Securitize: Why Security Tokens are the Future

Jamie H. Finn is the Co-Founder and President of Securitize.io — a compliance platform and protocol for issuing and managing Security Tokens on the blockchain. We are pleased having Jamie as our interview guest!

What is Securitize’s vision?

Our vision is to digitize every type of security, from Funds and Equity to Debt and Bonds, as well as many other financial products.

What is the role of Securitize within the Security Token Ecosystem? What makes you special?

Our role today is mainly seen as a primary issuance platform, however we also have the only operational secondary market compliance solution. We are also unique in that we are a pure play tech platform with a SaaS business model, which is simple to explain to issuers. We do not have a utility token economy, and as such our focus is entirely on solving for the issuers’ needs, and making our product as complete as possible for issuers and investors alike.

Why should anybody invest in tokenized securities?

One of the biggest confusions around tokenized securities is that they are somehow worse than normal securities — this is completely wrong. Tokenized securities are superior to traditional ones since they have a level of transparency and liquidity that does not exist in the private placement market today. The one thing that remains true, though, regardless of the investment method, is that some deals are good and some are bad; the fact they are tokenized does not negatively skew them. In fact, tokenized securities might offer an easier exit in the event of a bad deal, which wouldn’t be possible with traditional securities.

What are the biggest challenges for the Security Token Ecosystem to democratize access to capital markets for companies and retail investors alike?

The singular biggest challenge is time. The market is nascent, and, contrary to popular belief, ICO investors are in fact not the type who have been buying digital securities thus far. What we have seen is that it’s mainly professional investors who are experienced in the private placement market and don’t look for “when moon” type returns. This is a long game.

What is the biggest misconception people have about Security Tokens?

That they will legalize ICOs.

Can you name one thing you believe in regard to Security Tokens that most other experts within the industry would disagree with?

That STOs will someday make it easy to raise money, like the early days of ICOs. The reality is that most ICOs were just recycling money from one deal to another, and then the bubble burst and a TON of retail “investors” were left holding the bag…but it was empty.

Please describe a benefit Security Tokens are generating by walking us through a process before and after Tokenization/Blockchain came along? Help us to understand the increase of efficiency and cost-saving opportunities Security Tokens can provide?

In today’s world, if you want to sell your private placement after the 1-year lockup, assuming that the fund / company put in the correct language to enable you to sell it, then you need to:

1. Get the company’s permission to sell it
2. Get an agreement drafted by a lawyer to transfer the security with the company’s approval
3. Find a buyer
4. Negotiate the terms of the sale with the buyer
5. Have another lawyer on the buyer’s side draft a contract to buy the securities
6. Have the sell-side lawyer review it
7. Have the company whose stock you are selling review the agreement and approve it
8. Get the company to sign the agreement
9. Sign the agreement
10. Get the buyer to sign the agreement
11. Sign the agreement
12. Wait for your money to be transferred via wire or check.

This process can take months, even when executed by the best companies in the space that specialize in it, like Sharespost.

In tomorrow’s world, you will:

1. Go to OpenFinance or Sharespost
2. Transfer tokens that represent assets from wallet to marketplace
3. Sell and settle instantly (via DS Protocol)

Can you explain to us how the transfer of Security Tokens works, both technically and legally? Is my ownership of an asset “just” stored on the blockchain or is there an “offline copy” keeping track on my transactions (change of ownership)?

Technically, the ownership of tokens is determined by an electronic record — i.e. the association in the Ethereum blockchain between wallet addresses and the tokens they hold. Thanks to the Smart Contracts that implement the token functionality, only wallet owners can transfer tokens they own to other wallets, or authorize someone else to do it in their place, so it becomes an actual ownership control. This is much more than a simple register. Besides that, our Smart Contracts also implement regulatory restrictions, so that while the holder is the one who controls the asset, only compliant transfers are possible. There is additional information off-chain, because we must keep certain mandatory regulatory data on investor identity outside of a public blockchain, but the asset ownership, control, and transaction records occur fully inside the blockchain.

What are the 3 most promising projects doing a STO in 2019?

We don’t comment on projects. We love all of our customers.

What was the best learning you made in the last year?

It’s harder than it seems to deploy things in this market. We thought there would be 5 exchanges by the end of 2018 — we were wrong.

Who will be the biggest loser and winner once the Security Token evolution takes off?

Investors and Issuers — tokens provide liquidity and transparency in a trustless way for the first time ever. It’s really quite powerful. The biggest loser…scammers and hackers.

Can Security Tokens become a heater for the crypto winter, or are they rarely related?

No, these are different things entirely. We love our crypto friends, but we are not in that market at all — I’ve said it before and I’ll say it again. We use Ethereum as our platform, not as a way to generate revenue, and therefore low ETH prices are good as it makes it cheaper to operate our services — a plus for customers and investors alike. If ETH is to be a platform in the long term, people will have to accept this reality.

Thank you for the interview.

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Note: This interview was conducted on 30.01.2019