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Tatiana Koffman Gives Spotlight Talk at Security Token LA Meetup

Expert Interview

Tatiana Koffman, Origin Story: The Main Benefit of Tokenization is Liquidity

Tatiana Koffman

Tatiana Koffman is a speaker, entrepreneur, VC and advisor passionate about bringing consumer technologies to life. With a focus on tokenized securities, Tatiana is the founder of Four Blocks Ventures, providing strategic advisory to several high profile issuances in the space, including Full Cycle Energy. Tatiana is also the founder of Crypto for Girls, a movement to engage more females in the blockchain industry.

Previously, Tatiana was a Venture Partner at DNA.fund investing in ICO’s across sectors. Tatiana was part of the founding team at Machine Shop Ventures, an early-stage venture capital fund started by the rock band Linkin Park, invested in Robinhood, Lyft, Riot Games, and Hyperloop One. Tatiana was also one of the first investors and advisors to Winston House, and founder at MARBL Media.

Tatiana holds a JD/MBA and spent the formative years of her career in Mergers and Acquisitions, and Fixed Income Trading with a focus on Swaps, Derivatives, and Asset-Backed Securities.

Tatiana is member of the New York State Bar.

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Tatiana Koffman:

Hi everyone, my name is Tatiana Koffman. I'll tell you a little bit about my background. This is really going to be a tough act to follow by the way.

I have a JD MBS, I started my career in investment banking on the derivatives and swaps desk originating products before moving into a bunch of capital tack and subsequently crypto. Then when the STO industry really got a boom it kind of felt like a perfect combination of everything I've worked on in my career this far and thus I am one of the STO evangelists in the space who walks around and really preaches the future of this industry.

So, going back to when I started my career on the derivatives desk. The years was 2012 and still in movies you saw how exciting ... yes, yes, you know I started baking six years ago ... I thought it was going to be a really exciting time. I thought my life was going to look something like this. So, in college when I did business school, in law school I watched this movie and I thought great, I'm going to go work on the derivatives desk, make lots of money, and have lots of parties. It's kind of like 2017 and crypto.

And this is what my life actually looked like. It was a lot of 7:00am mornings, I had to be the first one on the desk. There were two reasons why my life was tragically boring. One was because of the technology that was powering all of this trading was horrifying archaic. I actually remember, and this is not that long ago we're talking about like six years ago, almost seven, I was asked to build an interest rate curve every morning, and this was an interest rate curve that would power all of the bond desks, all the municipal bond desks, and the commercial bond desks on the trading floor ... this was TD Bank and don't tell them I said this ... but I had to do it through MS-DOS.

So every morning at 7:00am I'm sitting there with my coffee and I have one window with Bloomberg and another window with MS-DOS and I'm copy typing the interest rates from one window to another. One day I asked if I could automate it and they said, "Well we've always done it this way." So that was kind of my birth of interest of well how do we make this better?

The second reason why it was very boring is because we were still recovering from the derivatives crises of '08 and '09. Now this is a very advanced room so I'm sure you guys know what happened. The derivatives crises was caused by financial products that derived their value by reference to an underlying asset, through a process of securitization. The vast majority of these products were mortgaged back securities, which means we were pulling housing loans and we were packaging them and tranching them the good loans or the bad loans and we were layering and layering and layering to the point that we couldn't really see what was underneath and this created the lack of transparency which was largely created by the centralization of the institutions that were packaging these instruments.

Now this ended in a spectacular night when Bear Stearns, as described in Margin Call, decided to sell off a lot of these toxic assets. A lot of investors followed suit and this created a domino effect, not just in the US but worldwide. So this was called the Great Recession, which was the greatest economic disaster since the Great Depression of 1921.And just to point out some of the really staggering numbers from this event only a decade ago; $600 billion, maybe different numbers by different accounts in the US in turns of bailouts, $900 billion more in Europe, and our GDP decreased by 6%, Germany's decreased by 14.4, Japan's was 15.2 and on and on and on and this is because a lot of these countries were actually producing products that were relying on consumer purchasing power and when we were no longer spending money we actually hurt the rest of the world much more than we were actually hurt ourselves. But most importantly we had a 10% increase in unemployment in the US.

Big picture, this was 10 years ago. What happens right afterwards? The birth of bitcoin! So all of a sudden some programmers are sitting there and they say this is a really good time to launch some digital currency. And this wasn't the first digit currency that was created but it was the first one that really had that power behind it to succeed. It had enough folks behind it that were truly angry and truly lost trust in their governments and their banks to try something different. And so to pay homage to this very sentiment, the very first block of bitcoin, the genesis block, had a foot note written into it which quoted the UK Times headline of that day which said, "January 3rd, 2009 Chancellor on brink of second bailout of banks."

Bitcoin was a direct kind of a screw you of the financial industry. Now it kind of teetered and tottered for 10 years up and down, it was worth a couple bucks, it was worth a few pennies, and then at some point in 2016, 2017, it started to pick up speed, right, and it created this world of, I can say, all coins and check coins, but really in 2017 alone we saw these companies raise $5.6 billion, right? And while we were all focused on all of that the banks quietly recovered.

At least Bear Stearnes and Liemann are no longer on this list, but this is a list of the top 15 institution that hold the majority of wealth in this country, which is a terrifying thought because while we were focused running around funding startups, these institutions became further centralized and more powerful than before. And now we have an opportunity 10 years after this financial crises, 10 years after the birth of bitcoin to actually fix a lot of that by taking the technology that's underlying bitcoin, the distribution of the technology, and rewire our financial markets.

There's a new term that's being used that's called smart security and it's meant to reflect the part of STOs that really refer to equity debt, ref share, convertible notes, bonds, traditional financial instruments that used distributive ledger's technology for their terms and features and transferabilities. The other terms are digit security or programmable security. These are not network tokens, these are traditional assets that are now tradable on ledger.

Again, this a pretty advanced room so I'm going to go through this one fairly quickly but there's four main types we've seen in the market. The possibilities are infinite, we're seeing more and more innovative types, but the ones we've seen in the market this far we've seen three tokenize VC funds, which were a Blockchain and capital, SPiCE VC and Science, we've seen some share-like and ref share tokens, lottery's a big one, there's a few other big ones in the market right now. We're seeing some asset backed tokens come into market, which are the actual fractionalization of an asset such as a building. And we're seeing things that crypto-bonds. A good example of crypto-bonds is a project that I'm currently working on which will finance energy plants and it'll represent the cashflow from those plants.

So how's what we're doing now different than what we were doing 10 years ago and why is it better? So the first major benefit is decentralization and the alignment of incentives. If you look at how capital was issued in the past and how it is, for the most part, still issued it's done through the central institutions, the process called underwriting. And the debt mark, it's specifically if you would like to issue a bond, you need to have a stamp of approval from either Moody's or SMP, sometimes Fitch, but these are the main two. If you look at how these particular agencies operated 10 years ago and how they still do their incentives are completely misaligned. They're actually paid for and funded, in many instances, by the issuers themselves and they don't have the talent or the resources to properly look into complex deal and properly rate them. So with the open nature of decentralized technology we now have an opportunity to create a democratized rating systems and a way to issue capital in a totally decentralized way without these institutions.

The next is transparency, less room for human error. So obviously after the financial crises some folks were prosecuted, some went to jail, but the vast majority of these people, they didn't have to pay for their mistakes. But it doesn't mean that it didn't happen, there was a lot of malicious error and there was also non malicious error. So with programmable digital securities you actually have the ability to write these rights and features and obligations into smart contracts and avoid a lot of the lengthy paperwork. At least that's what we're working towards. I recognized that a lot of the STOs are still being raised on paper and tokenized afterwards, but eventually we're going to have that process streamed live.

You have transparency of what the underlying assets are, and the service providers such as the bankers and the lawyers and the accountants become advisors rather than service providers, so a lot of their functionality is automated which, again, decreases human error.

You have fair pricing. So your accounting, you can have up-to-the-minute reflection of assets, whether it's in a fund or in a vehicle, you can have rapid settlement, which takes minutes rather than days, you can have much lower fees. There was an article published on Medium this weekend which compared the pricing and the costs of doing an STO versus traditional issuance and the compliance fees were almost half if they're automated properly.

And you have automatic distributions. We're not there yet but eventually when you're able to pay distributions in a regulatory, compliant way through crypto, you'll actually be able to weekly or monthly or even daily distributions rather than having to wait 'til quarterly and file a report and do KYC AML on paper every quarter and send someone a check.

And finally, this is my favorite one, global pull of capital. We talk about this a lot, the best deals out there are really open to the top 1%. The rich keep getting richer. We really want to open up a lot of these wealth creation opportunities to both accredited and unaccredited investors which was the promise of crypto. There are many regulator hurtles with this still but this is what we're working towards and hopefully in the next two to three years we'll be able to have more deals out there that are open the everyman.

I believe that 2019 will be the year of security tokens, hopefully all of you do as well, otherwise you wouldn't be here. We have a 1.6 trillion private placement market to crack just in the US. We have NASDAQ incorporating block chain technology. There's a major exchange in London that's doing so as well, that's very under wraps. And we have an ability to truly democratize investment and traditional assets.

The last thing I'll say is these are some of my favorite projects right now. You're welcome to pick my brain afterwards as well. And you know I'm not actually involved with any of these, I'm a half advisor to Bancorp, sort of, so that's my fair disclosure. But everybody else is fair game.

So SharesPost, things I like about SharesPost, they've created a platform called glass, which is a plug and play licensing system for a lot of these exchanges, so it's given the ability to a lot of unaccredited, unlicensed exchanges to become licensed and really push us forward. So, I think they're going to grow its scale and they're doing really well. Bancorp I've been impressed with because they're actually providing liquidity at a time when there isn't liquidity for a lot of STOs so they have an agreement SPiCE VC and Alchemy Coin. Templum just did their first trade of BECAP which means they're officially live.

So at a time where we've been saying, "When are the exchanges coming? When are they coming? When are they coming?" They're here. Same with OpenFinance Network, also live. Steller, so this is very new, but they've just announced something called StellerX which is an exchange. And I've been working closely with them on something, and many people don't know this, but they're actually rewiring the whole payment system to be used for digitizing assets. So they're making that a major part of their business. And they're investing significant capital into this to move the industry forward which is very impressive. And Polymath, they're someone who's making a lot of noise in this pace for a while and we were also saying, "Well when are you launching?" And finally they went live in August with six deals, so that's impressive. And they're building up their team in Toronto and they're doing great stuff.

So that's kind of my synopses on the market and where we're going guys. Feel free to follow me on Twitter or Medium and if you have any questions I'm happy to take them now or you can find me later and we can chat then. Thanks.