The 5 Most Important Points From Our Security Token Conference Call
On April 24th, we held a conference call titled “Are Security Tokens Poised To Scale in 2018?” with three of our favorite thought leaders in the space:
Kendrick Nguyen — CEO at Republic, an investment platform connecting tech startups and blockchain projects with retail investors around the world.
Emma Channing — General Counsel at Satis Group, the premier ICO advisory firm
Juan Hernandez — CEO at OpenFinance Networks, an end-to-end trading platform for Tokenized Securities.
You can listen to the hour long call by clicking the link below:
If you want to save 55 minutes, and get the highlights, below are our five big takeaways from the call
1. Defining The Six Different Elements Within A Token Sales Ecosystem
Kendrick started the call by outlining six key elements of a token that determine the relevant securities law:
Kendrick did a great job of walking through the different “shades” of securities, which is the first thing on the replay above. Among other interesting points Kendrick made on the slide above, real estate “non- security asset.
2. Tokenization Will Enable Tremendous Innovation In Securities
Adding rules at the smart contract level will enable tremendous innovation as security dynamics can occur at an atomic level.
First level innovation resulting from tokenizing could be as simple as being able to sell the dividend stream from a token, or the voting rights.
Juan mentioned the ability to invest in the college education of a student as an interesting example of new type of security you could see,
With smart contracts, the only limit to security innovation is our imagination
3. Bridging The Gap Between Offchain and Onchain Capital Markets Is The Major Challenge To Scaling Security Tokens Today
Most notably, everyone self custodies their security tokens. The “ownership” of tokens needs to transition to meet institutional requirements.
For example, if you want to put tokens in to a self directed IRA account to take advantage of the tax benefits, there is no way to do that today as custody has not been addressed. OpeFinance highlighted (in the graph below) how they’re bridging the off-chain — on-chain worlds:
It was noted how firms like Kingdon Trust that have been providing custodial services for alternative assets are expanding to in to Crypto (Kingdon is starting with just Bitcoin and Ethereum for the moment).
Coinbase and other Trust Companies are also working to address the issue. Juan estimated that these issues will see a jump forward in the next 12–18 months.
4. The First S-1 Filings For A Token Sale Are In Process, Bringing Advantages & Dis-Advantages
While Kendrick addressed well known regulated alternatives for giving access to Non-Accredited investors:
Emma Channing discussed a Satis client, Intercoin, that working on an S-1, the document traditionally associate with an IPO. This would allow anyone to invest in the token, enable the token to trade immediately, and there will be no caps on the amount that Intercoin can raise.
The challenge with an filing an S-1 is it’s a lengthy and involved process, taking 9–12 months, on average. An S-1 is about 300 pages long and requires audited financials. An S-1 also requires an SEC comment process. The alternative regulated offerings can be completed in half the time it takes to do an S-1 filing.
5. Security Tokens Are Poised To Scale In 2018
The consensus of the speakers was that we are at an inflection point in the growth of Security Tokens for multiple reasons:
Kendrick stated that “Fractionalization, and liquidity are the two main factors that are going to drive global interest in Crypto. “
Other factors driving Security Token growth include the emergence of multiple Security Token exchanges and the belief that institutional investors are poised to get in to Crypto.
Kendrick thinks that Accelerators and VC funds (e.g. 22X and Andra Capital) will be among the first asset classes to scale their Security Token activity.
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