Juan Hernandez is the Chief Executive Officer of OpenFinance Network. A serial entrepreneur and business strategist with over 14 years of business technology and strategic management experience, Juan has built multiple startups including PeerRealty, Endurance Commerce, and the Pop Stock Exchange.
Prior to entrepreneurship, Juan spent his career designing and developing financial exchange platforms, algorithmic trading systems, and healthcare security networks.
Juan received his B.A. in Computer Science from Northwestern University and his Master of Business Administration degree from the Kellogg School of Management, with concentrations in Entrepreneurship & Innovation, Finance, and Marketing.
Welcome to Security Token Insight, brought to you by the Security Token Academy. The Security Token Industry is here, and we’ll provide a key foundation for the evolving financial internet.
The Security Token Academy provides insights about this new era for Security Token enthusiasts, investors and issuers. The Security Token Industry is here, and you can get involved. Hi, I’m Adam Chapnick.
And I’m Amy Wan. Thanks for joining us. Coming up on today’s episode of Security Token Insight. In your Security Token investing news, details on tZERO’s new crypto-integration patent. Plus, OpenFinance Network is in this week’s STO Spotlight, we’ll introduce you to the founder and CEO, Juan Hernandez; and we’ll let you know the date of our next Security Token Meetup. That and more, straight ahead.
Now it’s time for your Security Token investing news. With all the recent news surrounding tZERO’s STO platform the company has also won a new crypto-integration patent that can combine market information from different sources to determine the best prices. It’ll provide an interface between Legacy trading systems and crypto-exchanges that trade digital transactional items. By the way, tZERO is a Gold Corporate Member of the Security Token Academy. To learn more visit our website, and click on the “directory” tab and the “Corporate Member” homepage.
Prime Trust is in the news this week. The company is an SCC-qualified custodian for Security Tokens, and provides compliance services, including KYC and AML. Prime Trust has partnered with Security Token marketing firm Issuance to help further the Security Token Industry. CEO, Scott Purcell, said Issuance will help companies with successfully accessing funding. Prime Trust is a Gold Corporate Member of the Security Token Academy. To learn more visit our website, and click on the “directory” tab and the “Corporate Member” homepage.
And, finally, we head to Switzerland for the Tradecloud STO. Tradecloud is looking to raise 20 million dollars in what is being called the first STO in Switzerland. The money will be used to expand into the energy and agricultural sectors, and to develop the Tradecloud commodities web. Tradecloud is a communications platform designed for the commodities’ industry.
Now it’s time for STO Spotlight. This is where we introduce you to a company that has launched or will be launching a Security Token offering. OpenFinance Network is in this week’s STO Spotlight. The company is building the first regulated trading platform for Security Tokens. You’ll be able to buy, sell, manage, and research Security Tokens all in one place. Juan Hernandez is the founder and CEO of OpenFinance Network, he’s also the founder and Managing Director of CFX Markets, with over 20 years experience in fintech and exchange technology. Juan joins us now from Chicago. Welcome, Juan, and thanks for chatting with us today.
Hey, Amy, great to be here today. Thanks for having me.
Awesome. First, what is OpenFinance Network and what problem do you guys solve?
Great. OpenFinance Network, a lot people think of us just as a Security Token trading platform, but we’re so much more than that. We’re an SCC-registered, alternative trading system, or an ATS for short, set up to trade digital securities and alternative assets; things like real estate, private equity, hedge funds, limited partnerships, STOs, and other such instruments. The problem that we’re solving is helping investors who participate in these types of securities, we’re giving them the option of liquidity. These assets have historically been illiquid and difficult to trade, and we provide a streamlined and compliant platform by which they can participate in.
Fantastic. How is OpenFinance Network different from other trading platforms out there?
From a mainstream/Wall Street perspective, obviously we deal with a different asset class. We deal with private securities, or alternative assets, as I mentioned, real estate, private equity, hedge funds. We work with a different set of participants, investors and traders in the space. From the crypto perspective, we’re different in the sense that we’re actually fully licensed within US securities frameworks. Our broker-dealer and ATS is licensed to transact in these types of securities. That sets us apart from some of the other platforms that might operate overseas, for example.
Very interesting. I’ve heard that OpenFinance has a lot of new, very strong partnerships, can you tell us about the recent agreements that you have with Swarm Fund and some of your other partners?
Sure. One of our key strategies is to work with the other intermediaries within the space. Largely, today that’s a lot of the Issuance platforms that are out there, Issuance platforms like Swarm, Securitize, Tokensoft, Harbor and some others. When I say Issuance platform ... these are the providers that work with the issuer during the initial raise, and they help these providers set up the proper structure to be able to do a capital raise on-chain, and then assist them throughout that process. Once they have then completed their primary offering, then they can come to our platform to work on their secondary market offering.
Fantastic. Aside from just allowing for the trading of STOs, you guys actually decided to do your own. What made you decide to go down the STO path?
By and large, a lot of it was seeking to work with strategic partners in the space. We were looking for other participants who were looking to, just like us, build infrastructure within this industry. It’s such a nascent new space that a lot of the infrastructure, a lot of the railing needs to be put in place still. Our STO offering was a way to really engage and correspond with those other participants that are looking at the long-term value that this market can provide.
Really interesting. Custody is obviously a very big issue in the space, what sort of custody solutions do you guys provide?
Custody is a big hurdle in the industry still, across the board. It’s one that we’re starting to see a lot of the major banks and providers start to step into this space, folks like Fidelity, Goldman Sachs, and several others. Today, there is not a clean-cut custody solution, and to that end we offer non-custodial custody mechanisms. What that means is that the participants on our platform actually hold their own custody, we call it “first-party custody.” They transact peer to peer on our platform. However, going forward, we are speaking with several different custodian providers who we feel have the necessary infrastructure that we can partner with them to be able to offer a full third-party custody mechanism to our entire user base.
Great. Let’s talk about investors for a second. What is your investor passport?
The investor passport is what we like to call, “single sign-on mechanism.” Effectively, it allows us to do AML, KYC checks, accreditation checks, other forms of verification on the investor, the trader on the platform. It allows us to do that verification one time, and then that participant can now transact across our entire network. It brings the verification down to the wallet level, and that combined with smart contract technology allows us to do a crosscheck on every single transaction on our platform in order to ensure that the participant is allowed to transact within that particular asset class at that particular point in time. It allows us to enforce the regulatory constraints that exist in the market.
Interesting. Accreditation verification of investors is also a very important topic, how do you guys handle that kind of compliance?
The accreditation process, for example, we do in-house. It’s very important for us, as I mentioned, we’re a registered broker-dealer, that process is something that we keep in-house in order to ensure the highest level of compliance. AML, KYC, we use several different providers for that, but there, again, at the end of the day, we stand behind all of our verifications because we’re the broker-dealer of record for each of these transactions. For us, ensuring that we maintain the highest level of compliance and regulatory adherence is first and foremost whatever single transaction that we do.
Taking a step backward, if we look at crypto and blockchain as a whole, there’s always a lot of talk about how decentralized are you. Is OpenFinance Network more on the spectrum of being centralized or decentralized?
It depends on who you ask, I guess. We consider ourselves a hybrid. Our order book and matching engine are off-chain, but our settlement occurs on-chain. What that means is that the order books that the trader see, all of the high speed matching that occurs on the platform, that’s off the blockchain, and that’s due largely to limitations in today’s technology, that distributed ledger mechanisms are simply not fast enough yet; and there are other limitations that occur within that technology that make them not quite yet suitable to handle things like a high speed order book or a matching engine, but our settlement of the transaction does occur on-chain. In that flow we do have a peer to peer model today, as I mentioned earlier, where once the trade has occurred, once the match has happened, then the settlement occurs on-chain via our partners who act as digital registers to effectuate the transfer of ownership on-chain.
Fantastic. What is the relationship between OpenFinance Network and CFX Markets?
CFX Markets is our Legacy platform. It’s the market where we initially began back in 2014, initially focused on the more traditional alternative assets, things like publicly, registered, non-listed reads, BDCs, which are business development companies, EB-5s. It’s in that alternative asset arena where we got our start. We also expanded into crowdfunding initiatives. As we have progressed in the evolution of the company, and where we’ve seen the market move towards, we do see a movement or shift towards this digital/blockchain-oriented format for securities. We are currently in process on leveraging all of our infrastructure from our more traditional platform onto this new digital platform today.
Looking forward, can you tell us anything about your roadmap and any future goals?
A big thing for us, obviously, is building our product and building out the supply site for the platform. 2019 will be a record-breaking year in terms of how many STOs come to market. The number of Security Token offerings and other digital securities like that are very deep in the pipeline. We’re seeing things like private reads, other real estate, more venture capital funds, hedge funds, private equity funds, start to step into this new digital format, this new blockchain-based format. A big part of our 2019 strategy is building out that quality pipeline so that we can list the most selective supply of Security Tokens and digital assets on the market. Longer-term we’re also working on a distributive brokerage account model, which takes accounts of both custody and our investor passport and extends it to be further distributed and allowing for a much more flexible and robust experience for our traders.
Tell us a little bit more about your team, and where is OpenFinance Network based?
Our core team, our core headquarters, is based in Chicago. We do have members in New York, Los Angeles, and Denver as well. We’re a little distributed, but the core team is here in Chicago. The team, starting with myself, I have a fintech background, I’ve been in the industry, in the alternative asset and fintech space for roughly 20 years, working across a variety of asset classes, from virtual currencies to foreign exchange, to crowdfunding and alternative assets like we’re in now. I have a Computer Science degree and an MBA from North Western, and this democratization of finance has been occurring since 2012, since the passing of the JOBS act. It’s something that I’ve been specialized in and really dedicated my career to. A lot of what we’re working on is just that continuation of the broader achievement of getting freedom and flexibility to all investors, not just in the US, but worldwide.
Other members of my team have very deep, extensive finance experience. Our COO, Jim Stonebridge, comes from the world of prop shops and traditional trading firms, brings a very deep experience within operations and compliance. The head of our trading desk, Dan Breen, has 25-plus years of experience within the traditional alternative asset class, non-list reads, BDCs, EB-5s. Our technology team members, some of them come from the trading backgrounds, others come from open source and financial services backgrounds.
As a whole, I feel that our team is very robust and has a lot of different skillsets as needed for this type of marketing model. It’s not just financial markets, it’s not just technology, it’s not just Blockchain, it’s a cultivation of a lot of these different skillsets in areas that need to be brought together in a harmonious way in order to be successful.
Great. Juan Hernandez, founder and CEO of OpenFinance Network. Thanks so much for joining us today from Chicago, and best of luck to you and your team.
Great, thank you so much, Amy. Appreciate it.
For more information about OpenFinance Network visit openfinance.io.
Back in October, the Security Token Academy held events around the nation to signal the kickoff of the Security Token Industry. We held Security Token Meetups in Los Angeles and also in New York City. Attendees who purchased tickets to our two-day cruise and conference in New York boarded the Spirit of New York yacht from Chelsea Harbor for an evening cruise along the Hudson river. That was followed by 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.
And mark your calendars for our next Security Token Meetup. It takes place Thursday, January 31st, inside Maggiano’s, at the Grove, in Los Angeles. It’ll have free food, drinks, networking, and more, and I’ll be moderating a special panel discussion on the Security Token Industry outlook for 2019. 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 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 Member, Mary Lynch, and to all of our Gold Corporate Members as well. And for everyone here at Security Token Academy, thanks for watching.
Learn about regulations, governing cryptocurrencies, and Security Tokens from around the world with our regulatory review. It’s on our website securitytokenacademy.com, click on the “learn” page so you can stay informed.
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