How ADDX uses technology to help smaller investors participate in private capital and what their recent rebrand means
Singapore-based digital securities platform ADDX has been busy in the time since it graduated from the Monetary Authority of Singapore’s Fintech Regulatory Sandbox last year. Founded in 2017 as iSTOX, the company acts as a platform for the issuance, custody, and secondary trading of digital securities.
In January this year, the company closed its Series A round at $50 million, from backers including JIC Venture Growth Investments, the Development Bank of Japan (DBJ), Juroku Bank, and Mobile Internet Capital, who all joined as new investors. Existing backers Singapore Exchange, Tokai Tokyo Financial Holdings, and Hanwha Asset Management also took part in the round.
The company, which rebranded from iSTOX to ADDX last month, expects to drive at least 20 issuance deals this year in its new avatar, twice as many as last year. The deals include new product lines such as private equity, structured products, and those with some exposure to cryptocurrencies. ADDX also rolled out a mobile app as part of the rebranding and expects to grow its product, tech, and growth teams this year.
As Chief Commercial Officer at ADDX, Oi Yee Choo tells Jumpstart, innovation to this degree is about balance. “The tech is nuanced, the regulatory piece is nuanced, and it’s really about how do you package all of this together to make this work,” Choo says.
How ADDX works
ADDX allows investors to invest directly in digital token offerings, such as stocks, bonds, funds, or other blockchain-backed financial securities.
The platform is open to both individual and corporate accredited investors. Individual investors must have an annual income of SG$300,000, net financial assets to the tune of SG$1 million, or net total assets of SG$ 2 million. Corporate investors must have at least SG$10 million in net assets, or be fully owned by accredited investors themselves.
Post the sandbox, ADDX spent 2020 doubling down on building its B2C business, Choo says. This meant building trust in the company’s solution and promoting the company’s technological leadership in the space of digital securities.
The rebranding was a means to reflect this transition, Choo adds. The company has shifted the focus from simply being a security tokens trading platform to stylizing itself as a wealth creation solution to help investors diversify their portfolio by investing in what were previously inaccessible avenues.
“On the product side, when we started the simplest security to build was bonds or credit. But we found the funds piece actually [achieve] critical mass. So we’ve launched a number of hedge funds, private equity funds, venture capital funds… high net worth investors don’t really have access to [these],” Choo notes. The company also offers private equity opportunities, such as its Unicorn Opportunity Fund for investing in pre-IPO tech unicorns in the US, Europe, and Asia.
What’s in it for issuers
For investors, the incentive to participate in funds offered by ADDX is in fractionalization. ADDX offers fractionalized ownership of securities, allowing investors to purchase smaller ticket sizes in offerings that are typically only accessible by well-endowed investment institutions. These investments would otherwise be cut off for the bracket of high net worth individuals that may not be rich enough to run their own family offices.
Aggregating smaller investors in this way helps fund managers and issuing companies make use of latent capital that would otherwise be very difficult to tap into. This is simply because of the inefficiencies in dealing with smaller investment sizes in substantial investor lots.
“Our technology does all the work,” Choo explains, noting that the company’s platform is able to address KYC requirements, regulatory stipulations, and other administrative work that comes with onboarding new investors.
What ADDX’s tech also does for issuers and investors is it allows the trading process to benefit from distributed ledger technology. Blockchain brings in more transparency and immutability to information flow across the entire process. Along with smart contracts, the model effectively replaces the physical intermediary that would previously process these transactions.
This isn’t to say that the model is particularly unique. Distributed ledger and smart contracts are finding increasing relevance as tech stack essentials with blockchain are gathering steam worldwide. The challenge is how well a company can do to execute — that’s the competitive tech advantage that companies such as ADDX are going after, in order to capture a larger piece of the market.
Crypto may also be in the books, although the platform is currently suited for traditional securities, Choo notes. The company is in the early stages of working towards its approach to crypto.
“Our business model is to expand the universe of funds that will work with us. At the same time because we offer access to investors, I think there are opportunities for us to value add to both ends,” Choo says.
The single direction towards achieving that is by driving simplicity for investors and issuers, Choo notes. From blockchain and smart contracts to the rebranding and the mobile app, that’s just what ADDX is striving for.
Header image courtesy of ADDX