahead of the curve in these respects, SPiCE VC.

What is SPiCE VC?

The SPiCE token offering was made available inside the United States to up to 99 accredited investors in reliance on Regulation D and outside of the United States to non-U.S. persons in reliance on Regulations S.


Tal Elyashiv, Managing Partner. CIO at Bank of America; CIO at Capital One; CTO & Head of New Businesses at 888; COO at BondDesk; Founder and CEO (Navion, Exactor, Yallo); Angel investor and board member (Humavox, 365Scores, Zoomd, Exactor, Jobookit, Mobilus, etc.)

Ami Ben David, Managing Partner. Founder and head of Product and Marketing at, Ki-Bi Mobile [IPO], AladdinSoft (product sold to NASDAQ: MGIC); Founder and CEO of WorkGroup; VP Investment, Magma Venture Fund; SVP Europe and Asia at Oberon media.

Carlos Domingo, Managing Partner. CEO of Telefonica R&D, New Business and Innovation Telefonica Digital, Extensis, Lizardtech and Celartem; Founder (Wayra, Sling Ventures, Dubai Angel Investors), venture partner at THCAP; Angel investor (Startupxplorer, Novicap, Blinkfire, Chicfy, Ulabox, etc.).


Brendan Eich. Inventor of JavaScript, co-founder of Mozilla, a pioneer of the open source movement, and founder and CEO of Brave.

Eyal Herzog. Co-founder and the architect of Bancor.

Loic Le Meur. Co-founder of Le-web and leading investor.

Nimrod Lehavi. Board Member of the Israeli Bitcoin Association.

Portfolio Companies

This range of investment categories hedges against the highs and lows of the cryptocurrency market by addressing a variety of needs within the industry. By investing in companies that provide infrastructures, products, and protocols, SPiCE VC provides its investors with a liquid investment that has the potential to effectively service the coming security token market.

Securitize. The leading issuance and lifetime management company for security tokens, catering to large projects and providing a suite of services from the protocol level to the lifetime management of the tokens issued through the platform.

SAGA. A stable currency supported by institutional and banking partners.

Slice. A platform for the tokenization of real estate assets.

GraphPath. GraphPath is developing GraphOS, which aims to make A.I. knowledge graphs accessible through the Ethereum blockchain.

RNDR. A token-based rendering network which enables distributed GPU rendering via OctaneRender. RNDR is currently SPiCE VC’s only utility token investment.

RealOneX. An online exchange platform for real estate security tokens, offering liquid investment opportunities to both retail and institutional investors.

INX. A cryptocurrency and security token trading platform, built according to SEC, FINRA, and EU regulations.

Token Overview

Payments are distributed to investors through a buyback-and-burn token model. SPiCE VC claims that its token will become a freely exchangeable asset and ensure liquidity for its investors by being the first security token listed on OpenFinance; SPiCE tokens have been tradable on AirSwap since November, 2018, and will be available on tZERO in the near future according to managing partner and cofounder, Tal Elyashiv.

The maximum token supply could reach as high as 130 million if SPiCE’s hard cap of US$100 million is met. While Etherscan lists two SPiCE tokens — one with a circulating supply of 7,856,125.64 and another with 7,811,327 — neither of these figures is correct. In actuality, 12 million tokens were allocated in the first closing. Two separate SPiCE tokens are listed on Etherscan as a result of SPiCE upgrading its token to support Securitize’s Digital Securities (DS) Protocol, and the outdated tokens will be burned in the near future. Only 7,856,125.64 tokens appear in circulation as some investors chose not to receive their tokens until they have an account with a custodian; SPiCE VC claims they are keeping those tokens in a treasury and not deploying them to the blockchain until investors are ready.

The SPiCE token offering was made available inside the United States to up to 99 accredited investors in compliance with Regulation D and outside of the United States to non-U.S. persons in reliance on Regulations S. (Amin Ben-David, “We Have Lift-Off. SPiCE VC publishes its first quarterly NAV report and portfolio.Medium, 2018.)

Realization Events

The means for determining the price per token in a realization buyback (other than the final realization buyback) is the average market price of the SPiCE token the day before the buyback notice is published across the three largest exchanges trading the SPiCE token by volume and through the NAV per SPiCE token. The repurchase price for final realization buyback is determined by the NAV per SPiCE token.

Portion of SPiCE Tokens to be Repurchased = Net Realization Proceeds / (Repurchase Price / Issued SPiCE Tokens)

Business Model

SPiCE VC states that general partners “will not be taking any carry from exits until 100 [percent] of the original money raised in the STO has been returned to token holders, after which they will be taking 15 [percent] of the net proceedings [sic].” Once the realized buybacks have returned the amount raised in the offering to SPiCE token holders, SPiCE VC will distribute 85 percent of all proceeds from realization events to token holders and 15 percent to the SPiCE manager and general partner (GP). It is important to note that, while the general partners’ compensation for the second private closing will be a 15 percent carry, they were also be granted an additional 7.5 percent in tokens.

The SPiCE fund manager and GP will be paid by SPiCE VC and SPiCE Investments LP respectively an amount equal to 2.5 percent of the total proceeds of the offering per annum. The GP’s fees will be paid quarterly in advance.

Bancor Token Reserve

Bancor’s algorithm adjusts the price of each conversion and allows the fund to offer additional liquidity to its investors. This solution will be available even in the US — where trading securities is limited due to investment lockups — because investors will receive liquidity directly from the fund via the reserve.

Digital Securities Protocol

The DS Protocol addresses compliance through three elements: tokens, decentralized applications, and services. These elements operate in conjunction to ensure that the sale, custody, and transfer of tokenized securities issued by Securitize (DS tokens) remain compliant with U.S. securities law. Investors undergo Know-Your-Customer (KYC) and Anti-money Laundering (AML) checks, and their information is stored in an on-chain registry which contains — among other data points — a list of accredited investors and their associated wallet addresses. This registry is referenced each time an exchange of security tokens is attempted. Functionally, this enforces legally mandated KYC, AML, and custody compliance, and prevents the non-compliant exchange of tokenized securities.

The Future

Important Disclaimer:

Information is Opinion and Provided “AS IS.” The information provided herein is the opinion of Pink Sky Group. Certain information has been provided to Pink Sky Group by SPiCE VC and other third parties. Pink Sky Group has relied on information provided to it by such parties that it has not independently verified. Pink Sky Group cannot guarantee the accuracy of any such information and does not represent that such information is accurate or complete.
All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. Pink Sky Group is under no obligation to revise or update any statements herein for any reason or to notify you of any such change, revision or update.

Information does not Constitute Investment, Tax, Estate Planning or other Professional Advice. Information on this page should not be construed as investment, tax, estate planning or other professional advice. Pink Sky Group is not acting as an investment or other professional adviser or otherwise making any recommendation as to any investor’s decision to invest in any security, industry, strategy or other financial instrument. Users should consult their own professional advisers regarding their own specific investment, legal or tax situation before making any investment, engaging in any tax or estate planning strategy or otherwise acting on any information provided herein.

Forward Looking Statements. This post contains forward looking statements based on Pink Sky Group’s expectations and beliefs. Those statements are sometimes indicated by words such as “expects,” “believes,” “will” and similar expressions. Any statements that refer to expectations, beliefs or characterizations of future events or circumstances, including any underlying assumptions, are forward looking statements. Such statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Actual events or circumstances could differ materially and adversely from those expressed or implied in any forward looking statements as a result of various factors.

Disclosure: Pink Sky Capital is an investor in Securitize, one of the portfolio companies of SPiCE VC.

Pink Sky Group

Pink Sky Group is a blockchain-focused technology firm.

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