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Baillie Gifford eyes tokenized securities on Bitcoin, invests in Blockstream $210m funding

bitcoin chess

Today Blockstream, the Bitcoin development house, announced a $210 million Series B funding round at a $3.2 billion valuation. Top ten UK investment manager Baillie Gifford is co-leading the round with iFinex, the operator of Bitfinex, the crypto exchange that’s banned in New York.

Baillie Gifford is interested in the use of the Bitcoin network for tokenized securities. “I am convinced of the potential of tokenized securities on the Liquid Network to be transformative for the architecture of capital markets,” said Allen Farrington of Baillie Gifford.

“Bitcoin-based development and Blockstream’s asset issuance and management platforms can contribute to meaningfully decentralizing financial infrastructure, democratizing control over investment products, and firmly embedding openness and programmability in capital markets.”

Blockstream designed the Liquid Network as a sidechain of Bitcoin for efficient low cost settlement of transactions for high volume traders and institutions. Unlike the main Bitcoin network, Liquid enables confidential transactions, identity verification and faster – but not instant – settlement. Earlier this year, Daiwa Securities issued tokenized debt on the network in a proof of concept.

One of the members of the Liquid Network is Komainu, the digital asset custodian backed by Nomura. Another is Bitfinex.

An ESG minefield

Bitfinex, which co-led the investment, has a somewhat checkered past, to put it mildly. This is particularly relevant if the goal is for institutions to use the Liquid Network.

Many were disappointed when the New York Attorney General settled its case against Bitfinex and related party Tether – the operator of the world’s largest stablecoin which is owned by the same group of individuals. 

The two companies paid an $18.5 million fine and are banned from operating in the State of New York. The Attorney General claimed that Bitfinex hid an $850 million client funds shortfall by borrowing money from Tether and that Tether for periods did not have full backing of its stablecoin, despite statements to the contrary. On November 1 2018, Tether had the appropriate amount of funds at Deltec Bank & Trust. But a day after the funds ‘verification’, it moved hundreds of millions of dollars from Tether’s bank accounts to Bitfinex accounts. 

While crypto investors might be happy to continue using Tether, the big question is whether mainstream institutions should avoid having any association whatsoever with these two companies. And hence by extension, the Liquid Network.

Back to Blockstream, apart from scaling the Liquid Network, the new funds will be used to extend its mining activities, and it acquired Spondoolies, another miner.

Meanwhile, in the last year or so, Baillie Gifford has had tremendous success in terms of investment returns and growth in assets under management. But increasingly, investors are concerned about ESG. This investment doesn’t just raise the environment angle with Bitcoin mining but also the governance issue with its association with Bitfinex.