Henry is the Co-Founder of Digital Asset Advisors. Henry is also the Director of Origination and Investment for Slice. He has overseen more than $1 billion of investments across the real estate and technology sectors. He has also been investing in and advising blockchain startups since 2017. Now he uses his expertise at the intersection of blockchain, real estate, and finance to build Slice’s real estate investment platform.
The security industry is here, and you can get involved. Coming up, this episode of Security Token Insight, a historic announcement from Securitize from World Crypto Con ins Las Vegas.
Plus learn about the advantages to using security tokens in the real estate industry. 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.
Security Token Academy provides insights about this new era for security token enthusiasts, investors and issuers.
Coming up on today's episode of Security Token Insight, in your security token investing news, details on the first transfer of a security token on the public blockchain. We've got an expert interview with Henry Elder, co-founder of Digital Asset Advisors. Hear his thoughts on the tokenization of real estate, and speaking of real estate, stay tuned for highlights from Security Token Industry Launch Week on the benefits of using security tokens in the real estate industry, plus how you can attend our next meetup here in Los Angeles.
Now it's time for your security token investing news. We begin with some big news from peer-to-peer trading network, AirSwap, and security token platform, Securitize. Both companies have joined forces for a historic moment, the first peer-to-peer-compliant transfer of a security token. Here's the big announcement from World Crypto Con in Las Vegas.
We have been working with Securitize-
Best friend to the show.
... and we've had some successful testing of their DS protocol with AirSwap, and so that's a big milestone for us. As you know, AirSwap's a decentralized trading network. We focused initially on consumer token or tokens that were intended not to be securities, and now what we're doing is we're trying to take some of the underlying technology we've built and apply them to security token trading.
That's great. Okay. So, let's decode a little bit of that. So, what happened today when you said you tested some of their protocol successfully, you were able to trade one of their tokens, essentially. Right? Wasn't that what happened?
There was an executed trade.
Yes. It was a test trade. It was an executed trade Mainnet, both of a test token, using their protocol. So, that was very exciting.
That says a lot because everybody's kind of holding their breath, waiting for that to become widely employed, and one of the problems or potential problems was this whole thing doesn't work. What if we try, and it just fundamentally doesn't work yet with the technology? Sure enough, today's the day.
Right, and I think that's one of the exciting things. As a lawyer in this space, it's exciting and also terrifying at the same time because you have this technology that can improve the way assets transfer, the way you track assets, but there's a little bit of a paradox or a catch-22 in that even though it's easier technically to transfer some of these assets, because you're talking about real world assets, you're talking about securities, you're talking about regulated products, it's not any easier legally.
So, threading the needle and finding the points in the transaction lifecycle where you can make improvements without running afoul of securities laws, making sure that you comply and work with market participants, I think all of those are really important to the ecosystem as we move forward, and I think that's part of the reason, when you look at Securitize and their DS protocol, and kind of putting these tools together, you can start to build an ecosystem where, you know what, maybe a year ago it looked like it would be kind of a long time or a very tough road ahead for this type of industry to thrive, but after months and months of work, you start to see some progress, proof of concept, and I think that'll help drive adoption.
We saw today, actually, the first trade happen, which is pretty cool.
Yeah, a big deal. Right. Yes.
We're really excited about that happening. We're excited to see how it all develops, and so for us, that's kind of a natural next step is let's start to pull the industry together so we can all pull together and really make it happen.
This is a big moment for the security token industry. Congratulations to both AirSwap and Securitize. 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. In other news, J. P. Morgan's blockchain platform is being used to tokenize gold. According to the Australian Financial Review, Quorum is being used to digitize gold bars and move them on the blockchain.
Quorum is the enterprise version of Ethereum, and has been adjusted to offer a higher level of privacy as it represented a permissioned blockchain. Quorum is being used for capital markets issuance, custody and secondary markets. Finally, we head to Lithuania for that country's first security token offering. The DESICO security token sale started on November 8th. DESICO is a platform to issue and trade security tokens for both institutional and retail investors. The STO's in full legal compliance and will be regulated and supervised by the Bank of Lithuania.
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. I had the pleasure of interviewing Henry Elder at our recent security token meetup in Los Angeles. Henry is co-founder of Digital Asset Advisors. He's also advisor to the International Blockchain Real Estate Association, and director of origination and investment at Slice. Hear his thoughts on the differences between US and foreign real estate asset tokenization and more in this expert interview.
Can you help explain for us what is the difference between blockchain and distributed ledger? Do they mean the same thing, or not?
I look at distributed ledger technologies as sort of like an umbrella term. Right? Blockchain is one of the technologies that fall under that umbrella. You have a number of other technologies that people kind of just call blockchain, just for a simple colloquialism, but distributed ledger technology, I feel like, is the more inclusive term, and it's also something that you can use to sort of break the ice with people who may view blockchain a little bit more of a negative light. Right? Because unfortunately, we all lived through 2017, and there are a lot of utility tokens and cryptocurrencies that have given the whole blockchain industry a little bit of a taint, and so being able to say distributed ledger technology sometimes, and kind of glide over that, at least initially for that initial impression when you're speaking with a new client, we found to be pretty useful.
Interesting. So, you're working across many different areas, finance, real estate, tradition assets, and both with startups and established companies looking to pivot. What state of DLT awareness are you finding within these organizations, and what are their areas of greatest need, and how do you facilitate advising in that regard?
Yeah. So, that is one of the most exciting parts of our business, because we love working with blockchain technology companies, but we don't see true adoption coming until traditional non-blockchain companies start looking to the solutions that they're building to streamline and improve their own businesses. Right?
So, we just signed up this incredible client called Shipsomnia, and Shipsomnia runs some of the most unique and entertaining cruises in the world. Right? But they have had incredible difficulties processing payments for the hundreds of countries that their 30-million fan base comes from. Right? So, they turn to the blockchain, because if you think about it, the original killer app of Bitcoin was transmitting money across borders. Right? Since then, we've had a whole bunch of incredible companies, WAX, who are building upon that core ability to create a better UI and a better UX for consumers to use it. So, we love seeing companies like Shipsomnia saying, "I know that this technology is there, and I want to see how it can help me," and so that's incredibly exciting.
One other thing that we see with a lot of companies that we talk to is they see the capital formation potential of blockchain. Right? We still talk to a lot of companies that are like, "Okay. I have an amazing idea. I want to raise a hundred million dollars, and I want to do it in 10 minutes, and I don't want to pay any money to do it," and so we still face quite a bit of an education hurdle when it comes to that. When we give them an estimate of how much it'll cost to come to market, we see a lot of eyeballs pop out of sockets, but it's good. It's good because that allows you to weed out the people who aren't actually committed to what they're doing, because at the end of the day, I think a good project still can raise a significant amount of money, not a hundred million dollars, but maybe 10 million dollars, money to give them roadway. I'm blanking on the term, the thing that an airplane lands on.
To get some runway, and to actually turn it into a reality, but in order to get there, perhaps you might need to do a small seed round. Right?
So, you just have to set your sites realistically and approach it that way. Break it down into manageable chunks.
Fantastic. So, you're an advisor with IBREA, the International Blockchain Real Estate Association.
What major differences are you seeing between US domestic and foreign international real estate asset tokenization? What areas do you think pose the greatest friction for tokenized real estate investment across borders?
That's a great question. So, IBREA is one of the original real estate blockchain associations. Right? They've been around since 2012 or 2013, and they have worked with a range of different real estate blockchain companies. I would say that the most significant difference that we see between domestic tokenization versus foreign tokenization is that the domestic security real estate tokenization platforms are focusing on the regulated securities route. The SEC has been very proactive in making it clear that you need to comply with regulations while also having a light enough touch that they're not scaring too many people away, I feel.
But like I said, they made it very clear that if you are trying to take United States real estate and put it on the blockchain, then that is a security, and you need to comply with securities laws. A lot of the companies that I see outside of the states that are tokenizing stuff in Malaysia or Germany or wherever have not committed fully to that regulated path. I think it's probably just a matter of time, because the problem with tokenization real estate in a non-regulatory-compliant manner is that real estate is one of the most easily regulated asset classes on the planet. Right?
It's here. You can feel it. You can touch it.
It's very tangible. It's very concrete. It's very centralized. Right? So, therefore, that value can quite easily be taken away if you are securitizing it in a manner that does not turn out to be compliant.
What is the demand, would you say, for fractionalized real estate tokenization today?
It is developing. The problem is that real estate and cryptocurrency are fundamentally incredibly different industries. Real estate is slow moving. The people who control that industry have made massive fortunes, some of the biggest fortunes in the history of the world. Right?
They've done it over generations or over several decades. But when you come to those people and you say that I'm going to take your real estate and combine it with the fastest-moving most cutting-edge industry on the planet, and lot of those people are kind of like, "Hmm. I'm not sure I want to do that." Right?
Then when you go to cryptocurrency investors who are traditionally used to massive volatility and making fortunes in a day, right, and you say, "Okay. Well, now you'll make a fortune in 20 years or 30 years," right, they're sort of like, "Well, I don't know that I want to do that." Right? But the thing is that that is just a function of the newness of this industry. As it continues to mature, that kind of volatility will fade away, and then as people's trading mentalities mature and as you have more institutional investors and traders entering the space, those people understand the value of diversification. They understand the value of putting your money into a high-volatility asset, making all the money you can as quickly as possible, and then getting out, right, and putting it into something secure, and if you are trading in cryptocurrencies and you make a ton of money, the easiest thing for you to put it into and be secure is tokenized real estate.
Also, at our meetup, we chatted with the chairman and CEO of MediaShares, Gene Massey. He's the chief marketing officer of ITBiometrics. Find out why that company decided to launch an STO of their own.
People say a utility token, you put that in a washing machine or a parking meter, or ...
No. A security token is the only way to go, I think.
Terrific. So, what made you decide to do that?
Because we've traveled all over the world. We've been to Warsaw, Zurich, London, Dubai, San Francisco. We're going to ... ITBiometrics is going to be at Money20/20. We're going to Barcelona in two weeks.
So, we've accessed the crypto community and discovered that's where a lot of people are really interested in that area.
What's the benefit of doing an STO for you guys?
Well, as you know, an STO has some advantages over a regular stock offering. You want to buy a stock, you have to have a brokerage account, and it takes three days to clear or something like that, and so you've got all sorts of issues with a regular investment. Now, that's not to say that ... I mean, look. Regular investments work, but with a token offering you can buy it on an exchange. You can buy it instantly. You don't have to have a brokerage account. It's simpler, quicker, easier, cheaper. There's no intermediary, so it has some advantages. It has some disadvantages, but it has some advantages. One of the advantages is that a lot of people are sitting on cryptocurrency, and that is a big issue for anyone looking for an investment. You want to be able to access that community for those investments. I mean, sometimes you can't buy a pizza.
So, they want to be able to invest in something-
... with all this crypto that they've accumulated, and so that's an investment pool that we want to access.
Do you think that there's anything about the fact that sort of the major cryptocurrencies have sort of slipped and stagnated? In other words, you've got Bitcoin that's sort of around six, 6,500, and-
It's all being absolutely totally manipulated. They realized that it was too squirrely, so whoever, whether it's the Fed or Satoshi himself, or someone is keeping it within a trading range to make it into a more stable currency. That's my philosophy.
That's my philosophy.
That's what you think. Right.
I mean, it's my psychic pitch.
Got it. Hey, who knows? You may be right. I was going to ask if you thought that because people ... There's this massive influx of capital into Bitcoin, Ethereum, the Litecoin, things like that last year, but now it's all kind of dipped and stayed, like you're saying, in that trading range. Do you think that's going to encourage people to get out of those currencies and into investments like STOs?
Well, what it's encouraged is ... I know people that lost money when it was at 20,000 and went down, and I also know people that bought at a penny. So, the people that bought at a penny, they're not concerned. The people that bought and got their fingers burned, they're not investing anymore. They've said, "No, I'm not going to touch that for a while."
So, the money that's being held is being held, and whoever is controlling it, I don't know, but it's staying within a range. I don't think you're going to see it fall below 5,000, and for a while I don't think it's going to go above 8,000. That's my psychic prediction.
Be sure to go to our website, securitytokenacademy.com, to check out Gene and Henry's full interviews. Just click on the interviews tab.
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. Then next day, we boarded the Spirit of New York yacht from Chelsea Harbor for an evening cruise along the Hudson River. It was fantastic. There was dancing, gourmet food, a lot of networking, but I wouldn't know because I was doing all of the interviews up top. So, I hear it was great.
The week ended in a big way, with a 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. One of the most talked about panels was the one about security tokens and the real estate industry, which I moderated. Here are some highlights.
Why are we now applying blockchain and/or tokens to the real estate industry? What advantages are there?
Yeah, sure. So, listen. I think when you think about the real estate industry in the context of private securities as opposed to what's owned by the publicly traded REITs, there's a whole bunch of controls that are put in place by the issuers of the real estate that basically keep you from being able to trade the securities. Effectively, whenever you buy a share of a non-traded REIT or an LP interest in real estate, there's some language at the bottom that says that this share is non-transferrable. That's there so that they don't trip sets of rules around the composition of your cap table, and around the type of people that are in your cap table.
The opportunity of a tokenization is, in a world ... I'd take a little step back. If you buy a private security today, say you want to buy Airbnb on SharesPost, your settlement time is T plus 60 days. By using tokenization, we bring that settlement period down to, call it, T plus about four minutes. This allows us to reconcile cap table real time all the time, solve for all the rules that would otherwise be tripped. So, that allows you to introduce meaningful liquidity into the space.
I think access, too. Right? One of the things that we always like to say is unless you're a super large hedge fund, private equity fund, pension fund, you don't have access, and specifically in our case, to a truly professional operator that manages single-family housing across the country. It's obviously different depending on the asset class, but one of the things that we try to sell is, hey, there's access to this for the masses. We can get into accredited investors and the challenges around that, I'll say, but if you think about it more wholistically and at a kind of high level, there's access to this type of asset that really hasn't been there before. One of the things we like to say is that unless you're a country club guy and have access to a local contractor, you're not investing in fix and flip or single-family rentals, and you have no access to a professionally managed portfolio of those assets. So, in my mind, it's about giving access to people who otherwise might not have that access in a much more liquid and transparent manner.
Yeah, and I think that's right, and I also think, from a lawyer's perspective of what we've seen over the last several years, I think it also comes down to monetization, the idea that in the public, if you're a private owner of real estate and you're looking to monetize your portfolio or your business, and you want to do an IPO, the public markets have really just not been there other than if you're Blackstone or you have a specialized set of assets like storage assets or farmland or pot, for instance. Those are some of the recent IPOs that have taken place in the real estate capital markets.
So, I think if you're looking to monetize a single asset, an office building, a trophy asset, it's proven very challenging to do so in the public capital market. So, I think you've been seeing a shift into private capital raising alternatives, and I think that tokenization of real estate can provide a way to monetize in the private capital markets that you couldn't do in the public capital markets. For instance, if you're a public REIT and part of your business is development, oftentimes you don't get the type of credit from Wall Street on that type of business. That could be something potentially that you could tokenize, whether you're public or private. So, I think there's different parts of the business that may make sense, make more sense in a private format and a tokenization than you would ever be able to do in a public format.
To check out the full panel discussion and 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 Tuesday, November 20th, inside Maggiano's at the Grove in Los Angeles. It'll have free food, drinks, networking and more. You can find all the details on our website. Just click on the events page, and 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 don't 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, and before we go, a big thank you to our Platinum Corporate members, Merrill Lynch and Securrency, and for everyone here at Security Token Academy, thanks for watching.
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