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Clifford Chance’s, David Adams
Discusses Problems Facing the Security Token Industry



David Adams:

We’ve been working on a lot of really exciting deals and what not in the digital assets space. I think one of the most interesting things that we’ve had the opportunity to work on recently is working with transfer agents here in the United States, trying to help them as we help a lot of our other clients to discern the dividing line between software providers and those who can operate in an unregulated space versus those who are broker dealers or other types of regulated entities and what exactly what type of software programming, smart contract creation, et cetera, lends itself to being labeled a broker dealer or in some cases, an exchange. We’ve got a lot of great development as far as like products and accolades, so recently, we’ve been awarded spots in the legal 500 and band one and two both in the US and outside the United States. So I think that Clifford Chance has been making a very concerted investment in the digital asset and FinTech space and I think you can see that playing out in the awards that we’re winning just around the world.

There’s been a lot of evolution I think on the regulatory side. At least there’s been a lot of activity. I think that a lot of people in this space were really hoping for a little bit more clarity from the SEC, but to the SECs credit, they’ve actually been commenting, it may just not be as clear a commentary as I think the industry would like. I think the industry is also evolving in the sense that there’s a lot more regulated players and people taking the regulations seriously. Whereas before it was kind of don’t ask, don’t look before you leap. Just make that leap. I think people are seeing with some of the ICO related enforcement actions that that may not have been the best move, but hopefully what we’re going to see is as the regulatory landscape flattens out, people get a little bit better idea of what is allowed and what is not allowed. It really opens up entrepreneurs to work within a set of guidelines that they can use to really push their products forward, and that’s what we’re really hoping for. Hoping to see in the next few years I would say.

I think a lot of what you hear nowadays, particularly on, when you’re talking about blockchain and what it can bring to the table, I think is that there’s just too much going on in the market at the moment and too much that has to be involved in the particular trade. You have transfer agents, clearing houses, broker dealers, all various different types of intermediaries that evolved in a system that was very different from the instantaneous, the almost instantaneous settlement you can have on a blockchain network.

So I think that over time as we... I think the SEC recognizes that, I think that the SEC will always be looking for gatekeepers in order to hold people responsible for bad activity that occurs in the US securities market, whether it’s on a blockchain or otherwise, but I think that the SEC is starting, I hope, to get the idea that maybe we don’t need all of these different players, but I think it’s going to take a lot of time and I don’t know that we’re ever going to see things flatten the way a lot of people would like to see such that all you’re really worried about in a securities transaction is person A trading on a blockchain based exchange, going through a smart contract, having it executed and just being done. I think that we’re a long way off from that. There will always be intermediary somewhere in the mix. It’s just a matter of defining who those will be in the future and as we move forward in the industry.

One of the main things about securities tokens, tokens in general, even digital currencies is the approachability factor. And I think that as we see things like Libra come to market if it ever comes to market, but I think that it will, we’ve got a lot of backing behind it, but I think as we see those types of stable coins and what not getting into the market proliferating, people will get more comfortable with the technology. And as that happens, I think that people will be more comfortable with the tokens and I think over time, you’re going to have this just proliferation of people who are comfortable with the technology, comfortable making the purchases and they see something, particularly people my age even younger, that they feel like is theirs in a way as opposed to something that belonged to their parents or their grandparents.

I think that certainly in the regulated markets, we’ve seen a couple of recent Reg A+ offerings, so those are open to retail investors. People are able again, to access the market in a way that I think there may be a little bit more comfortable with than having to go through a broker or something along those lines. I also think that what we’re seeing in the... We’re also seeing like I think tokens are great because they open up people’s imaginations in a way. I think that there’s actually a Nets player who recently announced that he’s essentially tokenizing the future revenue in his basketball contract. They used to be paid over time in order to get some money now and then make investments with. And I think that that sort of thing is not something that we’ve talked about for a very long time.

It certainly isn’t the first time someone’s tried to do it, but I think that it’s got a lot of buzz behind it and I think it’s going to be interesting to see if this is just one of many or a one off thing. So I think that all of those things really lend themselves to tokens and to people getting more comfortable with them, being excited about them and moving forward, being able to get this into a more comfortable space where people really want to use this and that institutional investors, retail investors, everyone’s a little more comfortable with the technology.