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Security Token Industry Launch Week:
Spirit of New York Cruise Highlights

Transcript


 

Adam Chapnick:

Hey everybody. It’s me, Adam Chapnick with the security token academy. Thanks for joining us here in beautiful New York City. We’re here on the river for security token industry launch week, and we have been talking to some fascinating people. I want you to take a look.

Nancy Fechnay:

If you’re investing in token assets, you’re able to actually do all those investments on the blockchain, which means that you don’t have to do audits, you don’t have to actually execute waterfalls with lawyers. Everything is done automatically.

Adam Chapnick:

Right.

Nancy Fechnay:

When a deal exits or when you want to sell a portion of your ownership in that deal, it automatically is distributed to your investors.

Cliff Pace:

The government took a very strategic stance a couple of years ago in respect of blockchain and distribution ledger technology to say we need to put more on the map in respect of this new technology. Malta is a small island, very few resources, obviously human resources. We are looking forward, looking to internationalize as an island as well as an exchange, and I think that it was an opportunity, it is an opportunity to look at something which is growing, look at the potential, and say do we want to be part of this or not? The government as well as the exchange has said yes we do.

Dave Hendricks:

There are a lot of companies, and this is my particular experience, as a co-founder of a venture funded company, there are so many. Look behind us.

Adam Chapnick:

Yes.

Dave Hendricks:

There are a lot of companies, and this is my particular experience, as a co-:

There are so many companies here in this city who’ve taken venture capital money, and they’re too big to get easily acquired, okay? And they’re too small to go public. Okay? I call that the gulch, okay? They’re all of these companies that are in this gulch. In the next year as they may struggle to raise more funds, they may think, how do I get closer to liquidity? If I’m too big to get acquired and I’m too small to go public, tokenizing, using an equity token is a way for them to activate the capital they’ve had invested in them, maybe get some liquidity to early investors or employees…

Adam Chapnick:

I think that’s…

Dave Hendricks:

There are a lot of companies, and this is my particular experience, right?

Adam Chapnick:

This is a fantastic observation. This is something I’ve heard no one else say, but that is a huge sampling. That’s a huge sampling.

Dave Hendricks:

These companies are all over the world, okay? There’s so much latent talent. There’s so much capital that’s locked up in startups which are in the five, seven, nine year kind of age, and those companies could be tokenized. They’ve got financial results, okay? Operating history-

Adam Chapnick:

Absolutely.

Dave Hendricks:

They’ve got working product and clients, so you can take those companies and you can tokenize them and you can pay dividends on their revenues, or some other form of payment to stakeholders, and what you can do is you can get some of the early employees, the angel and early round VCs out of those deals.

Cliff Pace:

Most of the stock exchange is domestic exchange, so we have multis, companies on both. We have multi investors. It’s an exchange in every sense of the word, so that’s fine.

Looking at the blockchain, looking at the DLT technology, which is hitting our island and hitting the world in general, we’re looking at partnering with key players in the industry who certainly have much more experience, have much more exposure in this area than we do and really join forces in order to bring two parties to the table. We have the technology part, the exchange part, the token part coming on board, and you get the regulatory structures and the structures, all of the exchange, which would incorporate anti-money laundering and due diligence and all the regulatory things that the legal type of structures which you need to have.

To some extent, one thing which is missing is the legal certainty. In July, the local regulator, the Malta Financial Services Authority, MFSA, enacted, or proposed and it was enacted in parliament, the law, the legislative structure which will regulate cryptocurrencies, ICOs, DLT structures, virtual currencies, virtual financial assets and things like that. We have created a structure which will give, we hope, legal certainty to the different mechanisms which will be brought onboard by technology.

We feel, at least my view, my personal view, is that the technology’s moving at a very fast pace and regulations are really finding it very hard to catch up.

Adam Chapnick:

It’s true.

Cliff Pace:

One thing which is missing is legal certainty. One thing which is missing is a way to address the issue of risk, and working in a currency exchange, working in any kind of exchange, one needs to address issues of risk.

Adam Chapnick:

Absolutely.

Cliff Pace:

What we hope to do is create a structure under which risk is either controlled or mitigated through legal certainty at issues in terms of what happens when things go wrong. It’s all great to talk about these things and when they work and this, and it all works nicely.

Adam Chapnick:

Right.

Cliff Pace:

But when things go wrong, what do you do?

Adam Chapnick:

Yes.

Cliff Pace:

We hope that we’ll have the regulatory structures which will address both when things are going well as well as when we have an issue and we have something which needs to be addressed. That will help the confidence-

Adam Chapnick:

Absolutely.

Cliff Pace:

In the market grow over a period of time.

Jordan French:

Look. It’s been a really interesting year from a regulatory standpoint. People started the year really, really worried about what, in particular, US and EU regulators might do. Well, here we are in October, Adam, and people are still very, very worried about what US and EU regulators are likely to do.

Adam Chapnick:

That’s right.

Jordan French:

We’ve seen a big split in just kind of broader global market, we’ve seen some of these jurisdictions, like Malta, Gibraltar for sure, become a bit of a safe haven for some of the utility tokens that could be securities or not and just don’t have to address that question because they’re not stateside. They’re certainly not raising money here, and then some of the Pacific Rim countries, right? Korea’s maintained itself as a very big market for fundraising, Singapore I was just in as well. Very active. Hong Kong. Much more activity than what you see here, and it begs the question whether, who’s right.

On one hand, on one hand we hold ourselves out in the US having kind of the strongest security market, and it’s because of the regulations that make it that way. Well, there’s certainly an equally sizable contingent that says hey, no, wait a minute. You’re stifling this nascent market. Time will only tell, Adam, which one is right.

Cliff Pace:

One thing which we have is we’ve created an agency structure in Malta for any entity to be regulated and to be brought on board as an ICO or as a representative of a fund or of a cryptocurrency, whatever. They would need to have an agent representing him in the Maltese environment who is going to be recognized by the Maltese authority.

We are a domestic exchange, so at the moment we are definitely a Maltese issuers. You have the government of Malta issuing paper and equity onto the exchange, and this is taken up by Maltese investors. That’s really our model.

Where would you like to be in five years’ time? I’d like to have obviously the Maltese market working, because that’s our bread and butter.

Adam Chapnick:

Sure, of course. Yes.

Cliff Pace:

But the cream will be from international issues, either issues coming from the regulated main market in the traditional sense, or the crypto, ICO type of exchange structure, which could develop as soon as a year away. We’re not that far away.