Letter from the CEO: First to Launch Security Token Trading

2018 has been an incredibly busy year for the team at OpenFinance, and we’re excited to share that on November 28th, 2018, we marked another major milestone on our roadmap — the start of security token trading on OpenFinance Network (OFN), the first US regulated security token trading platform to market.

The start of security token trading is a big step forward for the industry, and paves the way for the next application of blockchain technology in financial markets. We are honored to play our part in the development of the industry. From the very beginning, we have always seen ourselves as infrastructure builders, and we have strived to set best practices and create industry standards that others can follow.

Beyond just security token trading, OpenFinance Network has set out to fundamentally change how issuers and investors alike work with alternative assets. Our goal is to democratize finance and disrupt financial markets as we know them today.

I’d like to take a moment to thank our team, who has been working tirelessly all year to make this dream a reality. There have been hurdles and bumps along the way that we have had to overcome, but we managed to pull it together. It’s not always easy being first and having to figure out things that have never been done before.

I’d also like to thank our industry partners who have been working with us on development and testing over these past months. It has been a collaborative effort across the board to advance the industry forward to this momentous occasion.

In light of this important milestone, I thought I’d take a moment to discuss the importance of blockchain technology and financial exchanges. Alongside technologies like artificial intelligence and industrial-grade Internet of Things protocols, distributed ledgers are perhaps some of the most highly-anticipated tools of our time for building secure and resilient networks and overcoming some of the inherent flaws in traditionally centralized architectures. Our aim is to apply these capabilities to the securities market.

The JOBS Act, signed into law in April 2012, eased some US securities regulations in order to encourage investment in small businesses. Title III, also known as the Crowdfund Act, built upon the JOBS Act by creating a path to crowdfunding to issue securities. The latest development in the securities landscape has been the emergence of the security token, a class of token different from both cryptocurrencies and utility tokens in that they represent a stake in an asset–not unlike a stock in a business. Securities, in their current iteration, are hugely important in financing or growing companies, whilst allowing investors to trade them at their leisure. The move towards security tokens isn’t so much about paving the way for new and uncharted territories, but about rethinking the existing infrastructure to streamline the market.

The system for trading securities, as it stands, leaves much to be desired. The lack of liquidity — that is, how easy it is to buy or sell an asset without its price being affected — is a major hindrance to the viability of many of these financial instruments.

OpenFinance addresses the lack of liquidity by providing a compliant and efficient trading platform for security tokens.

With blockchain technology, the securities market can be revitalized for the benefit of all stakeholders. It allows for unprecedented levels of transparency, as well as near-instant clearing and settlement. Moreover, it means that various institutions no longer need to store their own centralized records, which must later be reconciled with those of other institutions, as all parties can simply access a distributed ledger that accurately keeps track of transactions (without this being controlled by a single entity).

Security tokens today are a proof-of-concept of larger securities transaction lifecycle mechanism: can we reliably (and compliantly) issue, trade and manage securities on-chain, and if so, what does that mean for the broader securities market? We firmly believe in the former, and expect a huge disruption from the latter.

To that end, we are proud to roll out our contribution to the industry to enable the rise of on-chain capital markets. Our alternative asset trading platform is enabled for blockchain-based securities and integrated with the Ethereum Mainnet for on-chain settlement of security token trading.

As an established presence in the traditional alternative assets space, we will leverage the OpenFinance platform to further bring traditional assets onto distributed ledger technology, serving as a bridging mechanism between the off-chain and on-chain capital markets.

OpenFinance Network will continue to work on additional mechanisms beyond STO trading, including:

• Smart Security Standard (S3) — Standardization of the smart security contract layers and setting best practices via an industry consortium
• Investor Passport (IP) — Standardization of the AML/KYC and accreditation process for securities transactions
• Distributed Custody (DC) — A purely decentralized mechanism for securely (and compliantly) providing custodial services of tokenized assets across a network of qualified entities

We will continue to roll out new products and services across the OpenFinance Network banner, driving industry standardization initiatives across issuance, compliance and custody for the betterment of the new tokenized on-chain capital markets.

We invite you to join and contribute to our broader efforts to transform financial markets as we know them today.

Welcome to the OpenFinance Network.

As always, be sure to keep up with our developments on social media:

Website: openfinance.io

Telegram: t.me/openfinancenetwork

Twitter: twitter.com/OpenFinanceIO

Medium: medium.com/@openfinance

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Juan M. Hernandez is the Founder and CEO of OpenFinance Network, the trading platform for security tokens and other alternative assets. Juan is a serial entrepreneur, technologist, and polymath experienced in financial markets, exchanges, and blockchain technology. He holds a CS degree from Northwestern University and an MBA from the Kellogg Graduate School of Management.

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