Tokyo FinTech
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Tokyo FinTech

Tokenizing Kentucky Bourbon

Wave Financial and NEM Official (Editors) have announced the launch of the first tokenized Kentucky Bourbon found. Tokyo FinTech spoke with Benjamin Tsai, President & Managing Partner at Wave Financial, about how the idea came about.

With Wave Financial, we were looking at a number of different assets, and we have settled on tokenizing American whiskey. That is an odd choice, maybe. But as we were evaluating different opportunities, and speaking to corporate partners, we were also looking at Japanese race horses and solar panels, for example, all things that throw off cash flow. We have also talked about collectibles. Our CEO, David Siemer, knows someone who owns quite a good collection of Picassos — would they want to tokenize, a fraction of that? In the end, we decided on whiskey because it was something that was easiest for people to understand. And the return profile is extremely good.

When I first heard about it, I actually was a little bit surprised by the return profile. So we had a series of discusssions, we flew out to Kentucky, where I have been now three times in the past four months, to have in-person conversations with the distillers, the consultants, the advisors, the brokers, the lawyers, the Kentucky Distillers Association, and pretty much anybody who has been willing to talk to us. We were invited to a party at the governor’s mansion, and mingled with all the people in and out of the industry, all the financial institutions that support the industry, and so forth.

What we found on a very, very simple basis is that we can buy a barrel of American whiskey, freshly made, at day zero for less than $1,000, including storage costs, including taxes and insurance, and other ancilliaries. Plus, of course, our fees. Let us call it a round $1,000, to buy that barrel and hold it for five years. In five years, that barrel of whiskey is worth about $3,000 to $5,000. And that’s a conservative estimate. We have heard numbers that are higher, as long as it is a decent barrel of whiskey.

If you think about it, that is an extremely good return profile. You are talking about three to five times in five years. And the beauty of this is that it is very different from a venture capital investmentis in an important aspect. The VC would say “Oh, I make 10x, I make 100x.” Yes, they make 10x or 100x, maybe once or twice out of 10 companies they invest in. With the whiskey investment, the barrels are worth $3,000 to $5,000 in five years fairly predictably. That is something that I found very, very compelling.

Also, because the industry is relatively commoditized, we are also able to buy insurance at a reasonable price. These are not collectibles, there is a replacement value to it. If somebody was to drop it, or the storage facility burns down — unfortunately, this has happened before — you call the insurance company, you file a claim, and you get compensated for the loss. So that is also very compelling.

So our plan is to simply buy fresh American whiskey from a distiller that we are teaming up with, called Wilderness Trail. They are an up and coming distiller, and they are one of the top distillers in Kentucky. We are going to buy 10k to 20k barrels of whiskey from them, which is equivalent to 2 to 5 million bottles. We are going to put it in storage and we are going to hold on to it using our investors’ money. And then we are going to start selling it probably from year three, four onwards and maybe sell out the whole collection about year seven or eight.

We believe that around year five, we’re looking at an IRR of 20%. That are pretty stable returns based on our conservative estimate, with all the cost and everything thrown in. We could probably do better than that, again, I think that we have made pretty conservative assumptions. The market itself is relatively liquid, pun intended. There is a deep market for the barrels of whiskey, so after a certain time we could sell the barrel of whiskey back to Wilderness Trail, the original distiller, for example. Obviously, they know what is in the barrel, they would pretty comfortable with buying their own product back.

Also, we can sell it to other distillers that maybe had a shortage and need to complement their own production, or we could sell it to non-distilling producers (NDPs). There are a lot of NPDs that are bringing product to market with their label on them, their marketing, and their blending, etc., but they do not age whiskey themsleves. They just purchase the whiskey on the open market and blend it together to achieve the flavor they want. Lastly, a lot of European makers, and some of the Asian makers come through and buy barrels, bringing them back to their home country, typically in a tanker, and then they bottle it themselves, put their own label on it and sell it in their local market.

This segment was part of a longer conversation about the products Wave Financial as one of the first crypto asset managers is offering its clients. For the whole discussion, please refer to the Tokyo FinTech Podcast, on our home at Anchor, or the podcast platform of your choice, including Apple Podcasts.

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Norbert Gehrke

Norbert Gehrke

Passionate about strategy & innovation across Asia. At home in Japan. Connector of people & ideas.