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Four Innovations to Transform Finance

Dan Doney, CEO of Securrency


 

Dan Doney

CEO of Securrency, Inc

Dan Doney is the CEO of Securrency, Inc, a financial services company that combines world class security, advantages of distributed ledgers, and a global compliance framework to produce a new kind of financial instrument: a highly-liquid, dividend-yielding, investment-grade securities tokens with the stability of bonds, transferability of Bitcoin, and exchangeability of dollars. The Securrency platform provides end-to-end financial services by offering decentralized investment banking technologies. Prior to founding Securrency, Dan was a leader in US government IT innovation for 15 years. Dan has been an innovator in a wide variety of fields (process automation, enterprise architecture and software development, financial modeling, organization theory, robotics, and signal processing) drawing on his background in social systems, control theory, software engineering, and artificial intelligence. He is an avid software developer, architect, and engineer and remains deeply engaged at the forefront of technology. Dan graduated from the U.S. Naval Academy in 1992 with a B.S. in Control Systems Engineering and an additional major in Economics, and received an M.S. in Nuclear Engineering from MIT in 1994. Dan and his wife Jodi have 5 lovely children and live near Annapolis, Maryland.

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Securrency is a financial services technology infrastructure and products company that delivers decentralized investment banking services built around core universal identity, custody, and interoperability technology. This lightweight, yet powerful, infrastructure supports Securrency’s complete suite of compliance and financial services products to enable the creation, maintenance, transfer, and secondary trading of tokenized securities by issuers, broker-dealers, alternative trading system (ATS) operators, and exchange operators.

Transcript


 

Daniel Doney:

Well, how about that? Here we are at the launch of the Security Token Industry and I must say it’s particularly thrilling to be in a room where we mention the word “blockchain” and lawyers are not afraid to raise their hands when called upon and regulators know that they’re welcome and they don’t have to cover up their name tags. This is truly a new day for the blockchain industry.

Here’s what’s so significant about it. We’re actually bringing decentralizing investment banking service as an industry to the parts of the world that have never had access to low cost finance and sophisticated financial services. This is really the power of the blockchain, our ability to reach anywhere. The kinds of services that are typically limited to cities like this and other places like London are now available anywhere and today’s the day for that. This is the kind of thing that can change people’s lives.

So to know where we’re going, it’s helpful to actually look back quickly to where we’ve been and hey, the secret’s out. Blockchain is a pretty cool thing. It’s got a lot of power to it. It’s not the only thing but it certainly can change paradigms. So of course you’ve seen earlier, the first wave. Bitcoin was prominent as we saw a transformation of the payment space. I know it was prominent because when I ride in a cab the cabbie how I’m like Bitcoin and how we’re different than Bitcoin. He knows about it, my mother knows about it and asks me the same question over and over. So it is in fact, a pervasive technology at this point.

Next up we showed through initial coin offerings that we could actually transform the way that capital is formed. There was a new model for capital formation that could affect folks and could reach innovative new models that weren’t previously reachable. But there was a problem with both of these models. Frankly, a lack of identity in the services, or anonymity. It was a point of emphasis in many cases. This is simply incompatible with compliance models and when you don’t embrace compliance models you end up doing very good things but also being a safe harbor for traffickers and evaders and launderers, etcetera. And frankly, societies cannot tolerate that behavior so they must come down on this.

But what if you could get all of these benefits that we’ve seen and uncovered and extend them even further by instead of avoiding compliance, actually incorporating it and extending it and making it an even greater, easier, more accessible solution? So that’s in fact what we’ve done and what you see we and our industry partners doing, is really unlocking what has been known and what has been documented to be trillions of dollars-worth of liquidity assets. Through this industry, we expect to really unlock the liquidity premium in this and make sophisticated services available to folks everywhere. So that’s what’s coming.

Now what we should do, what we want to show you is what’s changed. Where did this come from? How did we actually get to this different place. And I’m going to go through four innovations that actually transform the way that financial services are done. It’s worth actually mentioning, when was the last major regulatory advance in ledger technologies? Well, it was in the 1500s and there was an advancement many of you know and have heard of the Medici family as they popularized dual entry accounting models, ledger technology, which ultimately unlocked liquidity. And historians and economists agree it was this liquidity, the ability to do trade finance and other financial models that actually led to a rebirth of civilization: the Renaissance.

So we’re at a second level of the same. And I’m going to talk about some boring things, that is advancement in ledger technologies, but don’t be fooled. This is a significant event in the world.

Okay, the first of those major advances, and this is great, buckle in, because this is going to go quick as we walk through each of these. Identity is the centerpiece. Again, anonymity and compliance are incompatible and with the global reach of identity solutions you must have ... Of blockchain, you must have identity solutions that also have the same reach. There’s a number of great technologies here, there’s actually a proliferation of technologies that do identity proofing, that is the matching of a digital identity to a bellybutton and then from the bellybutton to the sets of attributes that define that individual. We can confidentially walk into major banks and we have. We have a more comprehensive KYC and AML framework than most of them do and we’re able to actually reach globally with these technologies. So this allows us to enforce compliance that wasn’t previously possible.

The second major innovation, and this is really the big deal. If you get any one thing from this and Fabian, thank you for your early advances in this because it was really your work that made all of this possible ... This is a picture of a smart contract ... You don’t need to memorize this ... But in fact, what this unlocks here in the end, we have compliance aware tokens. We’re able to build sophisticated regulatory guidance into the behavior of the financial instrument itself. This is something completely revolutionary. When a share actually knows what it’s allowed to do and what it’s not allowed to do and where it can never participate in a transaction where the participants are not known and qualified.

This is revolutionary. It changes everything. This eliminates the need for floors of compliance individuals who make up the banks and who everybody loves but they slow down transactions and they’re quite expensive to operate. We’re not saying that compliance is gone and that judgment calls are gone, but the ability to automate objective decision making in the space is just revolutionary.

Okay, this third piece is actually a bit more subtle. This is taking machine readable policy and regulations. The bottom line in the securities industry is that you have a patchwork of global securities laws in many different jurisdictions. The ability to take those laws and map them into a machine readable framework, this is our rules engine that actually gives you a very easy model by which you design in the rules, drive them into the behavior of the tokens. Regulators can look in and see that in fact, objectively, you follow the rules so that your tokens do what they need to do. It’s a very simple framework.

We happen to also have operations in the Middle East. In Abu Dhabi, regulators are actually producing their regulations in a machine readable form which we can instantaneously map the way their financial services system works based on that innovation. It’s really revolutionary to go straight from law to driving your financial services ecosystem. By the way, these can adapt to changing regulations. We expect that regulations will in fact, change. This is a very significant advance.

And then finally, there’s automated regulatory reporting. So, so much of the work after a security get issued into the market, goes into CRS and FATCA reporting. We love this because we’re able to automate this is an 8949, then reporting to the IRS, to other government institutions. Think about it this way: when you have a token, a share, where you know everyone who’s held it at every point in its life. Fraud detection, regulatory reporting, market manipulation detection becomes a very straightforward and easy thing to do and we have to the tools to do this. It’s a revolutionary change in financial services.

Okay now, the term liquidity was mentioned. David put this quite well in his speech, ‘What is New’. This is our job as an industry, to solve the liquidity problem and it’s not a small problem.

Here’s the good news. The market that we’re displacing, that we are disrupting, that is, the private securities market, actually suffers from almost a complete lack of liquidity. And share interest that you’ve met, there’s oftentimes long period lock-in times, it’s very difficult to transfer your share interest. In fact, it’s so inconvenient, folks frequently don’t do it unless some major life event actually drives that change. That will be disrupted.

But there’s a couple core jobs that we need to do together as an industry to unlock liquidity. This has been our focus for three years, is to tackle this particular problem. I think you’ll see exciting capabilities in this space and we want to work with all the practitioners here regarding these capabilities.

The first one is, you heard it mentioned, Aubrey said this in his speech, there are going to be 60 by his count, different security token marketplaces or exchanges, ATS, MTF depending on how you define it around the world. That 60 is actually probably the tip of the iceberg. My guess for that 60 is there’s probably 600 more. We have an interoperability framework that actually layers across fragmented ... What doesn’t help liquidity is fragmentation. So, 600 different exchanges for security tokens is not going to help.

We’ll layer over this with a common framework which allows you to have global pooled liquidity and this is a very substantial thing. This allows buyers and sellers anywhere to come together in a common framework. It requires innovations in compliance and identity, as we mentioned.

The second one is, look, most of liquidity exists in legacy financial systems. You need a bridge that ties these two things together. That means you have to behave by the rules of the legacy financial system and we do. And when you do that and you can tie these things together, we have connections with AFEX, Lenin Stock Exchange, others, who are in the legacy, for example Fiat World, or Exchange World.

These linkages allow the value to flow in and out. And if you want to create a new ecosystem what you don’t want is an island where when you join, you leave the world as it was before and you go onto the island and you can’t come back. That’s where so much of the blockchain space is right now. In fact, if you want people to come on your island, then you better have a bridge where they can get back. And in fact, we have those services.

Okay. So here’s why this is all so significant. You’ve all seen The Big Short. You know the global financial crisis of 2008. That crisis, guess what? Has not been fixed. So it’s over, we got lucky. But in fact, we took, to fix the problem, what was too big to fail and we turned it into two bigger to fail. The problem is not better. And in fact, there’s a huge demand for liquidity, many folks expect that there may be a liquidity crisis in the next year or two. The old financial system cannot fix this. But in fact, by bringing the ... So, what was the centerpiece? You saw The Big Short, what happened, what went wrong there. It was a lack of transparency in these major mortgage backed securities framework.

Well, guess what the principle benefit of the blockchain is? A transparent immutable ledger. We have the solution to that problem. We have efficient pricing in liquidity. The problems that followed and rippled through the ecosystem and again, very nearly caused our financial system to come down. It is quite possible that without a replacement as the folks in this room are bringing to the market, the next problem is worse. And what was a crisis becomes a collapse. So let’s fix this problem in the next year or two before we get to that point. And in fact, how do we fix this? It’s efficient and objective pricing, eliminate too big to fail so lowering the barrier to entry to capital formation, bring transparency to these kinds of portfolios, allow for again, liquid exchanges of these services. This is what the security token industry can do for you.

So, this is the security token industry launch. We’re not projecting to what will be. We’re talking about what is. So we and many other practitioners in this space, we’re not talking about what will do. We’re talking about what we are doing and what we can do. So we ask that you stop by and check out the kinds of things that we’re doing out there in the space. The kinds of technologies that are now available for use because we’re going to transform this world. We’re going to do a new Renaissance, one that’s not limited to a region in Europe, but actually is accessible globally. That’s what we’re after and so thanks for joining us here at this exciting event.