What brought you to a security token meet up?
I’m passionate about all things blockchain. I recently moved to the LA area, and I just randomly stumbled upon it in the meet ups section there. It turns out I knew a couple of people who are in attendance.
Yeah, it’s been good. Attendance was great today.
Yeah. You picked a good one. Did you learn anything in particular? Any take a-ways from tonight?
Yeah, I think so. We’re always still trying to grasp the level of engagement and custodianship in terms of ownership of who really ... Ownership is a huge thing. Not within the blockchain space, but of just monetary systems and physical items. Who owns what? I think a lot of the questions on this panel today answered a little step further, I think, to true ownership and really how we value that and how we’ll appropriate that moving forward.
This is a hurdle that takes a lot of time and money and hiring the right attorneys and the right advisors and the right ... We’re talking about compliance now. You can’t just say you’re doing something that’s compliant and it’s compliant because you said it was. You actually have to do filings and do things right and make sure that everything is verified and done correctly.
There are going to be more than 100, but when we talk about real ones actually trading, maybe 100.
Yeah, no. I think it makes sense. 100 that are going to be compliant with US securities laws, which doesn’t mean that all the other ones aren’t going to be compliant. We have to remember. The one thing that STOs are like ICOs is that it’s completely global. There will be issuances outside of the US by non-US companies. Those are going to be just as legitimate as the US ones potentially.
There’s also going to be a lot of them that don’t recognize that US laws are more complex than laws in other jurisdictions at times or more strict, and they’re not going to comply with them. If we add those in there, the ones that take it easy, or the infrastructure providers that say, “Hey, this is how you tokenize it, by coming and creating this asset on our decentralized STO platform,” we’re going to have hundreds and hundreds and hundreds of them, but we’re probably going to be closer to 100 that are actually regulated.
There are so many reasons to have a custodian, but there are also a lot of challenges surrounding does your custodian have the technology that matches well with what you’re doing? There are plenty of custodians out there who hold all types of assets. Custodians that hold art and gold and money, but do they have the infrastructure necessary to connect to a blockchain? So if you want to custody something that’s digital, now you’re talking about looking for a tech company. So at Prime Trust, we call ourselves a tech driven trust company, because we really very much focus on the technology that allows us to hold cryptocurrency.
What is an STO? What is a security token offering? I think that a lot of people right now look at it as all right. I take an asset, and I tokenize it, and I sell the tokens. I think that that process is completely backwards, and frankly, this might not make me super popular, but I think that this is actually significantly slowing down the adoption of security tokens, because creating the token is not the most important part of the process. The most important part of the process is getting the deal funded.
Then the education part is the crazy thing. You’re absolutely right. Most of us or a lot of us came from the crowd funding space, which is why we know way too much more than we ever want to know about the specific regulations about security tokens. None of us ... Well, not none of us, but a lot of us are forgetting the lessons we learned in crowd funding, which is just slapping crowd funding on a deal is not going to make an investor want it. It actually, if anything, can confuse them. Can signal that this company couldn’t raise money any other way, so they’re trying this newfangled thing.
Tokens need to be an integral part of your company or a reason why you’re doing it or it should make the product better maybe in the long term, but you don’t have to lead with it. If you’re leading with it, then you’re probably not the greatest deal, because the deal, like the company or the piece of real estate or whatever it is that you are tokenizing should be what you lead with.
What do you think is the prognosis for the security token space? Do you think it’s ... What do you think?
Frederic Rough :
I believe that it’s going to take until about 2022, 2023. Those are my projections, and that’s why I put myself on the boogie board and all of us are right now, because the wave’s coming soon.
We just have to be patient.
I’m using that analogy, and all of us are on the boogie boards right now. You set up a couple of different boogie boards and you wait for the wave to come. The wave’s coming, and the security tokens are a big part of that wave.
Yeah. They’re going to carry you to shore.
The shore of wealth creation.
We love it.
One of the things that everybody is going to remember is that off shore offerings were the hot thing, especially when SEC started cracking on things. The thought was let’s just sell our securities off shore, and then we’re going to be free.
The question was always there was legislation in the Dodd Frank Act that actually addressed the fact that the SEC had very, very broad rights to actually go after anyone making security offering off shore. The Dodd Frank Act essentially addressed that, but it was done at the same time as a Supreme Court offering, literally a month apart. Wording in the legislation was very strange. It was never clear whether they actually meant to address it and limit the SEC’s jurisdiction or not. Essentially what we ended up seeing is a couple of years ago, there was a case where a district court essentially decided that sure, the legislation didn’t directly address it, but the legislature meant to address it. Now we’ve had an appeals court just a couple of days ago or a couple of weeks ago that have addressed it as well and that basically said, “Yes. The Supreme Court was actually trying to go ahead and give the SEC some expansion of the SEC’s jurisdiction.”
In some ways it’s not different at all. It’s just split ownership, and the markets will move. But there’s a technology that’s going to come in and basically change everything.
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