Adam Chapnick:

First came cryptocurrencies, then initial coin offerings, ICOs. Now the security token industry is here. And it's not too late for crypto enthusiasts and investors of all types to get involved.

Amy Wan:

Coming up on this episode of Security Token Insight, proof of health on the blockchain. Hear from Jamie Finn, the president of Securitize. And we'll introduce you to one of the world's first regulated security token exchanges.

Adam Chapnick:

Hey everybody, it's me, Adam Chapnick. And sitting next to me today is my good friend and new mom, Amy Wan. Welcome back to her. And welcome to you to Security Token Insight, brought to you by the Security Token Academy.

The security token industry is gaining momentum, and it'll provide a key foundation for the evolving financial Internet.

Amy Wan:

The Security Token Academy will provide insight about this new era for security token enthusiasts, investors, and issuers. And we thank you for coming along on this exciting new journey.

Adam Chapnick:

On this show, we will introduce you to companies who are planning to launch, or have already launched, a security token offering. Plus you'll hear valuable insight from industry experts, the latest security token news, and much more.

Amy Wan:

All right. Coming up on today's episode of Security Token Insight, in your security token news, details on one of the world's first regulated security token exchanges. Also, MintHealth is in this week's STO spotlight. We'll chat with chief operations officer, Jerry Gross.

Adam Chapnick:

Plus an expert interview with the president and co-founder of Securitize, Jamie Finn. And hear how tokenization is being applied to real estate from Andrew Jewett, founder and co-CEO of Aperture.

Amy Wan:

That and much more is coming up on this episode of Security Token Insight. But before we kick things off, let's find out what people are really saying about security tokens.

Chris King:

So there's a lot of assets such as real estate, startups, VCPE funds that are illiquid. And security tokens give them an opportunity to make them liquid assets. So that sometimes would bring a 20-30% liquidity premium to market.

Adam Chapnick:

Oh, interesting.

Chris King:

Yeah. And also, there's a global pool of capital that you can tap with security tokens that has been untapped.

Trevor Koverko:

It all started with the prediction that the next megatrend in crypto will be assets migrating to the blockchain, in the form of tokens. So real estate bonds, private equity, pretty much any security is better denominated as a token than it is as traditional forms of ownership, like stocks, LP shares, units. This is the future, not share certificates and filing cabinets. And we're excited to be at the forefront of this movement.

Alan Safahi:

When I first started this journey for the ICO eight months ago, the first thing I told my attorneys was, "Don't dress up the pig and make it sound like a utility." This is a security ... Every token will be security. This is why I'm here at the Polycon, because I think honestly the ones that did it before, they did it wrong. The ones that didn't do it security.

So yes, there's a utility aspect to it. People, the money transfer operators that use the tokens, are really using it for utility purposes. But from a perspective of the law, there's no such thing as a utility. You're either security or not security. And I'm thinking that if you're selling any of these ICOs as tokens, and the product is not done yet, that's security.

Amir Kaltak:

Well, for a couple of years now, the crypto space has been very much in a gray zone, too. I do appreciate this, that we are moving forward in this direction in a way. If we don't compromise and sacrifice the virality and the dynamics of the crypto space, and a decentralization of its nature, then it's great. And I believe that any serious project or company having a token sooner or later will become a security token. It's the sign of the times. And I think it's necessary, too.

Margaux Avedesian:

I definitely think that security tokens are going to be a new trend going on. And it's a really interesting proposition. But it's also really hilarious because before, no one wanted to be a security, they wanted to just be a utility token. Now everyone's going to want to probably be a security token. So it's a very different kind of shift.

I'm actually really excited about companies that already have partnership deals, and also a seamless integration of tokens.

Thibault Verbiest:

You know, even if you reason in terms of European legislation, which is more liberal, what you see now on the desk of a law firm like us, which is now becoming visible in terms of specialized firm crypto finance, is not just utility tokens, but actual security tokens. Where the tokens is designed to be a security. And regardless of the interpretation ... Even in European law, it's going to be a security. You know?

For instance, tokenizing funds. We've been talking about tokenizing funds here for the last two days, and indeed, we see that. Real estate, for instance, is something that will be tokenized more and more.

Sothi Thillairajah:

So securitization is important in a legal context, in that in order to transition from where blockchain and cryptocurrency began to where it's going, it's an absolute necessity that at this point, that certain token offerings, tokens being securitized, follow a legal framework that will protect both the issuer and the individuals and institutions that actually purchase them.

Amy Wan:

For more videos like this, be sure to check out our website, SecurityTokenAcademy.com, and also subscribe to our YouTube channel so you don't miss out.

Adam Chapnick:

Now time for us security token investing news.

tZERO and BOX Digital Markets have just announced plans to launch a regulated exchange for security tokens.

Amy Wan:

The plan's call for an exchange to be an equally owned and joint venture where security tokens can be publicly listed and traded, all while meeting SEC regulations. This would be one of the world's first regulated security token exchanges. The companies are currently seeking approval from the SEC.

Adam Chapnick:

Meanwhile, VRBex says it's going to launch a regulated cryptocurrency and security token exchange here in the U.S. The news comes from VRBex CEO Gene Grant. The VRBex business platform will provide a two-way exchange of U.S. dollars for select cryptocurrencies, and a platform for the trading of security tokens.

Amy Wan:

And finally, the SEC is looking to educate investors about the risk of potential scams related to token sales with the launch of the Howey Coins website. The website uses numerous red flag statements to draw attention to slick sales pitches which can pose a threat to investors. The SEC says most scammers spend a lot of time trying to convince investors that extremely high returns are guaranteed or "can't-miss." You can learn more at Investor.gov/HoweyCoins. We also have that information on our regulatory review page on our website, SecurityTokenAcademy.com. Check it out.

Adam Chapnick:

Still to come, we'll check in with Andrew Jewett, founder of Aperture, for a look at how real estate can be tokenized. You won't want to miss it.

Amy Wan:

Now it's time for STO Spotlight. This is where we'll introduce you to a security token offering that has launched or will be launching in the future.

MintHealth is a global, decentralized health platform that aligns healthcare stakeholders around the shared goal of patient empowerment and improved clinical outcomes, all at a lower cost. Let's learn a little bit more now about MintHealth.

Samir Damani:

Hey. Good afternoon. Thank you for joining us today.

I'm going to be talking about a buzzword that's been getting a lot of attention lately, but it's a lot more than hype. In fact, blockchains, as it pertains to connective health, has some real potential to change the way we think about healthcare and healthcare delivery through patient empowerment.

Let's start to talk a little bit about the problem. 40 of the 56 million deaths that occurred in 2012 were from essentially four major conditions: cancer, heart disease, stroke, and respiratory conditions. To give you an idea, these weren't even in the top five just 100 years ago. 300 million people died from smallpox just in the 20th century alone. And those individuals aren't dying for those conditions. And antibiotics and vaccines aren't going to fix that problem.

And so when you think about the drivers of those conditions, it's really five main things: obesity, hypertension, sedentary behaviors, tobacco use, and poor nutrition. These are behaviors that can only be changed through proactive involvement of the patient. But unfortunately, patients have taken a very passive position in their own health due to payer and provider dominance and siloed clinical behavioral data.

And blockchain technology is able to break down those silos, can enable self-sovereign health record, a global unique identifier, and allow for the secure and seamless transfer of clinical and behavioral data between patient-authorized stakeholders. And you could layer on top of it ... This is what may even be the most unique aspect, an incentive model through digital tokens that can reward positive and proactive behaviors. And so you can start to build an ecosystem that's driven by the patient.

So what is blockchain? It's a decentralized ledger of transactions across a peer-to-peer network that's open source. And using this technology, participants can confirm transactions without the need for a central certifying authority.

One of the things we've heard about is cryptocurrencies. These are digital assets. You can also have utility tokens, and these are popping up quite frequently. I'll talk about that in just a second. But digital assets can take many forms to control the secure transfer exchange of digital representations of financial assets, data, identities, permissions, and rewards.

So how's it work? A requested transaction is broadcast to an open, peer-to-peer network consisting of computers known as nodes. The network of nodes then validates the transaction and the user status using known algorithms. So it's just processing power of these computers across the country that people are volunteering. Many of these nodes are placed in areas where energy is actually less expensive, like Iceland, where geothermal energy's big. Once the transaction's verified, and that can be cryptocurrency, financial transactions, contracts, records, or other information, that then block of data's added to a growing chain. And there's a hash associated with each block in the previous block, which is essentially connecting the entire chain. So if there's anything that's broken, the entire chain stops, which is why it's immutable. In over eight years, no one's been able to hack the Bitcoin network. And all this occurs using your own node or your own network, or you can use an Ethereum network or a Bitcoin network that exists today.

So what this does, it decentralizes the transfer of information. In the case of healthcare, you no longer need a central silo. But you could have a self-sovereign record that is able to move data like liquid between stakeholders that need it, patients, caregivers, loved ones, doctors, nurses, and between health system to health system.

And so what we're seeing today is, blockchain application is spanning a spectrum of industries, as you see here. And in fact, many are being launched right now as we speak, and have the potential to transform all these industries you see here. And we'll talk about healthcare in just a moment here.

But first, I want to go over the problem. We all know this. You have frustrated patients and frustrated doctors, because patients have data stored in multiple EHRs across multiple primary care physicians or specialists. They have their behavioral data maybe in an app stored in MyFitnessPal. Maybe their steps are in HealthKit or a Fitbit app. Demographic information's in one place, socioeconomic information's another, pain, stress, sleep, we don't record any of that. And so you got it spread over all these different silos. Scattered. And so the promise of artificial intelligence, machine learning, hasn't been realized because we can't really get the data. We have broad, shallow data. We don't have deep data, which includes clinical information. Medical imaging is another perfect example. We're still burning images onto CDs and DVDs to transfer them by hand. And so the idea is getting all that in a personal cloud storage that can be protected by blockchain and controlled by patient permissions, is really the future. And that's what blockchain enables.

So you're bringing together health apps, wearables, implants, mobile health solutions, handheld med tech, and various EHR data, as well as medical imaging data, into a single, blockchain-protected, personal cloud storage tied to a global unique identifier that can transcend across state and national boundaries, and can be shared through this open source network. That's a global HIPAA law.

So how would this work? Mary might go to Dr. Jones's office. She has an app with a QR code on it, that's her public cryptographic key. Dr. Jones will scan that public cryptographic key, and he or she has their own cryptographic key, and that will allow for the transfer of clinical data, medical imaging data, into Mary's personal cloud storage. She then a week later would be going to Dr. Smith, who might be a cardiologist or might be another specialist who wants to study that she's already done with another provider. And most patients today are seen not in health systems, but actually small doc practices that have very EHRs. So in that situation, Dr. Smith can now scan the same QR code and see what Dr. Jones has had, whether it's an MRI or just the last progress notes. And at the same time, Mary now is compiling this data into her own personal cloud storage. And in addition to that, she's also compiling information over weeks and months of behavioral data, geographic data, sleep, blood pressure, weight. Now you've got contextual information with clinical data that can really facilitate machine learning and predictive analytics, allowing us to identify the true predictors of health and disease.

And so what this does is, it allows a patient to truly be empowered, because they have access. They have control of a growing information set that they can then share based on permissions built into the blockchain. So for example, your payer now is layering a token, as we talked about earlier. And our token is going to be called the Vidamint, V-I-D-A-M-I-N-T. And that token now ... Let's say you take a small provider-sponsored health plan where they employ providers and they have patients. And now those payers are using Vidamints to incentivize patients' healthy behaviors. Patients are now doing what they need to do. They're loading data into the cloud because they're incentivized with these tokens, that can then be redeemed for premium reductions, prescription refills, and are highly liquid, because these are being traded in the open market. So they can be turned into cash.

Providers now are being incentivized by population health, similar to MIPS and MACRA, as CMS has already said what's important. And while this dataset is growing, patients can now share their data with pharmaceutical companies en masse, the med device industry, research and academic collaborators that want to see, "What were the predictors of heart failure admissions in a population on drug X or Y or Z?" It'll reduce the cost of research and allow for data gathering, and more importantly, it'll allow for the patient to control who they want to share their data with, versus Google or whoever else has control of data.

And so the idea here is ... And we've seen this. Medicare's released a number of chronic care management codes in recent years that have shown that payers, when they incentivize providers to do the right thing, to do services, fee for service, but do services around managing patients between office visits, you see improved population health and lower medical costs. The one person that we're missing out on was incentivizing the patient. And we've seen it's worked in self-insured corporations. And that's the last piece that we have to put together in order to really align the whole system. And this is what blockchain and digital assets can enable. It's an ecosystem around patient empowerment.

So MintHealth, we are a global, decentralized healthcare platform that leverages blockchain technology. My company that I started four years ago, MD Revolution, has a core patient engagement technology that we've been using for chronic care management. My co-founder started NucleusHealth, and they are a medical imaging platform that has an active protocol to get medical imaging in the cloud and protect it with blockchain, and to streamline the sharing of medical imaging data instantaneously at high resolution onto iPads of diagnostic quality. iPads and iPhones.

And so we'll be releasing a detailed white paper on Vidamints and MintHealth in the next few weeks. Our token launch is scheduled for the December and January time frame. And for more information, please visit us at MintHealth.io or [email protected]

Thank you.

Adam Chapnick:

Joining us now is the chief operating officer of MintHealth, Jerry Gross. Welcome, and it's great to have you here.

Jerry Gross:

Great to be here. Thanks for having me on the show.

Adam Chapnick:

Yeah. So first, tell us a little bit about MintHealth and what inspired the folks over there to get it started.

Jerry Gross:

Well, MintHealth was founded by two successful physician entrepreneurs that ... Both of them have successful businesses around the problem that we're trying to solve. And the problem is, is that every year, roughly 50 million people die from chronic diseases. Chronic diseases being things like cardiovascular disease, hypertension, obesity, and so forth. And most of those diseases are preventable if you just do the right thing, whether it's managing your diet, taking your meds correctly, being adherent to that, controlling your weight, exercising.

And so by monitoring patients that have chronic diseases that they're managing for the rest of their lives, what MintHealth does is, it's a platform, it's service that monitors these patients and rewards them. That if they do the right thing, that they get a reward which then can be redeemed for healthful goods and services in a marketplace.

Amy Wan:

Very cool. So why'd you decide to do a security token offering?

Jerry Gross:

Well, we started off like most ICOs in 2016, 2017, with the utility token. And what we discovered, which is well-documented, is that tokens suffer from incredible volatility, and also questionable liquidity. There are literally thousands of trading peers, thousands of exchanges. And we felt that in order for a patient to redeem a healthful good and service, they need to have some stability in the token. And so as the cryptoasset world has evolved from cryptocurrencies to crypto platforms and commodities to utilities and now securities, we actually went to a two-token structure, where we actually have a utility that's a pure utility that is not tradable, but it is exchangeable within our marketplace. And then also a security token that provides the opportunity to invest in the success of MintHealth.

Adam Chapnick:

Yeah, so let's talk about that for a second. So how much money are you trying to raise, and who's able to get in on the fun?

Jerry Gross:

So right now we actually have a Title III crowdfunding at StartEngine. And we're looking at around about half a million to a million dollars there. In addition, we're looking anywhere in the neighborhood of $2-3 million beyond that. Our focus is really to get a number of pilots up and running within the next six to 12 months, where we're actually incentivizing patients with at-risk entities, like insurance companies, hospital networks, and other incentivized purchases of these tokens so that we can test out the incentivization of patients.

Amy Wan:

So you mentioned you have this dual-token structure. One is a pure utility, the other one is a security token. Let's focus on the security token aspect for a bit. Kinda just elaborate. What does the MintHealth security token do? How do the token owners use it?

Jerry Gross:

So it's easiest to describe this as it's just like a normal security or equity, in that there is a dividend that comes from the utility token sales. So every time a utility token is purchased, there's a portion of that that is paid to a security token holder in the form of a dividend. In addition to that, the security token gives that holder the opportunity to have ownership in MintHealth, the platform, as well as the intellectual property of MintHealth. So that is a speculative investment that is publicly traded on regulated exchanges when they come online, and provides just the traditional investment opportunity that you would see in a security, whether it would be an equity and so forth.

Amy Wan:

Yeah, interesting.

Adam Chapnick:

So you talked something that we'd seen before about Vidamints. Can you talk about what that is, and then maybe how that relates to the security token, if it does?

Jerry Gross:

I normally get the question is, "How do you pronounce it? Is it Vida or Veeda?" Being an Australian-

Adam Chapnick:

I was going to say, only an Australian, yes. Right.

Jerry Gross:

-I ruin that all the time. So Vidamints is the utility token. So what happens is, a large, at-risk entity ... Let's say, for example, a lot of large companies today self-insure their healthcare with their employees. They would be a purchaser of tokens that would reward their employees for doing the right thing. So let's say that entity buys a million tokens. 10% of whatever their value is is then distributed back to the security token holder.

Adam Chapnick:

Got it. That's sort of the dividend structure that's baked in.

Jerry Gross:

That's the dividend, royalty component of it.

Amy Wan:

Very interesting. So MintHealth has a team of stellar physician founders. So what went into deciding who to partner with, and what special expertise do these team members bring?

Jerry Gross:

So we're unbelievably fortunate in the capabilities that we have at MintHealth. First of all, I think that roughly there's over 100 years of deep industry experience in healthcare, in technology, that comes from the founders, as well as a number of the key officers of the company. In addition, we have exciting strategic advisors that come from large technology companies that are innovators and pioneers in the blockchain and distributed ledger space, as well as other advisors that are assisting us on specific matters, just like the security token or on legal matters.

In addition, because of our experience, we have deep network ecosystem relationships. So the ecosystem that we're creating, we're really patient-centric, and around it there are these various stakeholders, payers, physician providers, pharma, manufacturers, device manufacturers. And we have deep relationships into some of the industry's major players.

Adam Chapnick:

That's great. So there's a phrase that I'd seen in some of your work. It's "the self-sovereign health identity." Can you amplify on that, tell us what went into creating that phrase and what it's about?

Jerry Gross:

Sure, sure. So in healthcare, one of the challenges is that unlike, say, financial services where it's easy, where I could send you financial information easily ... In healthcare, most of us wouldn't know where to start. And the reason that's a challenge is because healthcare information is fragmented. It could be at your primary physician, it could be at the hospital network. The insurance company has information. The pharmacy has information. So it's very fragmented.

And so right off the bat, what I want to say is, a lot of what's going on in healthcare with blockchain right now are attempts to try to create the ultimate single account. We see that as a byproduct of what we're doing. What we are focused on is creating what we call data liquidity, whereby it makes it easy for the patient to get control of their health profile and understand what's going on by seamlessly interoperating with all these fragmented data sources. So we're not ... Ultimately, it'll end up being a more holistic profile that's very accurate, but it's not our goal to go in and disrupt the electronic medical record providers. Because they're going to be around for a long time. And so our goal is to interoperate and make it a seamless experience for the patient, and the various stake holes around that ecosystem in getting access to permission, information, at the right time and at the right place.

Amy Wan:

So one of the major benefits of MintHealth seems to be the convenience of all your medical records and history all in one place. Will doctors and hospitals have the appropriate access to this information? Or is it going to be available only in select locations initially?

Jerry Gross:

Well, we have what we call an approach to this, where we're starting small and growing fast. So we have a set of partners that make up this ecosystem, that we're going to start to do proofs of concept and pilots, and start small and go viral from there.

Amy Wan:

Sounds good.

Jerry Gross:

The other thing, though, which is really interesting about this is that we're leveraging off existing interoperability standards that these various stakeholders are using today, and that our foundational partners are using as well. So we're not trying to disrupt by changing the underlying mechanisms to sheer data. We're actually leveraging on what's already in place, but then enabling blockchain and taking the advantage of blockchain to make that happen.

Adam Chapnick:

I love it. I love your phrase "data liquidity." That just sorta makes it real easy to understand.

We love here, we love talking about all of the big ideas. But if we were to boil it all down, what is it that will reduce overhead for participating companies? How do you save people money?

Jerry Gross:

That's where the magic of blockchain comes in. Because blockchain has this innate ability to align different agendas around the patient. So if you look at the various stakeholders in the ecosystem ... For example, you look at the provider, the physician. By utilizing the MintHealth platform, they will be able to get better outcomes, and they're incented to do that because they get reimbursement incentives around that. Clearly the insurance company will ... They're incented because they want to be able to reduce the number of payouts that are happening. Let's say for example someone is rehospitalized for a chronic condition, which is common. That's high cost. So their incented to make sure that that patient is doing the right thing, and they're willing to pay for that to reduce that payouts that are coming. And then you have the hospital networks, you have the manufacturers like Big Pharma, and device manufacturers, that the 800-pound gorilla for them is adherence. That their patients are continuing to use, whether it's the medication or the device that drives to better outcomes.

So each of the stakeholders have different agenda. But through blockchain, we're actually linking that all together so that they focus on the patient, and better outcomes for the patient.

Amy Wan:

So in terms of medical records, it's obviously very sensitive information. What are you guys doing in terms of cybersecurity and data security?

Jerry Gross:

Once again, we, like a lot of people in the space, we're very sensitive because of the HIPAA regulatory requirements around privacy and security. Now our foundational partners that we have have been successfully addressing these issues for a number of years, and we're leveraging all of that technology. But at the same time, we recognize that with blockchain ... We're actually not storing any data on the blockchain. It's really pointers to both secure, HIPAA-compliant information in the cloud, as well as, we're going to be leveraging off distributed data tools on the blockchain as well. And then you'll see also the normal things, like two-factor authentication and so forth.

Adam Chapnick:

So what are the big goals for the company in the future? I know you've kind of got your whole future ahead of you, but if you had to distill it down to your biggest, what would you say?

Jerry Gross:

Well, first of all, it's very exciting. Like there is proof of work and proof of stake, we have proof of health. And so our mission is to really become that protocol that is proof of health of a patient in the future. In the short-term to medium-term, we're going to be building critical mass on our decentralized marketplace and getting very compelling healthful goods and services into that, completing our pilots. But ultimately extending beyond chronic conditions to general wellness. And ultimately, because of all the data that we're going to have access to ... The identified data, let me say that, that's permissioned by the patient, so we won't just go out there and get it. Is that we believe we'll be able to start identifying patients that were previously undiagnosed, and with not only chronic conditions, but also non-chronic conditions.

So that's the dream. But really, underpinning the baseline on value-based care in healthcare. And proof of health. Like what FICO score is for credit, we are proof of health for health.

Amy Wan:

That's incredible.

Adam Chapnick:

Fantastic.

Amy Wan:

Well, Jerry, thank you so much for joining us on this interview.

Jerry Gross:

Well, thanks for having me. And I look forward to watching your Security Token Academy.

Amy Wan:

For more information and a link to MintHealth, visit our website, SecurityTokenAcademy.com. You can also find that information right below this video in the description area.

The Security Token Academy is on the leading edge of the security token movement. We've been to security token meetups and conferences from coast to coast.

Adam Chapnick:

We had the pleasure of speaking with the president of Securitize, Jamie Finn, at the Crypto Invest Summit in downtown Los Angeles. Here are his thoughts on why security token are the future.

So Securitize is, at the Security Token Academy, a very important player in the space. So you guys are tackling a super timely problem in the ICO world. What's that?

Jamie Finn:

So essentially what we do is, we're focused on primary issuance. So that means working with companies to launch their security token end-to-end. So everything you need to do in order to launch a security token, you can work with us, and we'll put all the pieces together and actually write the smart contracts, help you do the issuance, help you maintain compliance in the different markets. So our solution is very much end-to-end. And it's a really fantastic offering, I think.

Adam Chapnick:

Got it. That is amazing. I'm always asked by people, "How do you do an ICO or an STO?" And I have to admit sometimes I'm kinda like, "Well, I don't entirely know."

So let's say I wanted to do ATOM coin. And I wanted to do it with Securitize. What happens? What do I do?

Jamie Finn:

To be fair, we spend a lot of time trying to understand ATOM, and really understand the people behind the project. For us, it's really important to understand the founders, understand the teams and what they're doing. And then once we figure that out, then what we go through is a very regimented process that we've developed, which is everything from your website, all the different touchpoints where you need to be connected with the different vendors you're going to have to use, everything from mailing list to crypto custodian to escrow accounts. All sorts of different vendors and partnerships you have to have. And we kinda tie all those pieces together.

Understand what you want to put in your security token. What do you want it to do? Is it equity? Is it a dividend? Is it some combination thereof? Is it has maybe some sort of airdrop to go with it for a free utility token? All these things are things we have to understand up front. And then we're able to create the security token offering with you, put the site up.

And then of course investors have to go through KYC, AML. And they are investors. They're not customers. So they are investors, which is one of the biggest difference with a token as opposed to a coin. And so they're investors, and we're basically going to take them through a process. In the U.S., we'll do accreditation. And in each country, there's different rules. And so our platform helps you stay in compliance in those areas as well.

Adam Chapnick:

Amazing. I had no idea that you guys do so many things other than just the offering. Amazing.

So you personally, you have an interesting story. You actually were born in Puerto Rico.

Jamie Finn:

Yep. Born and raised in San Juan, Puerto Rico.

Adam Chapnick:

So how do you feel about the whole crypto community coming home to roost in Puerto Rico?

Jamie Finn:

Yeah. For me, I think it's a fantastic opportunity. I was down there on the first trip with the team, and with the lottery guys, with Brock and his crew. And we were there, and they started to explore and understand the island. And they're very much trying to figure out a way to engage with the community. And I think that's a huge opportunity. I think it's also on the people of Puerto Rico to really engage with the crypto community. The most fantastic thing about my experience thus far with the crypto community is how open it is. Everyone's like, "You want to be part of it? Great. You're part of it." There's no, "We're too cool for this." That doesn't happen. And so that's something that's a huge opportunity. But it's easy to squander.

Adam Chapnick:

How do you think it's easy to squander? What do you think is the risk?

Jamie Finn:

So when you're dealing with a new area that people don't understand, they're naturally going to be fearful of it. And so when you're talking about a market where the Internet is really about your mobile phone, it's not necessarily about computers ... People's lives are very different than what you might experience in the U.S. And so they're naturally going to have some fear of it. They don't understand what this crypto thing is. They might have heard of Bitcoin. They might've heard of it being associated with drugs. And most people just don't want to be anywhere near that. And so the messaging and the way that they engage the broader business community and the people of Puerto Rico is really where they need to spend some time.

Adam Chapnick:

Yeah, it's exciting to see. And you have such an unusually perfect perspective on it. Who else is there from Puerto Rico and a leader in the crypto space? It's fascinating. We would definitely like to check back in with you on that as that progresses.

So Securitize had a pretty exciting announcement that just, I think, was released last night. What's that?

Jamie Finn:

So as you know, security tokens have some really fantastic features. But they do lack for liquidity. And so naturally, solving that problem has been a priority for us. As a primary issuance platform, our goal is to bring so our issuers can have as much liquidity as possible.

This started with Bancor. So we partnered with Bancor last year, and all of our customers can implement Bancor, and that provides a first level of liquidity. But now what we've announced is a partnership with OpenFinance. And so they have a marketplace which extends how much liquidity you have. So in their marketplace, an accredited investor can come in and buy security tokens directly through that marketplace. It's a fantastic first step. And we're going to see additional exchanges and marketplaces come online.

So first step is OpenFinance. We should see a few more launch in the U.S., and then from there internationally. And then you'll have real liquidity on a global basis.

Adam Chapnick:

So this is a question that we talk about a lot, and we need to clarify for our viewers. Just on a basic level, can you explain what the liquidity challenge ... let's say was, until today?

Jamie Finn:

Yeah, until today there's really no one place you could go and buy security tokens. You had to go basically token offering by token offering to find what you wanted to launch. And then if you didn't find it or you missed it, then unlucky for you, right?

So that was the existing market. In the future, there'll be marketplaces where you'll be able to go, learn about all these different projects and engage with them, and then be able to make an investment directly through that. And it won't be a primary issuance, so you won't go through all the same rigors. You will already be an accredited, registered investor with the site. And then you'll be able to make an investment just like you might with Schwab Direct.

Adam Chapnick:

Got it. Okay, so you mentioned Bancor. Can you explain how that benefits your ecosystem, being involved with Bancor, and maybe a little bit about what it is? I know it's not your company, but just the [crosstalk 00:40:14]?

Jamie Finn:

Yeah, yeah, no, Bancor's great. They're a great partner of ours. So basically what they allow is for additional liquidity. What they have is the BNT token. What you do is, you reserve between 2-5% of the amount you raise in BNT. And then investors who've purchased the token can sell it back to the company through this Bancor protocol.

And so what's really important for U.S. investors is, you're actually able to sell immediately as opposed to having to wait through the one-year lock-up period, because it's considered a buy-back by the company.

So it's a really, really important piece of initial liquidity in the projects. And I think as the marketplaces come online, what will happen is, the marketplace will equalize with Bancor. And so your decentralized exchange on your site will have the same price as the central exchange. So you'll be able, as an investor, buy and sell different places.

Adam Chapnick:

Fascinating.

Jamie Finn:

Yeah. Bancor's great. Very cool.

Adam Chapnick:

Yeah. I'm a token holder actually of BNT. So talking about the exchanges, you guys are starting with OpenFinance. What do you see as the future of the security token exchange landscape?

Jamie Finn:

Yeah. I think we, as well as most companies in this space, are really excited to see tZERO's launch coming. Patrick Byrne and his team have what appears to be the most robust and complete solution. And most importantly, they're already inside of Wall Street. And so that piece is fundamentally different than everybody else in the space. And they have the experience with the public market. So I think they're going to be a very significant player in the space.

And then there's other spaces like the Gibraltar Exchange, there's Bank to the Future. There's a whole bunch of additional exchanges coming online. I'm sure I'm missing some of them. There literally is a seemingly announcement almost every day. But we're trying to engage with them and really ...

There's a lot of complexity. Because with a security token, it's not just about this launch. So oftentimes I describe it kind of as a sprint, and then a marathon. Because in a security token, you have investors. And therefore you need investor management. And therefore there's a life cycle around that. And how you engage with them, how you manage that, how you message them, how you pay dividends, who you pay dividends to, all these things are things that have to be managed. And the exchanges need to be aware of it, too.

Adam Chapnick:

Yeah, I think that's something that a lot of the issuers fail to grasp, just what a pain in the butt that's going to be for them if they don't handle that well.

Jamie Finn:

Yeah, yeah. I think life cycle is much more important than just the initial issuance.

Adam Chapnick:

Interesting. Yeah, people don't bring that up. But you gotta-

Jamie Finn:

Well, it's a compliance issue, too. Because if I sell my token to somebody who's not an accredited investor, they can't receive the benefits of that. And then you as the issuer could get in trouble really quickly, particularly if you pay a dividend to somebody who's not an accredited investor in the U.S. You're going to be in a lot of trouble.

Adam Chapnick:

And we're starting to see some of the whispers of that. So okay, we love projections, predictions into the future here. It's just what we do. So where do you think it will come to pass that the STO will replace the ICO? Or will it? What do you think the weighting will be?

Jamie Finn:

Well, I think the ICO definitely has its purpose. So if you have a project that has real customers that you're going to do, it makes a ton of sense. If you're looking to raise capital, that's probably not the best solution. An STO is probably a much better solution for you.

Adam Chapnick:

Safer.

Jamie Finn:

Well, it's the way you're supposed to do it. You're not supposed to raise money from the people on Main Street. You're not allowed to do that. And so the STO covers you off there. And it doesn't limit you from doing an actual utility inside of your application. Just don't charge for it. And don't pretend that you're not going to ... If you're going to list something and make a secondary market and that, then you're kind of going to be in a gray area that you probably don't want to be in.

Adam Chapnick:

Right. Do you think we're going to be calling these STOs, or is it ICO 2.0? What do you think they're going to be called?

Jamie Finn:

I definitely think the "coin" word is not a good word to use anymore.

Adam Chapnick:

Coin. No coin. Bad. Okay.

Jamie Finn:

So I would focus on tokens.

Adam Chapnick:

Okay. Great. And so what about for Securitize? What's the big outlook for 2018 and beyond?

Jamie Finn:

For us, it's getting our issuers to market quickly and getting them to fill as they go. And then managing liquidity. So with an STO, what's different is, you don't actually have to sell all your tokens in the initial issuance. You could sell a chunk of them, and then later on an exchange, take them from your dark pool and list them and sell additional, just like you do with a real company. So you can think about managing liquidity, as opposed to just trying to raise a bunch of money and forget about it.

So you go out, get 10, $20 million, whatever you need to kick off your project and make it really happen. And then once you've proven the traction and you can get out there, go ahead and sell some more tokens. Just like you'd sell more shares, sell more tokens. And there'll be marketplaces, which you'll be able to sell these in. Which is super exciting.

Adam Chapnick:

Love it. Well, we here at Security Token Academy are rooting for you. Wish you all the best. Thanks for joining us today.

Jamie Finn:

Thank you very much.

Adam Chapnick:

To watch the full interview with Jamie, including his answer on future plans for Securitize, be sure to visit our website, SecurityTokenAcademy.com, and click on the Interviews page.

Tokenization is the process of converting rights to an asset into a digital token on a blockchain. We're starting to see a real rise in tokenized real estate securities. The co-founder and CEO of Aperture, Andrew Jewett, has more on that. I sat down with him at the Crypto Invest Summit.

Okay, so Property Coin was one of the first guys in the space around this vaunted market of real estate. Everybody's talking about the tokenization of global assets. First on the list is real estate. You guys were there first. How did that come to pass? How did you guys decide that that was where you wanted to be in this securitization?

Andrew Jewett:

That's our background, right? We were investment bankers focused on the real estate space. We were part of the management team of the largest operator in the fix-and-flip space in the U.S. And we started Aperture to utilize data and technology to enhance that process.

Adam Chapnick:

Aperture is the name of-

Andrew Jewett:

Yes, Aperture is our management company. So Aperture is the manager of Property Coin. Property Coin is a separate vehicle, but Aperture runs all that and buys all the assets for that. But as we saw what was going on in the ICO world, we said, "There needs to be asset securitization, and there needs to be real estate securitization." And we happened to have a company that needed growth capital and was buying assets. So it just was the perfect fit for us. And honestly, we just truly believe that assets, specifically real estate, will be tokenized and will be on the blockchain for millennia to come. So we're excited about it. And you're right, we definitely have the scars of being one of the first people clearing the bush, if it were, into the tokenized securities and tokenized real estate world.

Adam Chapnick:

We like to focus on the bragging rights. Pay no attention to the blood streaming from their face.

So how's it going with Property Coin? Can you tell us a little bit about the structure? Because know you've tweaked it, you've tinkered with it, but you've come up with something that you feel is really strong.

Andrew Jewett:

Yeah. So we heard the feedback, basically, from the community. What we had before was a 50-50 profit share. And the community really wanted us to be invested on the back end. So they wanted us to retain tokens. And so what we said was, "Okay, we're happy to retain tokens. So let's take all the profits that we were going to receive as our profit share and reinvest them in new properties." So went from a 50% profit share to the coin holders to 100%. So we think that's a much better value proposition, because it'll just ... Compounding is everybody's friend. And so when we add another 50% of the profits from the properties in lone investments that we make, hopefully the pot of assets that we're investing in is just growing and growing and growing over time.

Adam Chapnick:

Maybe equally important, the emotional impact of hearing that you're side by side in coins with the investors, that might help as well.

Andrew Jewett:

Yeah, and I think that was a big thing that people were really adamant about, is they wanted us to retain tokens. So we're excite ... Frankly, I'm happy to own tokens. I love it. And we're going to put in some performance metrics that we have to hit in order for those tokens to vest over time, one of which is kinda the last hurdle we have to hit, is doubling the NAV, the underlying value of the properties that we invest in. So that's kind of our last release of tokens. But we think that that's-

Adam Chapnick:

Sounds pretty good.

Andrew Jewett:

-certainly doable, and a great value proposition for token holders.

Adam Chapnick:

Yeah, absolutely. So what about your thoughts on the exchanges, these security token exchanges coming out? How do you see you guys interacting with those?

Andrew Jewett:

Yeah, so we're actually going to be announcing soon that we're going to be working with a couple of the big names that you've had on the show and everybody knows. Nothing's finalized yet, but we're in final talks with them. So we fully intend to be listed on some of the name brand security token exchange platforms.

But look, I think anybody who's creating and innovating in this space is somebody that we want to work with. Like I said before, this industry is going to grow, and this is going to be the future of securities, assets, and we need to partner with the best players in the space. And I think you'll see in a couple weeks, or whenever we can announce it, that there'll be some fun partnerships to come with Property Coin.

Adam Chapnick:

Awesome. Well, we will be excited to help you announce. So in the bigger picture, writ large, how do you see the evolution of the whole security token versus the utility token, or the ICO versus ... I guess we're calling it STOs or ICO 2.0. What do you think the balance is going to be between ICO versus STO in the coming year?

Andrew Jewett:

I think you're going to see a lot more STOs. I think just the fact that there's assets behind these STOs, like ours, like some others that are in the real estate space, and just putting any asset on the blockchain, I think that's going to dwarf the initial utility token ICOs.

But they're not mutually exclusive. I think there is a world which each ecosystem lives in harmony and can kind of ... Maybe not interact too much because of the legal precedent, but certainly there is a very strong use case for utility tokens in the world, and the creation of new blockchains and new systems where there's data transfers and information transfers. That's great. Those should be around.

But I also think there's a huge use case for tokenizing assets and securities on the blockchain and reducing the friction that's currently in the system of, "I have to go to TD Bank or TD Ameritrade and buy my stocks." I can't trade in and out super easily, or a private equity fund super easily. I think that's where there's so much room to grow on the security side of things, and that's where I think you're just going to see this huge explosion of asset-backed tokens coming. I think given what happened earlier this year with the market selloff and some of the noise from the SEC, you might see it happen a little later, maybe nine, 10 months down the road. But it's coming. We want to be there to have a front-row seat to it, too.

Adam Chapnick:

Well, you're in the front row already, so that's good. So what about in real estate? You guys are fix-and-flip only. So do you feel there's a relative benefit between commercial real estate or any other kind of niche, whether it's industrial or anything else, hospitality, I don't know, that's more conducive to this than not? Or is everything equally workable?

Andrew Jewett:

I think it's all workable. I think ours is much different because we're buying smaller assets. We're kinda typically $150-350 purchase, $1,000 purchase price. So it makes more sense for us to have it in a pool form. Versus buying something, a huge commercial building on Fifth Avenue-

Adam Chapnick:

The Empire State Building, right.

Andrew Jewett:

-or something like that. That makes much more sense to be a single-asset tokenization. But then again, there's also residential rental portfolios that could totally be tokenized.

So I think there's so many use cases for each. It's just, how do you structure that? And that's where we think our structure is valuable, because we're going to reinvest ... By turning those assets quickly, we're going to reinvest those profits and grow it and grow it and grow it. Versus a tokenized Empire State Building, you're probably going to have some sort of a dividend, because it's a rental [inaudible 00:52:44]. So it's a different structure, but that's okay, because you've still reduced that friction. You've increased the liquidity of that asset. And that's where we think the value of the blockchain comes in.

Adam Chapnick:

Do you think this is going to overtake the old-fashioned way people are investing entirely in real estate? Is everything just going to really be this?

Andrew Jewett:

I certainly hope so. I think it's going to take a little while. I think we're very early in the life cycle of this, and there will be some big movers. And there'll be some not-so-big movers. But once you start to see the Wall Street players start adopting this ... And we heard Goldman's started to dip their toe in the water. Barclays may be dipping their toe in the water. You'll start to see this thing shift. Because where we come from, the Wall Street guys have the market on issuing securities, issuing mortgage-backed securities, issuing fix-and-flip securities. If we can kind of shift that towards just doing a tokenization, that's going to be a huge game changer.

I think it's coming. I think it's still a ways away.

Adam Chapnick:

So if you had to predict, and we love predictions here. When do you think the balance is going to shift from the traditional way to the tokenized way in the real estate world? Let's say to 50%, boom.

Andrew Jewett:

I'd say three to five years.

Adam Chapnick:

Three to five. Okay.

Andrew Jewett:

Yeah. I think we're still early. I think there's still a huge adoption curve that we're just at the beginning of it right now. Look, I think we want to be advocates for it. Once we close Property Coin and perform, we're going to go to Wall Street. We're going to go to all our former friends and neighbors and say, "Hey you guys, this is real. This is coming. Why don't you work with us and we'll fix it, and we'll bridge that gap together." But we've been doing Property Coin for a year. We've been working on this for a year. So even just getting to where we are today has taken a year's time.

So I think there's just so much adoption that needs to happen, from compliance, from regulatory. There needs to be some certainty from the SEC as to what they're going to do about security tokens and non-security tokens and how they're going to treat those differently, that that's going to cause the delay in getting real, true Wall Street players and real, true adoption over the hump.

Adam Chapnick:

Well, you heard it here. Andrew, thanks so much for joining us again. Always good to have you.

Andrew Jewett:

Yeah. Thanks again.

Adam Chapnick:

The tokenization of real estate is just getting started. We'll be following this and bringing you updates on it on future shows. If you have questions on tokenization or on security tokens in general, be sure to send us an email or leave a comment.

Amy Wan:

All right. That's it for today's episode. Be sure to follow us on Medium, Telegram, Facebook, and Twitter, 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.

Adam Chapnick:

And I'm Adam Chapnick. For everyone here at Security Token Academy, thanks for watching.