PrefLogic: The Tools to Tokenize Everything
Interview with Chris Corica — CEO of PrefLogic
1. Which problem is Preflogic trying to solve?
a. Restricted access to capital to fuel growth and innovation
b. Discounted value of real property assets based on illiquidity
2. Why should I tokenize my company, fund or real estate?
If there is a desire to raise capital to fuel growth or unlock liquidity, then the reasons to opt for tokenization are:
Reach: Direct to Investor reach into a global marketplace
Liquidity: Tokenization can provide stock market like liquidity to illiquid assets such as real estate, intellectual property, art, collectibles, anything of value that can produce cash flow
Speed to market: Time saved entertaining traditional paths
Cost Savings: Compared to traditional paths IE: VC cost (equity/control)), Fees, commissions
Transparency: Issuer can fully disclose on the blockchain
3. What is the biggest challenge tokenizing securities?
Regulation (SEC/others): PrefLogic bakes jurisdictional regulation into our Offering Smart Contracts: IE holding periods, geographic tradability, token holder notification, cap table management, etc. which assists the issuer by navigating him through the regulatory maze and automating what are cumbersome and required tasks.
4. How expensive and time consuming is it to do a STO?
PrefLogic Offering Smart Contracts enables the STO to be done at a fraction of the cost and in timely fashion considering the chosen path of the issuer IE: Reg D, CF, S, Reg A+ or S-1 registration. For Reg D, CF, S (exemptions to registration) the issuer can be to market within 30 days. Reg A+ and S-1 where the SEC must grant the registration statement effective prior to sale of the offering ((3–12 months depending on complexity and accounting challenges (audit))
5. Where do you see the biggest advantages and risks of Security Tokens?
Small cap formation power: The STO marries the power of the New World and the regulation and protection of the OLD. ICO market of 2017–8 proved the power of smart contract/Blockchain, direct to investor small cap formation.
Regulatory Compliance: PrefLogic bakes the regulation into the token to provide for a digitally wrapped investment class that in simple terms defines the evolution of worldwide capital formation and financial product packaging.
Quick, efficient, inexpensive, compliant, direct to investor path to capital on a global basis.
While the Security Token provides all the advantages above, as a container of sorts, it cannot improve the quality of that which it holds unless the Issuer bakes that in and he can.
Potential Advantages: I’m of the opinion that the battleground, as companies and assets compete for capital, will be how much corporate governance and voting control, etc. will be automated by smart contract and what decisions will be left to consensus among stakeholders-token holders. Speaking literally, crucial and simple decisions could be put to consensus not only to the delight of holders but to the benefit of the Board of Directors, as it decreases liability for them. The PrefLogic development team is now coding a dashboard ability for users to put to vote, all they desire, in a secure environment.
6. For which kind of security/asset class tokenization brings the most benefits, for which the least?
In my opinion and undeniably: Real Estate and traditionally illiquid assets that produce cash flow will benefit most. For instance: commercial Real Estate is typically illiquid, interested parties are typically familiar or associated with the geographic location and the high costs associated with purchase/sales are all negatives overcome via Security Token structure. Imagine the Waldorf Astoria offered individual investors, worldwide, participation in Security Token form, where anyone could invest as little a $100 and participate in potential appreciation, cash flow and liquidity and if he wanted, sell it 5 minutes after purchase. That’s a huge market previously locked out. Experts have forecasted that global participation and liquidity factors could positively impact asset values up to 50%.
For example: Waldorf Astoria, value $2B+, 75% ownership offered, 25% retained
Issuer: $1.5B in freed up capital to reinvest elsewhere with 50% potential upside ($250M) based on 25% Security Token interest
Investor: $750M in potential upside in asset backed venture plus cash flow The potential impact is staggering considering there is $250T of Real Estate in the global market.
7. When will we see the first exchanges enabling trading of Security Tokens?
If I’m not mistaken, Security Tokens can trade now in the secondary market on Alternative Trading Systems “ATS”. Only because, there are so few, has tradability not been a big news item. tZero, Templum, Open Finance, etc and several others are knocking on the door and expect to go live in the next year and as soon as Q4 2018.
Point to make: Like my Mom travels 20 minutes out of her way to take advantage of a great coupon or store sale, Investors ALWAYS find the deals that offer value and the exchange they trade on are of secondary concern, though establishing a NYSE and other smaller industry specific marketplaces will offer the world convenience and service.
8. What would you recommend to projects considering doing an STO?
While the regulatory and development process offer tremendous advantages and early issuers will gain a 1st mover advantage as there will most likely be more money and enthusiasm available, than there is product, just like the early days of utility token offerings. When the market gets competitive, issuers must be prepared to invest in marketing their offering. The best products will always attract capital at a lower cost than others. Even so and based on the offering quality and size, costs (equity and offering costs/commissions) should be far less than the current paths of finance offer.
9. What was the biggest learning you made during the last year?
I’ve gained absolute respect and appreciation for how our engineers break down real world challenges and code the solutions in repeatable and secure form. In addition, how accurate our early analysis of the Utility Token marketplace and its evolution to some form of regulated token now known as the Security Token, would be. The New World MARRYING the Old World regulation and sensibilities is exactly what will provide Security Tokens the same worldwide confidence the NYSE and US Capital Markets currently enjoy. Faster and less expensive to access a global market, direct to issuer. The next ten years will be the most exciting, controversial and liberating the capital markets have ever experienced, and we’re blessed to be part of it.
10. Where do you see the Security Token Ecosystem in 5 years?
Simply, a full on evolution of the global capital formation process. Amazon is an amazing company that has an idea to offer books for sale online and grew to the most powerful retailer in the world. Capital and opportunity being the cornerstone and common ground to every enterprise; Security Tokens, in their fully developed form, provide access to capital at its lowest price, on a global scale, empowering the individual investor with the advantages only institutions and VC’s currently enjoy. A few years ago, this was UNHEARD OF and unimaginable. It wouldn’t surprise me if the words “common stock” faded from use in the next five or ten years, its place taken by the Security Token.
11. Who is your favorite super or real-life hero?
Any individual or group, who while scared and a bit more intimidated, continue to believe in their pursuit and analysis, risk all and drive on in the face of uncertainty and near universal doubt. Whether they win, lose or simply participate, they are heroes and due respect from all.
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Note: This interview was conducted on 24.09.2018