Digital asset manager Wave Financial is tokenizing a whole year's production of Kentucky bourbon so global investors can gain exposure to the growing U.S. whiskey market.
Wave announced Wednesday it had finalized an agreement with the Danville, Kentucky-based Wilderness Trail Distillery to tokenize between 10,000 and 20,000 barrels of bourbon whiskey, worth up to $20 million, that will be made publicly available through a specialized digital asset fund.
Known as the Wave Kentucky Whiskey 2020 Digital Fund, investors will be able to purchase asset-backed tokens linked to an inventory of whiskey barreled this year. Stored and maintained by the Wilderness Trail Distillery, Wave estimates the fund will represent as many as four million bottles of bourbon.
The U.S. whiskey market has experienced something of a renaissance, becoming the most exported U.S. spirit in 2018. Over the past 10 years, domestic production capacity has repeatedly expanded year on year in order to meet demand.
By tokenizing it, Wave says investors can gain exposure to bourbon's value appreciation and can also share some of the proceeds from when the whiskey is sold wholesale to merchants, three years after the whiskey is first distilled and tokens issued to investors.
Wave's president and manager of the new whiskey fund, Benjamin Tsai, said in an announcement the fund gave investors a "rare opportunity to access this unique asset class traditionally unavailable due to high upfront costs and purchase minimums, low liquidity, scarcity of production capacity, and technical know-how."
Unlike many other consumable goods, which perish and lose value over time, whiskey does the opposite: the older the whiskey, the more valuable it becomes.
This is due to whiskey's natural aging process. Once distilled, the spirit is stored in a barrel so ingredients continue to mix and the water either evaporates or soaks into the wooden barrel, improving the whiskey's flavor and making it more valuable.
Specifically with the bourbon Wave selected, markup can increase from $1,000 per barrel when first distilled to as much as $4,000 five years down the line.
Tsai told CoinDesk that a fund administrator and auditor will calculate the value of the barrels on a quarterly basis, which will be presented a regular inventory report and will provide investors will a benchmark price for their tokens.
Users will be able to trade their tokens at whatever price they wish. Wave is also in discussions with some security token exchanges to develop an official secondary market infrastructure to facilitate better trading in the whiskey-backed tokens.
The new tokens have created something of a buzz among blockchain protocols, some representatives have approached Wave asking whether they would consider launching on their platform. "We're keeping our eyes open on the protocols we could use for this," Tsai said, adding that the company was using Vertalo, a Tezos-partnered developer house, to create the token.
A Wave spokesperson added that the token was available for accredited investors from all around the world, with a first close at the end of March, and a second at the end of June. A final close is expected to take place in September. Token issuance will take place a year after the sale, to comply with the SEC's one-year lockup requirement.
UPDATE (Mar. 18, 09:05 UTC): This article has been updated with additional information about the token sale and issuance.
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