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 PhD in Economics from Harvard University.
Hi, I'm Amy Wan, I'm here at the Start Engine Summit here in LA and I'm here with Stephanie Hurder from Prism Group. Welcome, Stephanie.
Hi Amy, it's great to be here.
So, you're an economist by training and so I assume you know a lot about what everyone's talking 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 ... A 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?
So for traditional, when we think of security tokens, one of the big things that we like to emphasize is that you need to be really clear about the rights the token gives you and a great example I like to think about, for empale, suppose you wanted to tokenize a piece of art, like in fine art. Art isn't just about the financial return, it's about enjoying the art and then if you owned a token you would probably also want some input in 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 and the other pieces of the platform in order for your token to be useful and valuable.
Fantastic, those were excellent points. How about on the non-security side?
So if we're thinking about utility tokens, one conflict we see a lot si 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 just used to buy and sell things, you don't want it to fluctuate in value that much because then 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 a product or service it's worthless?" Right? 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.
What are you seeing 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's kind of the state of the market?
I'm seeing a lot of tokenized assets, obviously real estate, art. And those I think are particularity 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.
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?
I think that's a great point and if you think about, for example, the current state of utility token ICO's, at this point doing and ICO is almost a bad sign. It's sort of like, why couldn't you go out and do a standard equity round? And so I think part of this will come through diligence, having ... if we don't have VC's 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?
What are some best practices around token design for STS?
Your token has to be a functioning part of your entire platform, right? So 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 best if it's a functioning part of well-developed platform overall." Right? So, what is the business purpose? What are the contracts you need, 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 everything works together? That's really how we approach things so a lot of our process is taking someone who is looking for token advice and saying, "No, no, let's back up and look at the entire platform and think about how your token functions within that."
You mentioned governance and property, right, which I think are two very important concepts that I think a lot of people aren't thinking about enough yet today.
Now, when it comes to those things, right, like if I am an art holder and I have a fractionalized piece of real estate or art via a token and I want to decide what happens to that piece of art or piece or real estate it can become very unwieldy to figure out how I vote for the 500 fractional pieces of art I own, right? What gives, because 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 is going to happen here for token governance.
I've actually 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 is that we've set up participatory governance and no one votes. I think part of this is when you're designing your platform, there's a impotence to just democratize everything and you're like, we're going to have 25 votes a day 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 and then you're going to need ... I think we're going to end up seeing more centralized platforms. You're going to either need a leader's council or just someone to just make decisions on behalf of the platform.
One thing I've always thought is the recent start-ups are start-ups 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 issues 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?
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 the theorem is on its pivot from proof of work to proof of state, but it's been taking quite a while. 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 need to be able to pivot.
What is your one wish for the security token industry in 2019?
Everyone should read about the economics of property rights and exactly how do you design a token that delivers value and people want to hold.
Fantastic, thank you so much for joining us Stephanie.
This is Amy Wan and I'm at the Start Engine Summit in LA.
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