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Security Token Insight: Expert Interview with Carlos Domingo

Expert Interview


 
Carlos Domingo - Founder & CEO of Securitize

Carlos Domingo

Founder & CEO, Securitize

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.

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Securitize An end-to-end platform for issuers that are seeking to tokenize assets

Transcript


 

Adam Chapnick:

Welcome to Security Token Insight brought to you by the Security Token Academy. The Security Token industry is here and will provide a key foundation for the evolving financial internet.

Amy Wan:

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.

Adam Chapnick:

Hi, I’m Adam Chapnick.

Amy Wan:

And I’m Amy Wan. Coming up on today’s episode of Security Token Insight. In your Security Token investing news, a new council called the Japan STO Association is formed by six major Japanese brokerages. Plus, we’ve got an expert interview with Carlos Domingo, the co-founder and CEO of Securitize. And highlights from our Security Token meetup in New York city. That and more is coming up on this episode of Security Token Insight.

Adam Chapnick:

Now it’s time for your Security Token investing news. Our first story today comes from Japan. A new Japanese council called the Japan STO Association, which consists of six major Japanese brokerages, has formed with the goal of providing institutional support to Security Token offerings. The new association will assist in creating rules and guidelines for the issuance of security tokens. Their goal is to help ensure investor protection through updated regulations, which will help reduce illegal activities such as money laundering.

In other news, Verisart, a startup which focuses on art and collectibles, has raised two and a half million dollars in a seed round, which was led by Galaxy Digital EOS fund. Verisart tracks and timestamps digital certificates for real-life artwork and collectibles by using the Bitcoin blockchain. This record can then be used to confirm and track the origin of artworks. The recently-raised seed money will be used by Verisart to expand its commercial authentication and origination product. Since 2015, eBay has been a partner of Verisart to validate work by artists such as Ai Weiwei and Shepard Fairey.

And finally, our last story features Securitize. Securitize recently announced a strategic partnership with Liquidity Digital. Liquidity digital is a New York City-based technology provider for private capital market deal distribution, and post-issuance solutions via blockchain-based digital securities. The two companies partnered in order to meet the needs of an increasingly diverse group of investors who require a revitalization for outdated forms of capital formation. By the way, Securitize is a Gold Corporate member of the Security Token Academy. To learn more, go to our website securitytokenacademy.com. Click on the directory tab, and then Corporate Member.

Amy Wan:

Have you listened to our latest podcast? Episode eight of Security Token Stories is out right now. This interview with STA’s Derek Edward Schloss, features polymaths Thomas Borrel and Adam Dossa. To listen to this podcast and many more, go to our website securitytokenacademy.com, click the Interviews tab, and select Podcast.

Adam Chapnick:

The Security Token Academy is proud to present an expert interview with Carlos Domingo, the co-founder and CEO of Securitize. Securitize is an end-to-end technology platform built for issuers looking to tokenize securities. The company is a Gold Corporate member of the Security Token Academy. I sat down with Carlos to discuss Securitize’s recent round of funding, their newly obtained transfer agent license, and more in this expert interview. Take a look.

Carlos Domingo:

So we felt that if you want to have legitimacy in the space, and really be able to go after real business like good issuers, broker-dealers, et cetera, you have to have, also, investors that come from that space. So, early, on after we did our CSA back in November, we started approaching banks and talk to them about trying to evangelize about the importance of digital securities and how they can actually improve their processes by digitizing securities on the blockchain. And that conversation led to some of them doing some projects with us and then saying, “Okay, we’re going to do a project with you, so I might as well invest in you as well. So I can then benefit from the upside it’s going to give to your company, and really make sure there’s an internal alignment between what we do.”

So we’re very fortunate. We got Banco Santander, which is the largest bank in Europe. We got Mitsubishi UFJ, which is the largest bank in Japan, and fifth largest bank in the world after all Chinese banks. We’ve got Nomura Securities, which is one of the largest securities firms in the world. So I cannot be more pleased about the news, and I hope that people take it as a step forward for the entire industry, not just for Securitize, because this brings the validation of the space that everyone needs, not just us.

Actually, they’re all super interested and, you’d be surprised, they’re super knowledgeable. And they all have very good DLT, blockchain, digital asset teams, whatever they want to call it, depending on the bank. And they all have the capital markets experience as well as technology experience. And they all understand that blockchain is the solution for basically digitizing the entire process of issuing and managing securities, because today it’s very broken. So, it’s very dysfunctional. There’s a lot of rent seekers, there is a lot of disconnects in systems that are there. It’s like [inaudible 00:05:25] in some markets, et cetera, so I think these banks all have a very good understanding about how this technology can actually help them improve.

That said, it’s going to take a long time. It’s not going to happen tomorrow, because obviously, these are very, very, very large corporations. So Banco Santander is the largest public trading company in Spain, and is the largest bank in Europe, so you’re not going to change how they do things tomorrow. But the good thing is that they support us with funding so we can stay here for the long term, and then we can work with them and help them improve their internal systems to digitize the process of managing securities using blockchain technology.

So, as you know, in the US, you don’t have to have a transfer agent to deal with certain types of security. So, so far we were operating without being a transfer agent. It was not a problem from a regulatory perspective, but we always felt that being regulated gives confidence to people that what we’re doing is legit. We felt like by having an SEC regulated license is going to allow us to do two things. One is going to allow us to basically deal with all the type of securities that you have to have a license to deal with, like Reg A-Plus, public securities, being able to conduct corporate actions like paying dividends, and things like that, that some people are doing in the blockchain industry, but isn’t completely legal, but then, anyway, we want to do it on the legal way.

And the second thing is, even for the people that we actually don’t need to have a license, to give them the comfort that we are so confident that what we do is compliant, that we don’t have a problem with reporting to the SEC about what we do with the securities, because it’s going to give them comfort that what we do is legal, so.

I think for issuers, is basically a number of things. Obviously, some of the issuers are looking for capital information, and today that’s tough, because it’s not really there. I think many of the issuers that work with us, they’re just basically looking at automation of the process of issuing the security and managing the security once it’s been issued. Because a lot of issuers, once they issue the security, they have a lot of problems, or like paying a dividend, and they have to use a transfer agent, and pay 3% to pay a dividend, and things like that, that we can actually basically simplify.

For investors, is basically reducing the cost of holding the security. Like, most people don’t understand that if you’re an investor, and you invest in a security that pays a dividend, for instance, as I mentioned, you’re not getting 100% of your dividend, because the issuer has to use a transfer agent that is going to actually take a cut of that dividend that comes to you. And typically it’s like, could be up to 3%, which is ridiculous, because it’s basically a check that they send you in the mail.

So for investors, even though maybe they don’t perceive it as an advantage to them, it basically makes their investment better. Also, you could think of that investment having a higher rating because it’s more transparent, because all the documents, obviously, are ... on the blockchain, and therefore giving the business high rating, and therefore the investors are more protected. So I think there’s a lot of improvements for investors that might not be as obvious as for the, say, issuers or broker dealers, but that. Over time, we hope that they will realize about it.

Adam Chapnick:

We have the full interview with Carlos on our website. Be sure to check it out. To learn more about our corporate member program, visit our website securitytokenacademy.com, and click on the Membership tab.

Amy Wan:

Did you know that you could get the latest industry updates in our free weekly newsletter, the Security Token Edge? The newsletter is packed full of insightful information about the security token industry. To subscribe and get your free weekly copy, go to our website securitytokenacademy.com.

We also invite you to check out The Digital Wrapper on Medium. It’s our new behind-the-scenes series with the teams building out the security token industry. These are in-depth interviews covering a wide variety of topics. You can view these when you follow us on Medium. You can find out more information on our website, securitytokenacademy.com

Adam Chapnick:

Now live on the crest.io website, a new expert video featuring an interview with Arnoldas Nauseda, CEO of Smartlands, and Matthew Pollard, co-founder and CEO of Archax. Hear about the recent partnership between Archax and Smartlands, and the state of the security token industry in London. Here is your preview.

Both of you guys, Archax and Smartlands, are based in London. So we talk a lot here about the environment in all of our cities in the US. Can you tell us a little bit about the state of the security token industry in London? What’s the current climate like there? What do you see, Matthew?

Matthew Pollard:

Sure. So, Archax have been around for a year and a half, and all three founders have spent the last, at least, 10 years on the buyer side, being regulated by the FCA. And so, our experience in setting up Archax has been pretty positive. The City of London wants to be an innovative center. By lots of metrics, it’s the FinTech capital of the world. With Brexit coming up, there’s definitely an appetite for the innovation to stay in the City of London. So we’ve seen the regulator, we’ve seen the Bank of England, we’ve seen Treasury, we’ve seen companies in the City of London, all take a massive interest in blockchain. And there was an FCA consultation paper that came out in January this year, and to see the regulator explicitly recognize cryptocurrencies, and give them three classifications, three buckets. One was exchange tokens. So things like Bitcoin, used to exchange value. Utility tokens, and explicitly recognizing security tokens. So, for us, it’s a really good sign that the London and the regulator are properly looking at this space. Hopefully that answers your question.

Adam Chapnick:

Yeah, no, that’s exciting. What about you Arnoldas? Are you seeing any kind of trends around security tokens? What’s the environment like?

Arnoldas Nauseda:

Yes, I see a lot of, actually, movement in the space as well. So in addition to Matthew’s points about the regulator, a regulator is really very progressive. They have also the sandbox programs. So on sandbox, there are many companies going and testing, basically, their blockchain products, technologies, et cetera. So, that’s very positive in that sense.

I see, also, a lot of conferences in the crypto and blockchain space. A lot of meetups, as well, which is organized by lawyers, by various ex-financial people, basically financial institutions. So there is really bigger traction in one of the biggest financial centers in the world, and we’ve chosen this year’s diction for our business as well, as one of the most reputable, and progressive, and innovative, and friendlier environments to do the business.

Adam Chapnick:

Yeah, it’s exciting to hear. Now, both of you guys, Archax and Smartlands, have been in the news recently because of a partnership. Matthew, why did you guys enter into this strategic partnership with Smartlands for their property-backed security tokens?

Matthew Pollard:

Sure. So, as I’ve said, we’re building a regulated venue that will list regulated instruments, and so, as part of building that venue and building our business, we want to know that we have an exciting pipeline of quality assets that we will list on our regulated venue. And so, engaging in partnerships with exciting companies like Smartlands is a very natural part of our strategy, because we want to have the best quality assets on the venue to attract customers to our venue. So that’s why we’ve done this. We see the work that Smartlands have been doing in London. We see the attention to detail, especially around the regulatory framework of the offering. And we knew that they would be a great partner to sign up so that we can have their current offering and future offerings to be listed on our venue.

Adam Chapnick:

And Arnoldas, can you talk a little bit about why Smartlands chose Archax for your STO?

Arnoldas Nauseda:

Yes, so as we all know, tokenization is about liquidity. Liquidity is the key driver of this space, so, basically, we need a secondary market in order for this industry to move forward. So, we basically analyzed all the European exchanges, and we also basically explored what are the existing exchanges in the UK, which are FCA regulated, with a good theme with the execution. And we’ve chosen Archax as our partner to list our security tokens. And that’s a great, I think, a fit for us. And we collaborate, we partner, and we move this space in London. And the other reason was that we would like to have all the, basically from the issuance to the exchange, to have FCA regulated, which is a one-stop shop. When the people go and invest in security tokens, they see the reputation reputable companies from the whole value chain and, which is all compliant and regulated in UK. So that was, again, one of the key decision criteria to decide to partner with Archax and move forward with the listings.

Adam Chapnick:

Yeah, great. Okay, so Arnoldas, recently Smartlands tokenized, essentially, the first tokenized property in the UK. A $12 million student housing project. Can you tell us more about this STO? How much is it looking for, who can invest, et cetera?

Arnoldas Nauseda:

Yes, we believe that we are the first in UK to tokenize the property. So the property is 12 million pound sterling property based in Nottingham. As you know, Nottingham has two universities, big universities, which were one of the best in the UK, I would say. And one of the top leading in the world. So there are more than 60,000 students, and there is quite a demand from all over the world for these universities. And at the moment, in the market, the situation is that in this city particular, there is a shortage of student accommodation. The council, I think, issued that there is 6,000, basically, a shortage of the student accommodations.

So, and also, talk about student accommodation. We chose this alternative sector from real estate as one of the key sectors, which has the interest from the institutional investors as well, so it’s their indication. And during the recession, it’s also been doing great, this sector. So it’s kind of a good business case to start, from the business point of view, and also the location-wise. So the people can go on our platform, they can go through the KYC, and in five minutes, and they can basically register, and buy the tokens.

Adam Chapnick:

Be sure to check out this and more on Crest.io.

Amy Wan:

The Security Token Academy held another successful meetup, this time in New York City, and we want to thank everyone who attended. We had a big crowd inside the Sunset Terrace at Chelsea Piers. Security token experts and financial services professionals were on hand for an evening of informative discussions, networking, food, and drinks. I also moderated a panel discussion that included our professional and corporate members. Here are your highlights from that panel discussion.

Hi everybody. My name is Amy Wan. I am host of Security Tokens Insights. Hopefully some of you guys have seen the show, and I’m also CEO of Sagewise. We have an incredible panel here tonight with regulatory and legal experts. They all know so much more than myself, so I am going to allow you guys to basically go down the row, and if you could give us 60 seconds about yourself and your company.

Aryeh Friedman:

Yeah, sure. Aryeh Friedman, General Counsel at SeedInvest. We’re an online leading equity crowdfunding platform in the US. We operate through a broker dealer, so we help issuers looking to fundraise, raise capital through Reg D, Reg A, Reg CF, and the various offering exemptions that are available here in the US. We have an investor base of about 275,000 investors made up of both accredited and non-accredited investors, accredited including average angel investors, institutional, retail, and family offices. And we’re also very active in the digital asset space.

David Adams:

Hey, I’m David Adams. I’m a senior associate at Clifford Chance. Clifford Chance is an international law firm. We’ve got offices here in New York, also in D.C. Our main office is in London, and then we have offices throughout Europe and the Middle East. I think that the firm has realized what an incredible opportunity digital assets are, including securities tokens in particular, and that, because you’re dealing in a digital medium that crosses borders all around the world, that you need support all around the world, as well, in the form of legal advice and whatnot. My specific focus is on broker-dealer and investment advisor regulatory issues. I also do a fair amount on alternative trading systems, exchanges, et cetera. And then also a little bit on the enforcement side, dealing with, primarily, we’ll call them ICO issuers, who took a chance, took a gamble and hasn’t worked out particularly well for them. So I think that that’s what the Security Token Academy here really brings to the table is doing things in a regulatory compliant way.

Robin Sosnow:

Hi, well, first of all, just thank you so much for inviting me to be here tonight, Amy, to be a part of this spectacular space, and I’m really happy about the number of friends that I have in the room. My name is Robin Sosnow. I’m a corporate and securities lawyer here in New York City. I’ve had my practice for the last five years. We work with issuers, broker dealers, and funding portals in an effort to help them raise capital, or deal with regulatory compliance issues. I’m really focused on the Jobs Act, so we do a tremendous amount of regulation crowdfunding work. Reg D 506c and Reg A-Plus. I’m also the author of the Crowd Crypto News newsletter, which goes out weekly. If you’re interested, let me know, I’ll sign you up. And my firm is a joint venture partner in a law firm called Digital Securities Law Group that focuses on helping private companies tokenize ownership and sell it through private placements.

Jason Gottlieb:

Hi, everyone. My name is Jason Gottlieb. I’m a partner at Morrison Cohen LLP, a mid-sized law firm here in New York City. We are a full-service law firm doing all sorts of things. My own practice focuses on regulatory enforcement and litigation issues, and these days, is as many of you are aware, some of you perhaps more painfully than others, regulatory enforcement in the crypto space has been sort of a hot topic. So I typically handle SEC or CFTC subpoenas, document requests, and even litigations. I’m a lead counsel in one of the earliest actions the SEC brought against an ICO issuer. So if any of you are in trouble with the SEC, our conversations are privileged. No one else will know about it.

Aryeh Friedman:

If you are in trouble, you might want to talk to him outside. Stepping out back.

Amy Wan:

We don’t want to hear that conversation. Well, thank you everybody. Thank you so much for donating your time and your knowledge tonight.

So let’s start off with this question. Back in 2017, 2018 there was a huge appetite for these so-called utility tokens that were not being treated as securities. And as the space has evolved, the appetite for that seems to have decreased, and there’s this evolution towards now tokenizing equity, as opposed to, some sort of network utility token. Why has that been the trend? This tokenizing equity thing, and is there still even an appetite for utility tokens? Why don’t we start with Robin, and then we can all jump in?

Robin Sosnow:

Sure. So in my practice, we’ve certainly experienced that shift in interest. I think one rationale or argument would be that it’s a much safer route to take if you’re a non-blockchain business and you’re looking to raise capital, but you see the value proposition of digital asset securities, then pursuing a capital raise in reliance on a traditional exemption like Reg D 506c, or even Reg CF, is just a much more conservative approach to take while still bringing a blockchain element into your capital raising strategy.

Aryeh Friedman:

Yeah, I mean I’m happy to go. I think that the biggest thing that I see is that, basically, regulators started to take notice, and it’s not the wild, wild west anymore, and so I think it’s not a bad thing. While in the short term everybody panicked, and there was this downturn in the crypto space, but I think what’s happening is the market’s maturing. People are taking a step back and figuring out, “Okay, how can we do this compliantly?” And so people in this space, as well as regulators and the larger players, take the digital asset space seriously. And so people are trying to figure that out, and work with regulators, and the people who are thinking of it from a long-term approach and are trying to achieve long-term success versus short-term gains are taking that approach. And so some of that takes time, unfortunately, and it takes more time than people would like, but you can’t do it without getting some of the key stakeholders on board.

David Adams:

Yeah, and I always found the concept of a, quote unquote, pure utility token to be interesting, because at the end of the day, I think it was very difficult to distinguish a utility token just from an investment, and you weren’t getting much utility from some of the tokens that were out there, and you were also not really getting any sort of equity position. So I think that people started to think about it a little bit, and they were like, “Wait a minute, this is not really... What are we actually getting here?”

And I think that the SEC is, as you noted, also started to take notice and started to say, “Well, we haven’t really seen a token out there that isn’t a security, because they all look like you’re building enterprises to us.” So I think it’s less that there aren’t utility tokens that people are still playing with. I mean, you have some new action letters that have come out that would seem to be really pure utility tokens. I think the question has been, the narrative has shifted. The SEC has spoken, and people have started to take notice of that and say, “Okay, well, we’re going to have to be in a regulated space,” which is what many people had been saying for a very long time, but I think sometimes got drowned out in some of the other noise.

Jason Gottlieb:

Interestingly, for a litigator and regulatory enforcement perspective, I’m actually going to take a business case on this one. I think, early on, a lot of people didn’t quite know what to do with utility tokens. People would introduce them and say, “Well, okay, do we actually need this thing? It’s real estate on the blockchain, it’s coffee, but on the blockchain it’s love, but on the blockchain...” And people were struggling with what the business use case was, and some are very compelling, and some are not so much. But when you come at it from the other side, when you look at assets that may already exist, and the securitization of those in a digital concept, it’s easier for conservative businesses who are trying to adapt to it to understand, “Oh, it’s a security, but it’s going to be in a slightly different form.” And that may be easier to approach for institutional actors and other bigger businesses than coming at it with an entirely new approach to businesses that were already existing.

Amy Wan:

You can view the entire panel discussion on our website, securitytokenacademy.com. A big thank you to everyone who attended the event. Be sure to check out The Tokenist for a great writeup on our meetup.

Adam Chapnick:

I want to remind our viewers that if you have any questions about security tokens, be sure to email us, and we could answer them right here on a future episode of Security Token Insight. The address is [email protected]. Be sure to include your name with your question. One more time, the address is [email protected].

Amy Wan:

All right, that’s it for today’s episode. Be sure to follow us on Twitter, Facebook, Telegram, and Medium. And don’t forget to subscribe to our YouTube page so you don’t miss out on any of our videos and expert interviews. And a big thank you to our Platinum Corporate member, Merrill Lynch, and all of our Gold Corporate members as well. We invite you to learn more about our corporate members by clicking on the Directory tab and click Corporate Member. I’m Amy Wan.

Adam Chapnick:

And I’m Adam Chapnick. From everyone here at Security Token Academy, thanks so much for watching.

You want to learn more about our corporate members? Visit our website securitytokenacademy.com. Click on the Directory tab and select Corporate Member.