Carlos Domingo is a senior executive, entrepreneur, investor, and currently the CEO and Co-Founder of Securitize, Inc. Before becoming the CEO of Securitize, Carlos co-founded and launched SPiCE VC, a fully tokenized VC fund. In order to ensure global compliance for SPiCE VC, Carlos and his team created the security token issuance and lifecycle management platform that would later become Securitize, Inc. Prior to SPiCE and Securitize, Carlos was the President and CEO of Telefonica R&D, and CEO of New Business and Innovation at Telefonica Digital, as well as co-founder and board member of Wayra, one of the world’s largest corporate accelerators. He has been CTO and CEO or board member of multiple tech startups. On the investment side, he is the founder of Sling Ventures, an angel investment fund co-invested by the European Invested Bank, one of the founders of Dubai Angel Investors, and a Venture partner in THCAP VC. Carlos was also one of the leaders of open source project Firefox OS.
Securitize An end-to-end platform for issuers that are seeking to tokenize assets
Hi, I’m Adam Chapnick with the Security Token Academy. Today, we’re pleased to bring you a corporate member interview with Securitize, the company is a gold corporate member of the Security Token Academy.
Securitize is an end-to-end technology platform built for issuers looking to tokenize securities. Today, we’re going to learn more about the company, their products, their team and much more. And to do that, we go to Miami where I’m joined by none other than the one and only Carlos Domingo, the co-founder and CEO of Securitize.
Hey Carlos, it’s great to be speaking with you again today.
Hi Adam. Good seeing you again.
So let’s begin with a little background for those who aren’t yet familiar with Securitize. Can you tell us how and why Securitize was created?
So the whole project started back around February 2017. At that time, a friend of mine who’s very well known in the blockchain industry now but has been very well known in the industry throughout many years, Brendan Eich he is the founder of Mozilla and a couple of years ago, he set up the browser Brave. He had the idea of basically issuing a token to manage the relationship between advertisers, consumers of content, and producers of content. He did one of the first, let’s say, high profile ICOs in Silicon Valley for the Basic Attention Token, as it is called, the token for his company. He was telling me that in February 2017, about Congress, and I got intrigued about ICOs, I had been working on blockchain but not really had been exposed or familiar with what ICOs were doing.
And when that happened, I opened up my eyes about new ways of monetizing platforms and the whole idea about tokens and decentralization, et cetera. And back then Brian was advising a common friend of mine, Ami Ben-David that was setting up together with a Tal Elyashiv, a venture capital fund called SPiCE VC. They were initially doing it in like a very traditional way, the normal LPGP relationship and no blockchain, not tokenization and after Brendan did their ICO, we kind of intrigued about the space and the discussion study, like, “Why don’t we talk, you know, tokenize the fund and issue an ICO for the fund” Back then we call it ICO so for a fund, the term security tokens didn’t really exist in the industry yet.
And we started looking at that and it became very clear very soon that what we were issuing were securities, right. And I think in fact now most people will recognize that a lot of the ICOs were actually issuing securities but in our case it was extremely clear because you’re basically tokenizing an LP interest on a fund that you know will receive eventually over time, the exits, the proceedings from the exits of the companies that the fund has invested in. So we go and talk about the concept of issuing securities on the blockchain via a token. And then we saw that in our firm, blockchain capital did one, you know the BCAP token, which is considered the first security token in the industry, I even got more interest in the topic because we felt like there’s some other people thinking along the same lines.
So, but back then there were not many providers of insurance platform, like today, there’s dozens. But when we started there were not. None of them actually had like a finished product the way we envision it for our own fund. So given that we’ve been building products all our career, we then decided to hire a CTO, Shay Finklestein, who is today is a co-founder and CTO of Securitize as well and started building our own, you know, insurance platform for a SPiCE VC for the fund. Then in September, we went live with the project September 2017, and then the market started shifting, so the SEC had done the DAO report and some people like Stephen McKeon had started talking about the advantages of tokenizing securities and digital securities, et cetera. And a lot of people are purchase and, “Okay who is providing the technology for you guys to do a security token offering for SPiCE VC?” And the answer was, “Well we just develop it ourselves and we are using it but maybe you know, if you guys are interested we could license it.”
And then you know, those discussions with few companies turn into the idea of let’s split the two business. The fund is a very separate business from the platform itself and the platform can actually be used by other companies. So in November 2017, we spun out Securitize out of SPiCE VC and then we launch in January 2018 here actually in Miami at the North American Bitcoin Conference. The day we launched, we already had few customers that had signed with us that were going to do security token offering, so actually we’ve been revenue generating since Q1 2018, since the beginning of the company. And you know, the rest is kind of history as they say, because we’ve been growing a lot the last year and this year in Q1 as well. We have more than 27 customers, certain customers that are live with securities issues, you know, Forex trading, et cetera. So you’re going to be asking me more details about the current status.
Yeah. So you mentioned a few of the key team, but you didn’t tell us too much about yourself. Is there anything you can share about your background that got you here?
Oh sure. Well, I’m originally from Barcelona, from Spain. I studied computer science. I’m an engineer by training. I went to Japan very early on at the beginning of the nineties to do a master and then I did a PHD in computer science at the Tokyo Institute of Technology. So I live in Japan many years, more than 10 years. At that time once I graduated from my PHD I worked for a couple of years in Tokyo, but then you know, these were the 90s right? So the same friends that you have today on the crypto space back then was on the dotcom space when internet was starting. I couldn’t stay much longer in a corporate job and decided to jump and join a startup that we were lucky enough that we were one of the first companies that did an IPO in NASDAQ in Japan.
So NASDAQ when it was booming here in the US it opened up a subsidiary in Japan. So we did an IPO. I moved to the US with that company at that time, almost 20 years ago. Live in the west coast, we acquired three companies and then I went through all the downturn of the dotcom as well. So the dotcom crash was pretty major. We suffer like most companies on this space. So I was appointed the CEO for everything outside Japan to basically consolidate the three companies we had acquired and try to manage the situation, reduce cost, sold some product lines focus on some others.
And then in 2006 things were picking up again. And then I was recruited by Telefónica who is our local telco from, from my country, from Spain, but presence in 23 countries is a fortune 500 company. At the beginning they basically hired me to start looking at things beyond connectivity. Right? So building digital services started with a small team of 40 people and over the years grew to a peak of a thousand five hundred and became the head of global R&D for entire company working a big project called Telefónica Digital.
Then, like everything else, after eight years I got another offer and in 2014 I moved to Dubai. So I was working for, when I was there, for the local telco operator, also setting up their digital operations. Then as part of my work there, one project for building the platform for smart cities, for the city of Dubai is an interesting project called Smart Dubai. And then the government of Dubai started looking at blockchain as a potential platform for basically, you know, running all the different transactions of the government. So that was kind of my first exposure to blockchain technologies. In 2016, we started running a lot of like pilots out of a government entity. I was set up to look at the blockchain and then 2017 this is when blockchain really, activity, took off. I became so interested that I thought after 10 years in dotcom and in 10 years in mobile, you know, the next 10 years I want to be in fintech and the blockchain space.
A true citizen of the world. So we here at the Security Token Academy, as you know, we are all about tokenization and we are definitely seeing the tokenization trend happening now for our viewers. Can you explain exactly what tokenization is and why one might even tokenize with digital securities?
So, tokenizing is nothing else but issuing a token on a blockchain that represents, it’s a digital representation of an underlying security or an asset. Then the fact that you issue it on a blockchain, it has a number of advantages as opposed to let’s say other centralized ways of representing digitally a security which already exist, right? So it’s drawing on a new concept. The main advantages are basically that you can prove ownership through our cryptographically secure shared ledger. So no one can actually manipulate the fact that you own that token. You can then program the compliance of the security at the token level. So you can make sure that this token which represents security only transfer to all the people that can actually hold the same security and that you are allowed transfer it.
You can also program all the features of the security. Let’s say if it’s a dividend pay a security, you can program it. If you want to conduct a proxy vote, you can do it. And then more importantly, with all these features you can then basically do instant settlement of a trade. So something that most security trading systems don’t support, which is the post-rate settlement, where you can actually move the token from one person wallets to another person’s wallet and as the tZERO friends say, “The trade is the settlement.” So once the trade happens, it settles. Then you eliminate all the issues of counter pirate risk, central depositories, custodians, et cetera, that are companies desiring to basically keep the risk of a trade having not settle.
And then this also allows to do other interesting things like reconstruct the cap table in real time. So for our customers, they know who the token holders are, all the time, even if the token is trading on the secondary market. Which is something that as simple as it seems, doesn’t actually happen in real life. Like today, if you’re Apple or Facebook, you actually don’t know who your second holders are, of your shares, because a lot of the brokers settle the street name of the broker and they do all the trades behind the scenes or after the security has been purchased, it doesn’t settle. It takes like two or three days depending on the country, et cetera. So those are the main advantages of security tokens.
Yeah. Well said. So what is your overall vision for digital securities as a whole this year 2019?
I think we’re still early days in spite of the hype and the news and the announcements and the partnerships and the activity in the industry. As someone, I can consider myself as an industry insider, I can tell you that we still are very, very early days. We don’t know of many security tokens that actually have been issue on the block end. I will say probably there is a dozen or not more than that. That’s a very, very tiny figure compared to the amount of, let’s say, private placements that happen every year. In 2017 only in the US where 40 000, so you can think of globally there is probably 150 to 100 000 private securities issued every year. We’re just scratching the surface in the projects. The technology is still is a bit immature. The lack of knowledge from both investors and issuers is still a problem. Exchanges, which I guess we’re going to be talking a minute, just launched recently so this is still limited liquidity which is one of the promises of security tokens. So I think it’s a very transformational technology but we’re still early days and 2019 is not going to radically change in my opinion.
Let’s shift to you, particularly Securitize, tell us about your DS protocol could you?
Yeah, so DS protocol is something, DS comes from digital securities protocol, this is basically a compliance protocol that allows a security to be issued the blockchain and manage the compliance and the life cycle of the security. So we come up with our own version of this. There’s plenty out there but we have developed our own one to be able to evolve it. It’s very complex, a lot more complex than most people think. You know, you require a number of smart contracts that interact with each other on a blockchain that control a registry of who can potentially hold the security as well as what are the compliance rules of the security. And then you know, in real time we are capable of basically verify whether a trade can happen or not and then update the entire list of token holders. And this allow us to do all the things on top of it, which is like for instance, conduct votes or issue dividends or payouts and other functionality that securities require. And the protocol basically is at the heart of what we do and what’s integrated with the changes that list tokens that have been issued with Securitize.
What are some of the marketplaces and exchanges that support the DS protocol?
So today we’ve worked with three different ones, OpenFinance, SharesPost and AirSwap. Two of them have integrated and successfully conducted trades. OpenFinance launch in December and today they list four tokens, the four of them actually issued by Securitize and power by this digital securities protocol, the DS protocol. So we are the only company that you know, has tokens listed on OpenFinance. We have recently also launched with SharesPost, again, the only security tokens that are trading in SharesPost are powered by the digital securities protocol. With AirSwap we’ve done some test but they haven’t launched yet formally. They trading off security tokens. And we also working with all of these changes out there. Into integrating the protocol to be able to list our tokens.
Can you share some of the issuers, the digital security issuers that are actually on the platform in either of those exchanges?
I can share the ones we finished because the ones we are working with we usually don’t like to mention them or do announcements because it could be perceived as soliciting of securities and we are not a broker dealer. So we try to be very careful about the kind of things we do.
The ones that have finished, obviously, is public information. So it’s not this not problem. So that tokens that we’ve issue are... So we’ve done two things. One, so we’ve issued new projects, let’s say SPiCE VC, which was the first one, lottery.com, Augment 22X. But we’ve also migrated early security tokens, like BCAP from blockchain capital or science from Science Blockchain, that were issued prior to us being in existence with very, let’s say, rudimentary technology and protocol. And then once we come up to market, they actually moved to our platform.
Yeah. That’s a key vote of confidence that I observed was that a lot of the early issuers kind of took a look at what was out there, saw what you guys are doing and said, “You know what, that looks a little better. Let’s, let’s shift to that.” I thought that was a great moment for Securitize sort of in the community.
I think that some of the early tokens didn’t really have the transfer restrictions baked into the token itself, into the smart contract. So they were using things like, “Okay, because you’re tokens are low cap, I won’t give it to you, I’ll just keep it in a central wallet” And tricks like that, which is not really practical if you want to list on honest chains.
None of them obviously had the protocol integrated with exchanges to be able to trade and some of them they actually, their interests was to be able to trade like a BCAP. Then finally, the other thing that most people don’t understand is that the crowdfunding part, let’s say of like fundraising to issue the token, that’s just the beginning of a very, very long journey where you need to be able to manage the security for all type of things that might happen that you need to basically act on the security. Let’s say if someone gets divorced and you need to be able to somehow move half the tokens from one person to another and these things. Either you hire blockchain engineers that know how to interact with the smart contracts and multi-sig and things like that, or you need some sort of platform for the life cycle management of the securities on the blockchain, which is what we provide to all these customers.
So can you tell us about any product announcements from Securitize or news that you have to share, I always love to hear what you guys are up to.
I think the thing that went on recently that we’ve been very excited about it is that we were approached by IBM to join the IBM blockchain accelerator. It’s the first edition they do and we were one of the first companies accepted to participate. And then the focus of the project is around fixed income and debt, which I think is a very, very nice use case for security tokens and that has opened up the option for us to work, collaborate with IBM and some of their customers, which tend to be more institutional and banks and as opposed to most of the customers that we were dealing with today. And also to experiment with Hyperledger and recently became members of the Hyperledger foundation and we’re actively now developing there.
The other interesting project that we have announced recently is that, we started working here in the US with a company called Elevated Returns that had... fundraise for creating a security token for the St. Regis hotel in Aspen. Then eventually they also moved to our platform so we issue the token and are managing currently the token, the investors, the dividends and everything. Then as part of that project, we expanded with them. They have a number of projects going on in Thailand. So we’ve been working there with the regulator to make sure everything they do and we do is compliant according to the local jurisdiction rules and these project then we came together with the Tezos Foundation and are currently porting our protocol and our platform to work on Tezos and do some of these issuance on Tezos, which I think is an exciting thing for us because we’ve always tried to be blockchain agnostic. I think out of all the many platforms out there, they all have pros and cons. So the fact that we are now starting to develop further blockchain is an exciting progress for us.
No doubt. So you mentioned compliance with regard to the Elevated Returns guys, who we’ve had on the show, we’ve been following that project at the St. Regis closely. Can you talk to us generally about the importance of compliance and liquidity and why they’re so key to the security token space?
Well, compliance is very important if you don’t want to go to jail. Right? You’re dealing with secur-
So I think that’s a very good reason to try to be compliant. I think that, especially in this space of blockchain, that there’s been so many legal issues and scams and things like that. Make sure that what you do is compliant is extremely important. But generally, I mean, if you’re touching regulated products like securities, you have to make sure you’re doing things by the book because otherwise you can have a problem with a regulator and some regulators are very strict. Especially in everything that has to do with touching retail customers. You know regulators, at the end of the day, they are there to protect the retail customers.
So from our perspective, we think that regulators like security tokens better than traditional securities because they can actually somehow guarantee that the compliance is enforced at a software level, at a blockchain where it’s cryptographically secure and cannot be tamper with. So it’s not that someone can go on hack your smart contract and modify it if the contract is written properly. It also provides them trustability and a little bit of everything that has happened in the past, right? So if something goes wrong, you can always go back to the blockchain and see what was the traits and how the token move across wallets and which rules were implemented, et cetera. So I think that from that perspective, compliance is very important but I think that the world of security tokens brings programmable compliance, which you know is something that the regulators are going to love because it basically guarantees them that compliance rules are being enforced.
Yeah. It’s interesting because it actually enforces the behavior before it happens instead of chasing it after it happens.
You would think they love it, Right?
So can you discuss the role that you guys play with issuers, particularly, what services do you provide and what’s the experience that they get with you?
So with issuers we have like two faces, if you want right? One is the before issuing the token and the after issuing the token. So before issuing the token what we offer is some sort of like, if you want crowdfunding platform, where they can actually onboard investors do KYC AML accreditation. We actually support many, many different jurisdictions on the process of how you onboard investors for buying a security, which in most cases is an unregistered security with a regulator, it’s legal, but it’s not registered. So there’s certain rules and restrictions depending on the country about how you actually present that to potential investors. Once they investors are in the platform and they’ve been verified and validated, we offer them a number of ways where they can actually purchase the security, whether it’s fiat or crypto, and we’ve integrated escrow providers as well as a crypto custodians.
Once they purchase a security they can also sign subscription agreements online and the whole process is tried to be made as digital as possible. Then eventually they can register a wallet where they’re going to be receiving their securities as tokens, right? And then we basically take care of providing a platform that is end-to-end, that controls everything and the issuer can customize and modify in a very simple way without having to actually program to reflect their needs. We also provide the smart contract that represents the security with the specifics around that particular security, which might be different type of security, different features, different number of tokens being issue [inaudible 00:21:00], lock up periods, et cetera. As well as code the compliance rules according to that particular security and make sure with their lawyers that that’s exactly what we need to be a program in there.
Once the securities issue we moved to phase two, which I think this is where the most interesting things are happening because we already have a number of live securities, we actually have I think a good understanding of precisely why that is more important. A security is something that is live that is going to exist for a number of years, hopefully for many, and that requires to be actively managed because it means that it’s going to trade and if it’s going to trade, you have to provide the tools for the issuer to be able to be integrated with these changes and list their token, which as we discussed before we do. But you need to be able to then reconstruct the say, cap table or list of token holders after a trade has happened.
So the issuer knows who their token holders are all the time, which we also do. And then provide them a number of tools to be able to operate the security, whether it’s communicating to the token holders, whether it’s conducting a vote for a governance event, whether it’s issuing a dividend. In some cases of some of our customers, like let’s say there’s the St. Regis hotel in Aspen or whether it’s doing any kind of corporate actions that you need to do a with a security and people don’t realize that’s where, where the complication is. So we’ve implemented a lot of these corporate actions in a platform that the issuer doesn’t need to know anything much about blockchain, so it’s basically a UI and a web based platform for them to manage their security once that’s been issued on the blockchain.
So what about on the other side, what about investor services, how do they relate with you? How do they integrate?
Well, so as I mentioned before, we’re not a broker dealer. We’ve taken the position that it’s very difficult to be a good broker dealer for any issuer because we have customers in different geographies. We have customers that are doing real estate, some customers are operating businesses, some customers are VC funds, et cetera. So we’ve taken the position of not become a broker dealer and partner with multiple broker dealers. We have more than those in partnerships with different broker dealers in different geographies that are the ones that will help the issuer find the investors.
So, to the extent that we communicate with an investor is in two areas. One is obviously the onboarding process because the investors get onboarded through our platform with our tools managed by the issuer. And the second one is that a lot of the functionality we provide after the security has been issued on the blockchain are all these corporate actions that typical issues need to do with an investor that they are facilitated by our technology.
Got It. So you guys have something called your support services tools. Can you talk about that?
Yes. So the tools that we support, as I mentioned, are... everything has to do too with onboarding an investor for a security offering and purchase a security. So KYC, AML, accreditation, a document view and document signature et cetera and that’s at the beginning. Then the second one are all the tools to basically manage the security and the owners of the security, the investors in the security, after the security has been issued. So whether it’s conducting a vote, issuing a dividend, doing all sort of the corporate actions like being able to rescind a security that has been issued to one person and issue it to someone else in case there’s a reason for doing that, as I mentioned before, these are the boards et cetera. So all these tools are part of our offering for issuers to help them basically manage a live security on the blockchain. That in our case well it’s just liquid so it’s much more difficult to manage that as security that it doesn’t have liquidity and doesn’t change hands frequently.
Well while you’re modest and may be hesitant to talk about yourself, we love hearing about it. So tell us here about your roadmap and any future goals you can share.
So I think this year we have a very aggressive target in terms of a number of issuers that we can help primarily because in November last year we raised our CSA and now we have external investors, which we’ve never had before and then we want to make sure that we provide the growth that they’re expecting. So I think we did a number of things. We are running out a new version of the platform within literally one or two weeks where we’ve done, besides a lot of new features, I think we’ve done a lot of the lift off of the UI for instance, which was something we were using internally and our issues we’re not using as we grow in the number of customers who can try to push to them the work of managing and using the platform.
Then we’re also adding a lot of more functionalities for the type of securities that we’re managing as well as the compliance rules that as we are adding new customers we are learning more and more about the type of restrictions especially in the secondary market, which is new, that we need to be implemented. And that, as I said, opens up a whole lot of complications for the protocol that I think most people don’t realize about it. So we’re putting a lot of effort on that. Making sure that protocol is as sophisticated and flexible and versatile as possible. We’re also doing support for other blockchains. We’re going to start with Tezos and Hyperledger but you’re going to see more during this year. I think that’s going to be one of our focus throughout 2019 and then more integration with these changes. I think that for us being able to provide liquidity to our customers is a key feature. And we’ve already done OpenFinance I suppose but the next few months you’ll see some more announcements with all these changes that are supporting the protocol and are going to start listing the tokens for our customers.
Well, we love hearing about it. We’re excited for you. Carlos Domingo, the founder and CEO Securitize. Thank you so much again for speaking with us today. We wish you and everybody at Securitize the best of luck.
Thank you Adam. Thanks for the Security Token Academy for doing a very good job for the industry.
Securitize is a gold corporate member of the security token academy. To learn more, go to our website securitytokenacademy.com and click on the directory tab and the corporate member homepage. For everyone here at the security token academy, I’m Adam Chapnick, see you soon.
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