Building on the blockchain since 2013 - Mason has built custom wallet infrastructure from the ground up, and helped scale BitGo’s multi-signature wallet platform up to $1 Billion in transactions per month. In 2016 he launched the world’s first multi-signature web wallet on the Ethereum platform, Ether.li. While at BitGo he architected and prototyped the cold storage infrastructure for the blockchain launched by the Royal Mint of England.
Tokensoft is a technology platform that enables small businesses, enterprises, and institutions to meet compliance requirements for blockchain-based securities at issuance, distribution and exchange. The TokenSoft platform enables its clients to meet banking, securities and tax requirements in over 50 countries. Current and past clients include Hedera Hashgraph, The Tezos Foundation and Andra Capital.
Hi, I’m Adam Chapnick with the Security Token Academy. Today we are pleased to bring you a corporate member interview with TokenSoft. The company is a gold corporate member of the Security Token Academy. TokenSoft is a primary issuance and compliance platform enabling the issuance and distribution of tokenized securities. Today we’re going to learn more about the company, their products, their team and so much more. Mason Borda joins me here in the studio. Mason is the co-founder and CEO of TokenSoft. Thanks so much for being here.
Thanks so much for having me.
Okay, so first, can you explain how TokenSoft was created, a little bit about the background on the company so that everybody can kind of level set.
Yeah, so I’ve been in the space for a little while and I think of the first era of blockchain as the era where people were still figuring out money transmission laws and things like that. How to custody digital assets. And so the companies that survived out of that era were the ones that figured out what the regulations were and grew into them. What we saw in 2017 was a lot of companies issuing their own digital assets. They were issued as securities, but they weren’t necessarily following the right procedures. And so we saw two things around that time. We saw people with reputations starting to do fundraising on the blockchain and issuing their own digital asset or digital asset security in exchange for that fundraising. But we also saw major law firm search agree on the regulations around these styles of fundraisers.
That they were securities as were-
And so we saw an opportunity to build a company that was designed to embrace the securities laws instead of the money transmission laws. Obviously, we’d have taken them into consideration but I saw an era where companies would have to form around the securities laws if they’re issuing the styles of digital assets. And so we started the company in late mid 2017 to help issuers of digital assets follow the securities laws, whether domestically or internationally.
Got it. So that was prescient, I guess, and you saw the trend happening before maybe some people believed it. So you got in nice early. Tell us a little bit about custody, and especially maybe for the viewers, what is it? Why does it matter?
Under money transmission laws, custody for digital assets is very binary and it’s a well-trodden path at this point. There’s companies like Coinbase and Gemini that fit squarely in that category. And now that these digital assets are being treated as securities, it’s sort of a new regulatory regime and there’s different considerations that have be taken into place. And so one thing that we see is a huge need in this space is a need for the custody of digital securities. And so one thing we started applying with our clients in 2017 when we started was Knox Wallet, which we just recently announced.
Yeah, that was a big deal. This is just this month I think you guys came up with that news, right?
Yeah. So what is that? And how does that relate to custody?
With digital assets, the custody needs are very simple. One may need to simply hold the digital asset, they may need to send it or transfer it elsewhere and they may need to receive digital assets into their accounts. With securities, it’s a little bit different. So those three needs still transfer in the world of digital securities, however, there’s a new administration concept that’s necessary. And so for example, when you have a company and you issue shares, down the road you may want to issue more shares. At one point in time, you may want to undergo an S1 filing so your compliance requirements may change. And because the compliance requirements of the digital security exists at the blockchain level, that requires a custody solutions that can administer the tokens at the blockchain level as well. And so these tools are slightly different. So we found ourselves having to build these things once we started out.
Amazing. Okay so what you guys have tackled is just a way that somebody can hold their digital, whether it’s securities, their currencies, transfer them and comply with all of the laws that happened, right? There’s another thing that I thought was great when I kind of dug into the Knox Wallet, which is that you guys really appreciated that human beings have to show up and understand how to use these things. And you guys approach it in a way that took that into account? How did you approach that?
Most of these digital securities reside on the Ethereum blockchain and to administer these digital securities initially, actually, we were using a process that took about an hour to move the digital securities. And the reason was we were managing these securities or the assets in a purely offline manner. And so that’s not necessarily workable, not many people want to spend an hour moving a token on the blockchain. So we designed a mobile first experience. So only the activities that need to be done from a coding sense online can occur online or on a mobile app. And the activities that need to be offline like the signing, which is a sensitive activity because there’s private keys involved could still be managed offline. So initially, this was a 40 step process and we took it down to about five steps per person. Initially it would take an hour and now it takes about a couple minutes per person.
Yeah, that’s amazing. And I think in any kind of adoption of new technologies and bringing it to market there’s always this progression where somebody figures out, “Wait a minute, this is complicated and it could be simple.” And they attack the UI, the user interface. And you guys are really doing that. And it’s exciting to see this develop in sort of real time with what you guys are doing. So kudos to you for that. So 2019, we interview a lot of people here and a lot of people are saying, “2019 is the year of the security token.” What do you think?
I think there’s definitely a lot of excitement around security tokens. But I think it will be a longer timeline. Obviously, there’s a lot more pieces of infrastructure that need to fall into place before it can really take off. So I see 2019 as a year to continue to build out that infrastructure and make sure our regulatory requirements are in place so that the industry can scale.
Yeah, I think you’re probably right. There’s a lot of moving parts that have to come into alignment and a lot of people are still fill in their way through what their role is in the different part of the ecosystem. But it’s exciting to watch it all come together. So how do you think blockchain is going to, say, revolutionize the global market for securities?
If we look at traditional finance today, all the pieces that make it work and operate smoothly today are very baked in, and they operate very locally. So soon exchange may follow domestic regulations and if anyone else wants to participate in domestic activities, they also have to fall into compliance domestically. And so what’s happening with the blockchain is we’re sort of rebuilding these financial institutions on top of the blockchain and we’re creating a new financial fabric that’s a little bit more interconnected. And the reason is that the blockchain carries a lot of characteristics that will be transferred to the digital securities and two of those things that we see as revolutionizing the space are, you can now move digital securities 24/7. Traditional markets are generally open 9:00 to 5:00, and the blockchain obviously never closes for business.
The other thing that’s very fascinating is this past year, we’ve essentially figured out regulations globally. So our clients in particular, when they onboard investors around the world, we help them comply with regulations locally in every jurisdiction that they’re offering. And so there’s also this interconnectivity that’s being created, because the compliance is now automated as you go from jurisdiction to jurisdiction. So I think those two things are very fascinating. So we still don’t know what the killer app is in this space, but I think that those two characteristics that are now transferred to securities are very fascinating and potentially where the greater innovation is going to happen.
Yeah, I think you’re exactly right. And it definitely is exciting that it can democratize without the chaos that we were seeing maybe in 2017 with little bit of the ICO craze and some of the maybe unintended consequences that came from democratization. So the underside of democratization. It’s very exciting. Okay. So let’s move into the technological side of the digital securities and functionality. You guys are behind something called ERC. Is it 1404? Is that right?
Yeah, that’s right.
So can you tell us about that? We love this kind of super wonky stuff. So dig into that for us. And I know our viewers do too.
So when we initially started servicing clients, their accounts to start asking us, “Hey, can you actually restrict who holds this token or when this token is being transferred?”
And the and there’s two ways that you can regulate these digital assets. Initially with things like Bitcoin, obviously, you can’t change their protocol. It’s a token that just freely transfers around the world and you can’t really stop it. With digital securities, there’s the ability with using smart contracts on the blockchain to restrict the transfer of these tokens as they move about. And so we could place a restriction where if I held a token or a security and I sent it to you, I wouldn’t be able to move it before one year. And that’s something you can enforce in the protocol. And so ERC 1404 is a tool that’s used to enforce a lot of those regulatory requirements when it comes to securities laws, tax laws, and whatever laws may be relevant to the issuer. So ERC 1404 helps automate those things. So for example, you can have one list of US investors and you can have a separate list of international investors and you can make it such that these two lists of people can’t trade with one another. And so that’s why we created ERC 1404, was to sort of enforce these regulatory requirements at the protocol level.
And I think I also in digging in a little bit, it’s very interoperable. Is that right? It can work on all different kinds of platforms and it’s compatible with other kinds of protocols, is that right?
Yeah. So, the concepts obviously can be transferred to any blockchain that does enable smart contracts. There are two interesting things you can do with ERC 1404s and one of them is you can create other protocols with them. So things like Harbor R-Token or any other standard that may be out there.
And the Polymath one as well, right?
Fantastic. Okay. So this is what I mean. Like, it’s fun to be in my seat where I get to hear from you guys about how you’re solving all these upcoming problems that a lot of people who they know what they want to do, but they don’t realize a lot of these pitfalls are in front of them. And you just smoothen them out for them without them even knowing it. It’s very exciting to see. So let’s hear a little bit about you and what you’ve ... in going through this journey, what kind of lessons have you come across? Any big aha moments you’ve had in coming to this point?
The major learning and this is something that carried us into this company was initially, talking about the first era of blockchain being under money transmission laws, we saw a lot of companies not survive those times because they didn’t fall into compliance early on. And so one lesson that we carried on into this company and I generally advise others to do as well is to figure out what you want to do, figure out the architecture for it and then go find a lawyer that actually has expertise in the product that you want to launch. So if it’s a product where you’re holding someone else’s digital asset, that might be a law firm that’s experienced with money transmission and Vinson. If you want to create a product that’s facilitating the transfer of securities or maybe you want to hold someone securities, that may be a securities law firm. And so the biggest learning for me was to understand the compliance requirements ahead of time so that the product doesn’t need to be re-architected or the company doesn’t need to be re-architected.
Yeah, Amen. We’ve seen, the road is littered with the corpses of the companies that didn’t take that advice. That’s excellent, excellent advice. So I think our viewers would love to learn a little more about TokenSoft. I know that you guys work with different classes of clients. Can you tell us a little bit more about that?
Yeah. So we have clients that are issuing different types of assets and they manifest in different ways. And so we have clients that are launching full blockchains. So when they’re onboarding investors, we help them remain within the relevant compliance requirements. We also have clients that are launching tokens on top of other blockchains. Things that may be on the ERC 20 standard, tokens that are freely tradable. So that’s the second class of client that we have. The third class of client that we have are those that are launching asset backed tokens. Tokens that may represents LP interest in a fund or it may be a tokenized real estate. So those are the clients that we’re launching on the ERC 1404 standard just because those do carry more enhanced regulatory requirements as they permeate into the world.
Right, right. It’s amazing. Okay, so you guys are located in the Bay Area. Is that correct?
Yeah, we’re in San Francisco.
How do you like it up there?
It’s nice and windy.
Nice and windy, perfect. That’s why we live in LA, no wind. But tell us about your team, your team members. Who’s involved with this amazing venture?
Yeah. So our team is split into three different classes I would say. So we have people that are focused on business marketing, that’s where I fall into place. We have folks that are solely focused on making sure that we’re adequately servicing our clients, that we don’t drop any balls there.
That’s something I’m very paranoid about is making sure everyone’s happy. And then the third is just engineering. And so those are folks that are working on the platform. They’re working on Knox, we have folks with backgrounds from Charles Schwab Fidelity, our co-founder was at Symantec in RSA, carries a background from there. So those are the different types of people we have.
I love it. So you kind of sold yourself short I feel. You said you’re the guy who works with the people and the makeup, but you’re a coder, right? Tell us a little bit about yourself and where you were before.
How I got into the space, it was late 2013 and 2014. My first project was trying to make a dollar based blockchain. And so we were going to have a pool of money in a bank and then we forked Litecoin to represent the dollar and on top of that, I created wallets, API’s and apps. So I spent about a year building that out from scratch, except for the fork of Litecoin and a month talking to lawyers. And so I stopped doing that. And there’s a higher regulatory bar for launching a product like that. That’s where I learned about money transmission. So to do that, I would have had to have a money transmitter license in almost every state, transmission states.
No small fee for that. I could imagine. Okay, so looking ahead to the future, can you share with everybody either your goals, the company’s goals, both.
Our goals for this year are, obviously our clients still have ongoing needs, and we do have a desire to continue helping them as much as possible. We acquired an interest in a broker dealer in December. It’s called TokenSoft Global Markets. And so we’re using that to explore additional services that we can provide to our clients. And so this year is more about building out our regulatory cover and seeing what additional licenses we may need to do additional activities and also continue to build out our products, things like Knox, things like our platform. There’s always more work to be done.
No doubt, and you guys are doing it. Well, Mason Borda, the co-founder and CEO of TokenSoft. Thanks so much for sharing your time and insight with us. We wish you guys and the entire TokenSoft team all the best of luck.
Thanks for having me.
TokenSoft 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, the Security Token Academy, I’m Adam Chapnick.
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