Security Token Academy encourages you to read our
Security Token Insight: Expert Interview with Prysm Group’s Dr. Stephanie Hurder

Expert Interview


 
Dr. Stephanie Hurder, partner and founding economist at Prysm Group

Stephanie Hurder

Dr. Hurder is a Harvard-educated economist specializing in blockchain, human capital, market design, and the future of work. She is a frequent keynote speaker and panelist at industry and academic blockchain events; recent and upcoming appearances include the Federal Reserve, UC Berkeley, the University of Southern California, and the StartEngine Summit.

Dr. Hurder has held research positions at MIT, Microsoft Research, and Merrill Lynch, and appeared as a seminar speaker or guest lecturer at Harvard, MIT, Northwestern, the University of Michigan, and Washington University in St. Louis

Prior to co-founding Prysm Group, Dr. Hurder was a consultant at the Boston Consulting Group, where she was recognized as a firm-wide expert on organizational effectiveness and design and co-authored multiple publications on these topics.

Dr. Hurder is deeply committed to ensuring all individuals have access to quality labor market opportunities and devotes substantial volunteer time to education and workforce nonprofits. She holds an AB in Mathematics Phi Beta Kappa, an AM in Economics, and a Ph.D. in Economics from Harvard University.

LinkedIn    |    Twitter    |    Medium    |    Company

Transcript


 

Adam Chapnick:

Security Token industry is here and you can get involved. Coming up on this episode of Security Token Insight, the co-founder and president of Securitize talks about security token standards.

Amy Wan:

Plus details on our next security token meetup. That and much more is coming up on this episode of Security Token Insight.

Adam Chapnick:

Hey everybody I’m Adam Chapnick.

Amy Wan:

And I’m Amy Wan. Welcome to Security Token Insight brought to you by the Security Token Academy. The security token industry is here and will provide a key foundation for the evolving financial internet.

Adam Chapnick:

The Security Token Academy provides insights about this new era for security token enthusiasts, investors and issuers.

Amy Wan:

Coming up on today’s episode of Security Token Insight, in your security token (STO) investing news, Securitize receives funding from Coinbase. Find out why. We’ve got an expert interview with the co-founder and president of Securitize Jamie Finn. Plus learn about token economics from the Prysm Group’s Dr. Stephanie Hurder and we’ll let you know the date of our next security token meetup. That and more is straight ahead.

Adam Chapnick:

Now it’s time for your security token investing news. StartEngine is looking to raise 10 million dollars in its STO. The Reg D offering is open to accredited investors with a minimum investment of 10 thousand dollars. The company plans to launch a broker-dealer and alternative trading system called StartEngine Primary and a security token trading platform called StartEngine Secondary.

StartEngine is a Gold Corporate Member of the Security Token Academy. Security token platform Securitize is also making headlines this week. Their DS Protocol allows for security tokens to be traded in a compliant manner on global exchanges and marketplaces. Securitize just announced it’s raised more than 12 million dollars in a series A round. Participants in the round included Coinbase Ventures, the company behind Coinbase exchange. Other companies that backed around include Blockchain Capital and Ripples’s Xpring Fund.

And finally Securitize is poised for a global expansion. The company has partnered with Elevated Returns as it looks to expand security tokens in Thailand. The partnership will allow Elevated Returns to boost the real estate tokenization program in South East Asia through the Securitize platform. Securitize is as Gold Corporate Member of the Security Token Academy.

You can find more information about Securitize as well as about StartEngine on our website, securitytokenacademy.com. Just click on the directory.

Amy Wan:

Speaking of Securitize, I had the privilege of sitting down with the co-founder and president Jamie Finn at the StartEngine Summit in Santa Monica. Here are his thoughts on token standards and more, take a look.

There are a proliferation of security token standards out there. What is going on? What’s happening? Why are there so many?

Jamie Finn:

Why? I think it’s a great question. So I think we’ve seen over the past few weeks any number of different companies launching standards. And if you have a number of companies launching standards by nature those are not standards. And so we’re kind of looking at this thing backwards. Everyone’s obsessed with standardizing something that nobody knows how to do. And so in our world we’ve been learning is as we go and launching these things with actual marketplaces and exchanges it’s much harder than it appears. And everything you thought you thought of that was right, guess what? You forgot something.

Amy Wan:

Interesting. Are there any standards in particular that you think right now are getting a lot of traction?

Jamie Finn:

Yeah. ERC-20. Honestly we don’t need anything else. People have gotten obsessive.

Amy Wan:

Not ERC-1400?

Jamie Finn:

I don’t believe in 1400, 1450, 1442 14 whatever. None of them matter. All that stuff is noise because it’s being deployed by companies who haven’t actually issued any security tokens. So people are talking about standards, they’re not actually deploying. What we need at this space is to get actual tokens in investors’ hands.

Amy Wan:

What are you seeing now in terms of standards on other blockchains aside from Ethereum?

Jamie Finn:

Yeah, I mean we’ve been looking at a lot of other different blockchains. There are some of the interesting ones out there. We had great conversations with the NEO team, with Cardano, with Stellar and really kind of digging deep, and even EOS, digging deep to understand how we would deploy our protocol in those environments. And for the most part we found that actually most of what we built would actually work on these different blockchains.

There is some engineering effort but again at the end of the day we’re waiting for the full ecosystem to develop around it. So what Ethereum has, which is very powerful, is its ecosystem. They have wallets, they have exchanges, consumers are learning how to use it, investors are learning how to use it. Now you have to learn how to use an EOS wallet. I own a bunch of EOS but I don’t actually know how to use it.

Amy Wan:

Interesting.

Jamie Finn:

I should probably learn that.

Amy Wan:

Interesting. So given that there are so many competing blockchains, right? Do you think the future of security tokens is going to exist on public blockchains or private blockchains?

Jamie Finn:

I mean for me public security should be listed on a public blockchain. I’ve heard of some companies trying to create their own variance of it. Thus far those companies haven’t been tremendously successful with it. Remains to be seen if anybody has enough market power to do that. We at Securitize are not building our own private chain. We have no interest in that area. We feel that security should be public. All the information should be public and it should be traded on public blockchains.

Amy Wan:

How about for private companies?

Jamie Finn:

So private companies who opt to lease securities are going to do that on a public blockchain because they have public investors. They have investors all over the world. Why would you hide the transactions from them? It doesn’t make sense. The only thing I have seen a little bit of is out of Europe. Some data protections issues that have come up. For the most part, with what we do at least, everything is hashed and so none of it is actually visible. We hash identity on the blockchain as a component of what we do. And so that’s efficient around European Regulatory Law, which is the most strict in this environment. So for now I don’t think there’s anything really needed that has to be on like a secret private blockchain that nobody knows about.

Amy Wan:

Do you think the future of security token industry is going to be with a self-custodial flare or with these custodial entities?

Jamie Finn:

Well I think it’s a mix. It depends on the investors. At the end of the day an institutional investor needs a custodian to hold these securities. They can’t do that, right? Whereas a family office who’s relatively well versed in technology can hold their own securities if they feel comfortable doing it. It’s hard. The systems aren’t there. We’ve seen some new stuff from Ledger which looks super promising in that area for self-custody and for governance. Which is another piece people don’t talk about enough. With these securities, how do you transfer them? When do you issue them? Who has the rights to issue them? How is that controlled? So all those different things aren’t really there yet they’re being built by a few companies which will help. But I think at the end of the day we’re going to have self-custody and we’re going to have institutions using custodians who are ensured and regulated.

Amy Wan:

Given that now at least some people who have that capability can presumably hold their own security token, what happens if they lose their private keys?

Jamie Finn:

In the security tokens space it’s not as big an issue, right? So you lose your keys and you can prove that you’ve lost them and you had control of that wallet and everything was done properly through a proper forensics investigation then those tokens can be reissued or burns on the existing ones. You can basically pull them back and reissue them. So it’s not as much of an issue but it’s still a security, it’s still a bare instrument. So it has to be traded with the appropriate protection.

Amy Wan:

Is there any topic that you think has not been adequately addressed or hasn’t been talked about enough in this security token space today?

Jamie Finn:

Capital formation. To me talking tech in the space is actually not that useful. What we have to focus on is getting investors into the space. It’s a very hard space. Carlos, my co-founder, said it last month. It was like 99 percent of people didn’t know. Now we’ve done this whole push around security tokens. Now 98 percent don’t know about security tokens. So one percent increase. And so nobody knows about this space. We’re talking to ourselves. We need to bring investors into it and really make them comfortable with it and stop focusing so much on tech.

Amy Wan:

What do you think is going to be the thing that makes investors want to invest in security tokens more?

To hear Jamie’s answer to that question go to our website securitytokenacademy.com and click on the interviews page.

Adam Chapnick:

Security Token Academy is on the leading edge of the security token industry. We’ve interviewed the top experts, lawyers and business leaders from all over the world. Today’s expert interview is with Dr. Stephanie Hurder.

Amy Wan:

Dr. Hurder is partner and founding economist at the Prysm Group. She’s also founder of Retrain.LA and got her PhD in Business Economics at Harvard University. She spoke to me about token economics and more at the StartEngine Summit.

You’re an economist by training and so I assume you know a lot about ... what everyone talks about in terms of token economics. So let’s explore that for a little bit. Both on the traditional security side and on the side of actually security token having some sort of utility purpose. So let’s talk about traditional first. What should people know about token economics from that angle?

Stephanie Hurder:

So for traditional sort of when we think about security tokens one of the big things we like to emphasize is that you need to be really clear about the rights that the token gives you. And a great example I like to think about, for example, suppose you wanted to tokenize a piece of art, like your fine art, art isn’t just about the financial return, right? It’s about enjoying the art and then if you owned a token you would probably also want some input into what happens to the art. Who does it get sold to? When does it get sold? How much does it get sold for?

And so just issuing a token isn’t enough. You have to think about the rights and the governance in the other pieces of the platform in order for your token to be useful and valuable.

Amy Wan:

Fantastic. That was an excellent point. How about on the non-security side?

Stephanie Hurder:

So if we’re thinking about utility tokens one conflict we see a lot is that people want a token that’s used as a means of exchange but they also want it to go up in price. And these two things are really at a tension. If you’re thinking about a token that’s used to buy and sell things you don’t want it to fluctuate in value that much. Because people end up thinking, “Do I buy this product or service or do I hold it? Or do I not want to buy your token at all because by the time I go to buy product or service it’s worthless?” And so when you’re thinking about utility token design or any kind of token design your token really has to have sort of one point. You can’t have a token that does multiple things at once.

Amy Wan:

What do you see now in the market both from the issuer and the investor side in terms of ... is everyone now just tokenizing traditional equity or debt or are people still adding utility functions onto the security tokens? What kind of the state of the market?

Stephanie Hurder:

So I’m seeing a lot of tokenized assets. Obviously real estate art. And those I think are particularly interesting. I don’t see a ton of projects that ... actually as we know the regulatory process takes a very long time. So I’m interested to see what innovations actually make it to market.

Amy Wan:

So you mentioned tokenized real estate and prior to the tokenized real estate industry there was the real estate crowd funding industry. And one thing that we always saw in that industry is that there’s an adverse selection problem, right? A lot of the times the people approaching you to raise money in this new way are the ones who would not otherwise be able to really raise money. How do we combat that?

Stephanie Hurder:

I think that’s a great point and if you think about, for example, the current state of utility token ICOs at this point doing an ICO is almost a bad sign. It says like, “Why couldn’t you go out and do a standard equity round?” And so I think part of this will come through diligence. If we don’t have VCs doing diligence who do we outsource this to? How do we make sure that companies are actually doing what they’re supposed to? But I think it’s going to be a challenge with any new funding mechanism.

Amy Wan:

What are some best practices around token design for STOs?

Stephanie Hurder:

Your token has to be a functioning part of your entire platform. A lot of times when we talk to companies, they come to us and they say, “I want token economics.” And we say, “That’s great but your token is going to do best if it’s a functioning part of a well-developed platform overall.” So what is the business purpose? What are the contracts you need as you know? What kind of market design do you need to make your platform function? What governance do you need? And then what do you tokenize in there so that everything works together? So that’s really how we approach things. So a lot of our processes taking someone who’s looking for token advise and saying, “No, no, let’s back up and look at the entire platform and then think about how your token functions within that.”

Amy Wan:

So you mentioned governance and property rights which are two very important concepts that ... I think a lot of people just aren’t thinking about enough today. When it comes to those things, right? If I am an art holder and I have a fractionalized piece of real estate or art via token and I want to decide what happens to that piece of art or that piece of real estate, it can become very unwieldy to figure out how I vote for the 500 fractional pieces of art I own. In regular democracy when we want people to vote on stuff we have a hard time getting a voter turnout. And I feel like the same thing’s going to happen here for token governance.

Stephanie Hurder:

I’ve actually heard this. So last week ... we’ve written a research paper on governance design and one thing I heard from many, many people is exactly what you’re saying. It’s that we’ve set up a participatory governance and no one votes. And so I think part of this is when you’re designing your platform there’s an impetus to just democratize everything. You know like we’re going to have 25 votes today and everyone’s going to take ... and you have to think really critically about what are the core decisions that you’re going to distribute? I think we’re going to end up seeing more centralized platforms. You’re going to either need a leaders’ counsel or someone to just make decisions on behalf of the platform.

Amy Wan:

One thing I’ve always thought is the reason startups are startups is they have to iterate a lot. They have to pivot. It takes years to find product market fit and there’s a lot of tokens that have been issued in 2017 and continue to be issued where they set into stone what their token represents. And then it’s really difficult to change it even if there is a voting structure. Do you have any comments around that?

Stephanie Hurder:

I think that it’s really tough. And I mean we even see that with some of the earliest platforms. I don’t know where Ethereum is on its payment from proof of form to proof of state but it’s been taking quite a while. So I think that’s just one of the challenges that you have to think about and maybe we will see more centralized governance because you’d need to be able to pay back.

Amy Wan:

What is your one wish for the security token industry in 2019?

To hear Stephanie’s wish and the fore interview go to our website securitytokenacademy.com and click on the interviews page.

Adam Chapnick:

Thousands of people from around the world attended Crypto Invest Summit at the Los Angeles Convention Center in October. Security Token Academy was there conducting interviews with some of the biggest names in the security token industry. That’s where we met Matthew Sullivan, founder and CEO of QuantmRE. The company is tokenizing real estate on the blockchain. Learn how you can unlock equity in your own home without taking on more debt and more. Take a look.

This is CEO Matthew Sullivan of QuantmRE, thanks so much for joining us.

Matthew Sullivan:

And it’s a pleasure to be here.

Adam Chapnick:

I’m a little bit nerding out on this because for many months on the show I joke around with guests about when are we going to see the opportunity for me to tokenize and divide up my house so that my neighbors can unlock my equity? And now that I’ve met you guys that may be upon us, I’m I right?

Matthew Sullivan:

It is. That’s exactly what we do.

Adam Chapnick:

Oh my goodness. I’m just very excited. Tell us what is QuantmRE.

Matthew Sullivan:

If you’re a home owner, QuantmRE allows you to unlock the equity in your home without taking on more debt. We do that by using cryptocurrency in the blockchain. So we are creating a token but by real estate assets. The money that we raise from the sale of those security tokens goes into our traditional restructure that is audited and allows us to buy the equity in your home. Which means that you get some cash without having to move out, without having to sell and most importantly without having to go back to the bank and borrowing more money.

Adam Chapnick:

Incredible. So for arguments sake, I don’t know if I’m using the right terminology, but there it becomes like a cup table on my home where I own most of it and some other either person or group of people own the rest of it in the pie?

Matthew Sullivan:

It’s less complicated than that.

Adam Chapnick:

Oh even less complicated?

Matthew Sullivan:

So there’s no transfer of title which means that the banks don’t get upset. There’s no acceleration clauses. We don’t insist that we move in and take your spare room. What happens is you sign an optional agreement with us where we share in the potential future increase of the value of your home. And that option runs for 30 years. So you’ve got up to 30 years to either sell your home or refinance the option. And the way it works is that we agree a percentage of the value of your home and that’s subject to underrating. And we can release up to 30 percent of the value of your home. What we then do is that we then send an appraiser around and if everything checks out we write you a check for the amount that you raise.

When you sell your home you pay us back together with a percentage of the increase in value of the home. So that’s how we make our money.

Adam Chapnick:

And in the event that it stays flat or goes down?

Matthew Sullivan:

Because it’s a partnership we take that risk. Unlike a bank, when they take your money come rain or shine, if your house stays flat we just get our money back. If it goes down in value we run the risk potentially of sharing in some of that loses as well. So it’s a true partnership rather than being debt.

Adam Chapnick:

You guys are the first company that are stepping into the use case that we’ve been talking about. And how long have you been around?

Matthew Sullivan:

We started almost a year ago now. Before that we had the concept for almost four years where we’ve been looking at how do we tap into fractional equity ownership in people’s homes? The team that we brought on have over 10 years of experience and have originated over a quarter of a billion dollar’s worth of this type of asset in the real world. So we brought on an incredibly experienced team to deal with the specifics of this esoteric glass.

Adam Chapnick:

We have the full interview with Matthew on our website. Just click on the interviews page. And mark your calendars, set your reminder for Tuesday, December 11th that’s when QuantmRE will be back on our show and featured in our STO spotlight segment. You won’t want to miss it.

Amy Wan:

Back in October the Security Token Academy held events around the nation to signal the kick off of the security token industry. We hold security token meetups in Los Angeles and also in New York City. Attendees who purchase tickets to our two day cruise and conference in New York boarded the Spirit Of New York yacht from Chelsea Harbor for an evening cruise along the Hudson River.

Adam Chapnick:

That was followed by the Security Token Industry Launch event inside the Conrad New York. Hundreds of people were in attendance as industry leaders rang the opening bell to signal the official kickoff to the security token industry. To view all of the videos from Security Token Industry Launch week, go to our website securitytokenacademy.com and click on the events tab and select launch event video library. The best part? It’s free and contains a wealth of information as usual. And of course mark your calendars for our next security token meetup. It takes place Thursday, January 31st inside Maggiano’s at The Grove in Los Angeles. Free food, drinks, networking and more. You can find all the details on our website. Just click on the events page. You can also visit us on our meetup page at the address on your screen. We had a great turnout last time so be sure to RSVP to secure your spot to this free event. Hope to see you there.

Amy Wan:

All right. That’s it for today’s episode. Be sure to follow us on Twitter, Facebook, Telegram and Medium and don’t forget to subscribe to our YouTube page so you don’t miss out on any of our videos and expert interviews. I’m Amy Wan.

Adam Chapnick:

And I’m Adam Chapnick. And before we go a big thank you to our Platinum Corporate Members, Merrill Lynch and Securrency. We invite you to learn more about our corporate members by clicking on the directory page on our website. Okay, for everyone here at Security Token Academy thanks for watching.

Amy Wan:

Learn about regulations governing cryptocurrencies and security tokens from around the world with our regulatory review. It’s on our website securitytokenacademy.com, click on the learn page so you can stay informed.