An experienced digital media professional, Andrew Dix is CEO and Co-Founder of the Crowded Media Group, publisher of Crowdfund Insider, the leading news and information site for the global Fintech industry.
Crowdfund Insider was recognized by Onalytica as a Digital Transformation Top 100 Influencer under the publication category for 2018.
Crowdfund Insider was founded in 2012, soon after the signing of the JOBS Act by President Obama. The digital publication has been a leading voice, and independent advocate, for the disruptive innovation of Fintech and access to capital for small and emerging companies.
The security token industry is here, and you can get involved. Coming up the episode of Security Token Insight, Crowdfund Insider’s Andrew Dix sounds off on security token regulations.
Plus, big news from an overseas stock exchange. That and much more is coming up on this episode of Security Token Insight.
Hey, everybody. I’m Adam Chapnick.
And I’m Amy Wan. 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.
The Security Token Academy provides insights about this new era for security token enthusiasts, investors, and issuers.
Now, coming up on today’s episode of Security Token Insight, in your security token investing news, the Singapore Stock Exchange makes a big investment in an STO platform. We’ve got an expert interview with Andrew Dix, founder and CEO of Crowded Media Group, the company behind Crowdfund Insider, plus how you can watch all the videos from Security Token Industry Launch Week, and we’ll let you know the date of our next security token meetup in LA. That and more is straight ahead.
Now it’s time for your security token investing news. Luxembourg-based platform Tokeny has partnered with Blocktrade to promote security token trading compliance. The CEO of Tokeny said the company is developing an infrastructure of partners to ensure every STO the company issues is fully compliant and regulated. In other news, the Malta-based crypto exchange LXDX has announced a security token offering of its own. The tokens will represent a 10% stake in the company, as well as dividend rights. LXDX tokens will be offered to accredited investors in accordance with laws in Malta. Finally, the Singapore Stock Exchange has invested in security token platform, iSTOX. The company’s hoping to be the first to offer issuance and trading of STOs, and is working to obtain a license for the Monetary Authority of Singapore. To follow the latest regulations from around the world, visit our website, securitytokenacademy.com, and click on the learn tab, and select regulatory review.
The Security Token Academy is on the leading edge of the security token industry. We’ve interviewed the top experts, lawyers and business leaders from around the world.
The Security Token Academy attended Crypto Invest Summit in Downtown Los Angeles. Thousands of people from around the world attended the event at the LA Convention Center. Security Token Academy was there conducting interviews with some of the biggest names in the security token industry. That’s where we met Anna Cox. Anna is chief compliance officer at Blackmoon Financial Group. Find out what she says the security token industry is lacking. Plus, she shares some unique insight about the state of STOs in Malta. Take a look.
You have a very impressive background that is sort of a perfect introduction into this world. Can you tell us sort of why you think security tokens in particular are interesting right now, and why you guys are including that as part of what you’re doing?
Sure. Well, as you’ve mentioned, my background is very traditional in the world of finance. I come from investment banking background, and I started off in the world of IPOs. I’ve watched the roadshows, and I’ve watched the very complex process of an initial public offering of an equity. Now, this brought me to mind that there are a lot of inefficiencies in this process. So, STOs are fantastic in a way that they’re allowing smaller companies to gain access to raising capital in a very structured, transparent and efficient way.
Now, what we are trying to do is we’re trying to solve the problem of liquidity for such issuers, because very often, despite the fact that blockchain is an efficient tool for raising capital, the investors are left neglected without any access to liquidity unless the issuer steps into the process. Basically, even if you have a listing on an exchange, it doesn’t matter how many liquidity providers or market makers you have stepping into the process. Unless the issuer himself takes responsibility for providing liquidity to investors, not much is going to happen.
Can I stop you? Tell me more about that. So, that’s something we never hear. What would it look like if an issuer didn’t take part, but there were all these liquidity options, and then conversely, how would it look the other way?
Equity, unfortunately, has this market phenomenon that’s called perception valuation. So, you can have one investor, one market maker, who with a single trade can wipe out most of your ICO or STO valuation. So, you have one trader who basically thinks that your token sucks, and makes a trade for probably not a very significant amount, but at a much lower price. Then all of a sudden, investors panic, and you see your entire equity offering wiped out, up to 50% of its valuation.
This is not something that you want to see. This is not something that you want to have. So, what we’re trying to do is we’re trying to sidestep this single-equity risk by packaging equities into tradable and valuable products, such as ETXs, exchange-traded indices. This is where our partnerships with indices and with issuers comes into play.
Oh, that’s great.
By creating a packaged product, we’re removing the individual risk of an equity while creating additional liquidity in such an instrument, and also providing arbitrage opportunities for both traders and speculators.
Wow. Okay. So, for people who might be new to this idea, an ETX, is that the same as an ETF, what people know, or is it similar?
We try to avoid the term ETF, mainly because of regulatory implications, and because there are no crypto-based ETFs just yet, but functionally-
... it is essentially the same idea. Yes. It’s a packaged product based on a multiple amount of underwires that is traded on an exchange. What we’re offering to the exchange is it’s a branded product, so it would be branded with a particular exchange that would be operated on our platform, it would be sold through our platform.
Got it. So, if I’m an investor, and I were looking for your platform and your ETXs, what might I see? Would they be vertically grouped, or would they be in solar things, or would it be all supply chain, blockchain companies, or what would they be, or would it be currencies?
At the moment, they are currencies. Okay? So, again, we’re being very, very careful in terms of regulation.
We’re trying to ensure that before we step into a new area, we investigate what we can offer specifically. We are offering full scope of services in Europe, whereas in the US we’re primarily focusing on currencies, but we are definitely taking the STOs the next step further in the very near future.
Got it. Now, you guys are based ... You have dual bases, right, Malta and Cyprus? Is that correct?
So, can you tell us why those two jurisdictions are interesting compared to the US?
Well, Cyprus is more of an operational hub. We have the provision of several services coming from Cyprus, but Malta is the basis of our two entities. We have a broker-dealer entity there, and we also have an entity that is soon to be licensed in virtual financial assets. Ironically, small islands in Europe are taking the lead in terms of cryptocurrency regulation. You probably have heard a lot about Gibraltar, and definitely Malta.
There’s a lot of support from the government in Malta for blockchain industry, and I personally, as a compliance officer, am a firm believer that in order for an industry to function efficiently and to last, it needs to be regulated. The regulator in Malta is very proactive in terms of approaching the companies and enabling them to function in a structured and regulated way without letting them do whatever they want.
Yeah, that’s fantastic. Okay. So, how is it different? What’s the regulatory regime in Malta or even Europe, and how are those different, either from each other, and then from the US?
Well, the one similar thing is that a lot of the security token offerings, they are considered securities, so they do fall into the broker-dealer license, and this is one thing that Malta has very similar with the US regulator. However, in terms of cryptocurrencies, the regulator is not letting companies run loose and create wallets and exchanges and aggregators of coin issuers just without having a license. There’s basically a legislation that is a replica of a broker-dealer legislation that’s focused on virtually financial assets. So, the rules all the same for all market participants. They are based on traditional security laws, but now they’re applicable to cryptocurrencies as well.
Interesting. That’s exciting.
It’s a very transparent and understandable legislation because we’re used to it from the traditional securities world, but it’s applicable to cryptocurrencies.
You can watch the full interview with Anna on our website, securitytokenacademy.com. Click on the interviews tab. Also, at Crypto Invest Summit, we caught up with Carlos Domingo, the founder and CEO of Securitize, for an update on what the company has recently accomplished. Take a look.
I think a lot of things have been happening, but perhaps one of the most interesting things is that we recently moved one of the early security tokens that was issued outside our platform before we existed, actually, which was the BCAP token from Blockchain Capital. This is a project that I know very well because it was a source of inspiration for me to create SPiCE VC, and subsequently Securitize, so I’ll always look up at them as the pioneers of the industry. So, the fact that eventually we kind of convinced them to move their token from their original platform into our platform to make sure they can provide compliance and all the token holder management services is a great achievement.
That’s a huge bragging right. So, for those of the viewers who don’t know sort of the history of this, there have only been a handful of funds that tokenized, or that actually themselves their own tokens. We had Blockchain Capital, you had SPiCE, and then you also had Science, I think was another one.
Yeah. So, Science was ... They came out after Blockchain Capital, so the order was Blockchain Capital then Science-
And then SPiCE.
... and then SPiCE.
Oh, okay. Right. Yes.
So, today actually, it was kind of leaked in one of the panels that Science is also moving to our platform.
Our dear friend, Lou Kerner, kind of leaked it out in the middle of the panel, but anyway-
The Crypto Oracle himself, also friend of the show.
The Crypto Oracle himself.
So, this is, for us, something that we’re very proud of because it actually validates that our platform and our technology is kind of what people need. Greg from Science was on the stage this morning saying very nice words about why they chose Securitize to basically reissue their new token, so that’s exciting.
How terrific. Yeah. So, that says a lot if ... What’s it now? I guess three of the OG four are all migrating onto your platform.
Well, hopefully the fourth one will come as well.
It’s inevitable now, probably.
It’s inevitable, yeah.
Yes. So, giving you free rein to brag, why do you think those guys decided to shift into the Securitize platform?
I think one of the main reasons is we actually have a working product, which is very important.
Yes, that is important.
So, I think that the fact that we started before other people and we actually managed to build technology because we were trying to solve our own problem, which was easily tokenize SPiCE VC and issue our own token, allowed us to basically come early into the market, and this is a virtuous cycle. So, the more tokens come to our platform, the more the partners, like exchanges or custodian services, want to integrate with that securities protocol, and the more integrated we are in the ecosystem, the more tokens we can bring onboard, so ...
Amazing. So, now that you guys are sort of into ... You’re around first base, so to speak. What are you seeing as the most promising signs in terms of adoption from either side, if it’s the issuance, the issuers, if it’s platforms that you’re partnering with? Where are you seeing some signal that things are positive and that are growing?
I think what we’re seeing is that when we started getting the first batch of these additional investors and these additional projects that are moving into security tokens, and that’s the important thing, because I actually don’t like the concept of security tokens are a way to fix ICOs or to make ICO legal. That’s a very shortsighted thing. Security tokens are a bigger thing. It’s about digitizing securities on the blockchain to provide a lot of the efficiencies that come with real time settlement, traceability… and automation of digitized securities.
I think that the sign that we’re moving towards that direction and away from, oh, we’re going to make ICOS legal is a very good sign.
Right, and having the institutions give that in perimeter, it’s a big step. So, what about on the other hand? Are you seeing some sort of friction points or challenging element that are making it harder for people to kind of come en masse?
I think there are still friction points, obviously. The number one friction point I will say is the liquidity, because that’s a big promise around security tokens, and those changes haven’t launched. We work very closely with OpenFinance, which is going to launch very soon, we hope, and then the companies like SharesPost, AirSwap.
tZERO has a loan team, which is great. So, I think that that’s kind of one of the ... It’s not really a friction point, but it’s an unfulfilled promise that is holding people from moving strongly towards security tokens. Then the other area, which has been getting fixed, but it still is an area of friction is custodian services, obviously.
Right. So, what about that? What are we seeing happening there?
So, I think that the fact that companies like Kingdom Trust or Coinbase, they’re moving into this space is great. We have some announcements coming soon on that respect, because for us, it’s very important that the investors see the projects that our issuers to do and get corporate custody. So, at the moment, what we intend to do in many projects is we give the investors the option to just take the security without the token, or take the security with the token-
... to avoid the problem of what do with the private keys and if I lose them, blah, blah, blah, but I think when that gets fixed, then you will also see a lot more influx of investors.
It’s funny because the word custodian or custody didn’t even come up in our conversations-
... for maybe the first nine months that we did this-
Well, I’m sure now it comes all the time.
... and now it’s all anybody’s talking about, is custodianship.
Oh, yeah, yeah. Of course. Of course.
It’s like the big thing.
So, it’s, I think, a natural evolution that is ... People are realizing, “Oh, yeah. Wait a minute. We need someone to hold onto these things.”
Securitize is a gold corporate member of the Security Token Academy. You can find more information about Securitize on our website, securitytokenacademy.com. Just click on the directory.
I recently sat down with Andrew Dix at the Start Engine Summit in Santa Monica. Andrew is founder and CEO of Crowded Media Group, the company behind Crowdfund Insider. He’s also a founding special advisor to the Association of Online Platforms, and advisory board member to the National Coalition for Community Capital. Hear his thoughts on regulations and what he would change if it were up to him. Take a look.
Crowdfund Insider, the name of your online publication, reports to cover crowdfunding, but you actually cover fintech more broadly, and you now cover blockchain, security tokens, all that kind of stuff. What made you make that shift?
So, in my opinion, crowdfunding was really the catalyst for fintech to kind of get the ball rolling. Once people started to think, “Well, wait a minute. I can do online capital formation? Then I can do this. I can do that,” and so really, that was one of the flames that kind of lit the fire of the fintech movement. Now with the advent of blockchain and digital securities and digital assets, I personally believe that that’s going to meld well with online capital formation. Crowdfunding is a term, it’s used differently around the world, but in the end it’s internet finance or online capital formation, and it’s all part of fintech. It’s a very important part of fintech.
You know, you follow all these security regulations quite closely, how people are trying to evolve them or amend them or propose new ones. What do you think about the state of security token regulation today?
Well, it’s evolving, and I think that you’re watching that process take place. Clearly, the SEC has been slow to be vocal into how they want to regulate these securities. Now, everybody kind of understands now that everything is a security. Then the question is how they’re going to regulate them, and you’re finally getting some clarity there. In the eyes of the SEC today, everything is a Reg D, Reg A+, Reg CF. You have to abide by existing securities laws. Now, there is a possibility that could change at some time down the road, but you don’t have any clarity with that right now, and that will really have to come from Congress.
If you had one wish on something that you could change in the regulatory framework, what would that be?
That’s an excellent question. The definition of an accredited investor is wrong. It is so antiquated and out of date, it’s ridiculous, because what it does is it judges people based on the size of their bank account, not their sophistication, not their business acumen. Anybody that has the capacity and the knowledge to invest their own money should be able to invest in any security they want. I get it, that it’s an easy path to stop people from investing in highly risky securities, but if you look at somebody who’s a professor at graduate school, he wouldn’t qualify as an accredited investor. Most members of Congress wouldn’t qualify. A lot of people that work at the Securities Exchange Commission, they wouldn’t qualify, yet these are the people that have the knowledge that make them best qualified to make these decisions. The rules makes absolutely no sense. It just cuts out the vast majority of the people gaining access to investment opportunity.
You’ve often been a proponent of the idea of a regulatory sandbox for fintech. Can you quickly explain what a regulatory sandbox is, and do you think we should have one for the security token industry?
Yeah. So, that’s an excellent question. The UK, the Financial Conduct Authority, they were the first to do this, and the idea was you would bring these innovative financial firms into the regulatory fold and let them experiment in a safe environment. That totally makes sense. At the same time, I think that the FCA was compelled to do this, because they didn’t know how to manage these fintech firms. The best way to manage that is to have them come in and operate in your same house, and that way you better understand, see and learn, so really, its multifaceted. You have mutual information sharing from both sides. Everybody gains. Makes sense. The United States should be doing that. The CFTC is doing it, and I give them kudos. I give the chairman kudos. The SEC should be doing it now as well.
Be sure to go to our website, securitytokenacademy.com, to check out Andrew’s full interview. Just click on the interviews tabs. The security token LA meetup was the official kickoff to Security Token Industry Launch Week.
The week was marked with events from coast to coast. We traveled from Los Angeles to New York for the next meetup that was held inside the New York Marriott Downtown. Next day, we boarded Spirit of New York yacht from Chelsea Harbor for an evening cruise along the Hudson River, which was fantastic. There was dancing and gourmet food and a lot of networking for people that weren’t me, because I was on top doing all the interviews.
The week ended in a big way with the security token industry launch event inside the Conrad New York. Hundreds of people were in attendance as industry leaders rang the opening bell to signal the official kickoff to the security token industry. To view all of the videos from Security Token Industry Launch Week, go to our website, securitytokenacademy.com, and click on the events tab and select launch event video library. The best part, it’s free and contains a wealth of information.
Mark your calendars for our next security token meetup. It takes place Thursday, January 31st inside Maggiano’s at The Grove in Los Angeles. Free food, drinks, networking and more. You can find all the details on our website. Just click on the events page. You can also visit us on our meetup page at the address on your screen. We had a great turnout last time, so be sure to RSVP to secure your spot to this free event. We hope to see you there.
All right. That’s it for today’s episode. Be sure to follow us on Twitter, Facebook, Telegram and Medium, and do not forget to subscribe to our YouTube page so you don’t miss out on any of our videos and expert interviews. I’m Amy Wan.
And I’m Adam Chapnick. Before we go, a big thank you to our platinum corporate members, Merrill Lynch and Securrency, and for everyone here at Security Token Academy, thank you so much for watching.
The Security Token Academy is dedicated to covering and facilitating the evolution of the emerging security token industry. From interviews with leading experts to highlights from security token events around the world, be sure to visit our website, securitytokenacademy.com, today to learn more.
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