Arturs Ivanovs is Founder and CEO of FIC Network, the first blockchain-powered web platform that simplifies and streamlines the entire corporate bond life cycle. FIC Network’s institutional grade platform transitions the market to an interconnected, fully digital, peer-to-peer global marketplace while increasing transparency, security and liquidity for market participants.
Arturs, an innovator in the highly disruptive blockchain and distributed ledger technology industry, is a highly sought-after speaker at industry leading conferences around the world.
Before founding FIC Network Arturs was involved in fintech and credit markets regulation in the European Union. Prior to that, Arturs held leadership positions at Nords Porter Novelli PR agency and Ministry of Economics of the Republic of Latvia. He was born in Latvia and graduated with a degree in Law and Business from the Riga Graduate School of Law, moved to New York in 2016.
Welcome to Security Token Insight, brought to you by the Security Token Academy. The security token industry is here and it’ll provide a key foundation for the evolving Financial Internet. The Security Token Academy provides insights about this new era for security token enthusiasts, investors and issuers. The security token industry is here and you can get involved. Hi, I’m Adam Chapnick, coming up on today’s episode of Security Token Insight in your security token investing news, Sony invests in Securitize. We have an expert interview with Arturs Ivanovs, CEO and founder at FIC Network, plus a preview of our latest podcast Security Token Stories. That and more is coming up on this episode of Security Token Insight.
Now it’s time for your security token investing news. Vertalo has announced that it’s made Tezos their default blockchain and has encouraged customers to switch over from Ethereum. The Tezos blockchain was chosen due to its ability to convert ERC-20 tokens to Tezos smart contracts. The fact that Tezos’s smart contract abilities are available in multiple programming languages, as well as Tezos’s rate of transactions per second, played a part in the decision to switch over. In other news, TokenSoft launches, TokenSoft Investment Accounts. The new service will provide enhanced capabilities for TokenSoft issuers and investors. The new capabilities include a native brokerage style experience for prospective investors as well as integrated reporting for issuers, delivering financials and other disclosures to investors.
Finally, Securitize announced that it has received a strategic investment worth an unspecified amount from Sony Financial Ventures. Sony Financial Ventures is the latest high profile name that has been added to the list of Securitize investors, which include Nomura Holdings, Blockchain Capital, and Coinbase Ventures to name a few. By the way, Vertalo, TokenSoft, and Securitize are all Gold Corporate Members of the Security Token Academy. To learn more, go to our website securitytokenacademy.com and click the directory tab and select corporate member. Have you listened to our latest podcast? Episode nine of Security Token Stories is out right now. In this interview with STA’s Derek Edward Schloss, Blockchain attorney, Gabriel Shapiro, sits down to discuss decentralized autonomous organizations, DAOs and more. Take a listen.
You’re actually reminding me of something I really liked about the MetaCartel Ventures whitepaper, you had this concept, you talked about ... I think is qualified code deference, which I find really fascinating. It’s this idea that where I think the legal structure and the technical engineering of this DAO relies half on code and half on loss. The code half is relying heavily on these Moloch smart contracts standards that were previously part of the donative DAO. Then also the legal half is this, member managed Delaware LLC, which I think governed by the Grim Law, if I’m pronouncing that correctly, which is essentially the LLC operating agreement.
Yeah, maybe you can just walk through the interplay of these two ideas, the code and the law as you are helping add value and engineer this thing and why did thinking about it in this way lead to a stronger technical product and a stronger legal product. Just hearing more about how you’re thinking about these two words colliding.
Sure, yeah. So I think qualified code deference is ... that’s the essence of my philosophy about how these things should be approached, right? Because what we have with the Moloch DAO, the brilliant thing about it I think, is it has this radical right of free exit, which is that any token holder in the DAO, if they don’t like what is happening, they can just take their money and leave, right? They can just quit, they can just get their pro rata share of the assets that are held with the smart contract and they can just be on their way. This is radically different from a traditional venture capital fund, right? If you want to liquidate your position in a traditional venture capital fund, first of all, typically you just won’t be able to do it.
There may be some emergency situations in which you can’t do it, but you can bet that there’s going to be formal procedures that have to be followed and the people who are in control of the fund are going to have probably quite a bit of discretion and or opportunity to be influenced by conflicts of interest that run adversely to you, I’m your minority, limited partner and so on. So, that is why this adding the smart contract keys to this is a good and interesting thing and is not just solutionism because it enables transparency and enables you to get out anytime you want with whatever you ought to have without needing anyone’s permission.
So, I think that should be preserved, right? That is the best minority protection you can have. All the stuff in governance law about fiduciary duties and different standards of review for management decisions, those things are all premised on a separation between ownership and control such that there are all these powerless minorities. Now, if you respect the software, the minority is not powerless, they can leave at any time. So what you need to do as a lawyer in that circumstances, you need to say, “Hey, I don’t want anything I put in the legal documents to ever trump that functionality of the smart contract.” So I don’t want anyone who exits to ever worry about the fact that they may be breaching the limited liability contract by exiting and they may not really have the money that they thought that they had or that they actually received they may have to give it back at some point, right?
Now, it turns out that’s not a 100% possible because not all law is contract law, but you do want to say that everyone agrees, all the members agree and understand that the smart contract does stuff that’s not under the control of the human, and we have all looked at the smart contract and we’ve all agreed that the stuff it does without the intervention of human, it’s allowed to do, and we’re going to respect the results of that, we’re not going to challenge them later, we’re not going to say, when you quit, you shouldn’t have been able to quit at that time, et cetera.
That’s the idea of qualified code deference, we defer to the code in most circumstances. Why is it qualified? Well, because there are still laws, right? Like for example, if the company has a bunch of creditors and making a distribution would make it insolvent, then technically you’re never going to be able to waive away by contract, the fact that someone may need to have a remedy there against the person who took the money or if there’s a court order saying, “Hey, don’t take any assets out of the smart contract.” And someone did, again, you can’t defer to the code in that circumstance, like there clearly was something illegal that happened. So that’s why it has to be qualified code deference.
To listen to this podcast and many more, go to our website securitytokenacademy.com, click the interviews tab and select podcast. The Security Token Academy is proud to present an expert interview with Arturs Ivanovs, CEO and founder at FIC Network, FIC Network is the first blockchain powered platform that simplifies and streamlines the entire corporate bond cycle. We sat down with Arturs to discuss what a bond is and to end the challenges facing them, take a look.
It’s a legal obligation for the borrower to pay back the money that has been lent by the investor or the lender to that company, specifically in the corporate bonds business. Corporate bonds have historically been lagging behind equities markets and FX markets, and the whole market is actually driven by decades old processes and technologies. So we’re modernizing the whole infrastructure from ground up, we’re starting with the plain vanilla bonds, meaning companies that need to raise that capital and they’re seeking the investor community to put faith in that instrument.
QT tokens, it’s a new term. What is more accepted in this industry is just securities or bonds. So what we’re saying most of the times is that, “Hey, we’ll take your current processes, we’ll make them 100 times more efficient both on the primary market, and on the secondary market, so that institutions can actually benefit from greater transparency, instant settlement, and just more participation from the greater community because right now this market has been dominated by gatekeepers, the middlemen, and basically you need to trust so many institutions to actually participate in this market.” So we’re simplifying a lot of stuff and we actually did the first bond offering last year, which was the first USD corporate bond in the world on the blockchain.
From a legal perspective, I think the main challenge is the lack of guidance, domestically on the federal level and State level in the United States. Just from how to apply the new blockchain technology, the processes involved in the transfers, in the digitization of the certificates, the custody piece and so on. From technical standpoint, it’s already ... we’re ready to do this and get scaled up, but the problem is that we need to figure out how to navigate the legal environment in the most compliant way. The thing is, internationally it is possible and there are some sort of, let’s call it safe harbor in different offering types, but still to get to a scalable business model, it’s pretty challenging to navigate the legal landscape.
When investors and buyers are looking at these bond deals, it’s really about the merit of the economic terms of that security. So, tokenization really helps with the efficiencies that it gets and also the transparency that it allows for down the line plus the smart contract automation for the back office and middle office operations. Anybody can do a self-custody, we can do that like tomorrow or today, the problem is how do we create an interconnected network of custody solutions or just one solution that would accommodate all of these bonds and for all of the institutions. So in general, right now how we see it, we have a solution with a single custody provider and we’re looking to expand the custody companies into our network so that they’re all interconnected through our own proprietary bonds on a blockchain protocol, which is called Bob protocol.
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