South Korean internet giant Kakao’s blockchain arm Ground X is now storing and verifying unlisted investments as nonfungible tokens (NFTs) on its public blockchain.
Unlisted investments are shares of startups that are offered to investors for purchase prior to a public offering. Since these securities are not listed on formal markets, they are traded over the counter (OTC).
South Korea’s OTC trading market is growing: the country’s OTC exchange K-OTC ended 2020 with a record-high market capitalization of over 1 trillion won ($1.1 billion) since its launch in 2014. Foreign investors can also buy and trade OTC shares in South Korea. In 2018, South Korea amended its tax laws to exempt foreign investors from capital gains taxes on transfers of both listed and unlisted stocks.
Ground X has partnered with local equity management and trading platforms like QuotaBook and Angel League that offer investors the opportunity to buy shares of promising unlisted startups or record and store ownership information.
According to an emailed press release, information about unlisted shares, including face value, number of shares and the shareholder’s name will be recorded on Klaytn, the blockchain developed by Ground X.
The record of the share is then minted as an NFT and offered to shareholders as a digital card through the digital wallet Klip, which is embedded in South Korea’s popular messaging app KakaoTalk. KakaoTalk serves around 50 million users worldwide, and Klip is available to all KakaoTalk users.
Unlisted shares are typically available to investors through internal connections at the firm offering them, but they can also be bought via dealers that make the securities available for sale. According to Inés Chun, communications manager at Ground X, Angel League is open to anybody interested in investing in unlisted companies that are offered on the platform which are managed by experienced investors.
On the contrary, investors cannot buy unlisted shares on QuotaBook, Chun said.
“Many startups in their pre-IPO stage here in Korea use QuotaBook, and the shareholders of such startups can mint their unlisted investments information as NFT cards. Or let’s say, you have unlisted shares of some startup and that company now chooses to use QuotaBook, then you can also have your NFT,” Chun told CoinDesk via an email.
In South Korea, people who buy unlisted shares can send or sell those shares to somebody else, but not through either QuotaBook or Angel League, Chun said. If shareholders want to sell a share bought on Angel League, they have to do so on the platform, he added.
“For Angel League, specifically, you can buy shares that Angel League only offers. But let’s say you’re interested in some shares that Angel League doesn’t offer, then maybe you’d have to look for some other platform,” Chun said.
According to GrowthFunders, a U.K.-based platform that offers investors the chance to buy into unlisted companies, since these shares are not listed on an open market, they are highly illiquid. This means they cannot be easily sold until a company goes public, after which the shares may be diluted.
In March 2019, Ground X raised $90 million through a private coin offering, followed shortly by the launch of the Klaytn blockchain in June of the same year. In late 2019, Binance joined Klaytn’s 24-company governance council. In November 2020, MakerDAO also joined the council.
The launch of the Klip wallet, which was scheduled for late 2019, was delayed. Klip and its token Klay, are now operational, and support the Kakao blockchain ecosystem accessible to all KakaoTalk users.