Hey, everybody. It’s me again, Adam Chapnick, with the Security Token Academy, and we’re here in Los Angeles. It’s CIS 2019. I am joined by none other than Ben Tsai, the president and managing director of Wave Financial.
I’m excited to have him with us. Thanks for joining us.
Thank you, Adam.
All right, so you guys do a ton of interesting things, but for people who haven’t frequented Brentwood, the beautiful confines of Brentwood-
Maybe tell us, what is Wave Financial? What do you guys do and how did you get started?
Sure. We’re an asset management company, so, in terms of my background, I spent 15 years in finance across Asia, Tokyo, Hong Kong, Singapore, and Taipei, and so my focus has always been on the finance side, buy side, sell side and so forth. So, six months ago, I got up together with David Siemer, who’s our founder, and we put together an asset manager. So, he’s had a crypto blockchain focused venture cap company that ... a venture cap fund that he’s brought over as part of our firm, and we’re now also creating other asset management products there, asset management products and also investment strategies.
Very exciting. Okay, now, you and, of course, David are very familiar with this space going, stretching back into the ICO shall we say, but maybe we won’t focus on that for the purposes of today.
Sure, of course.
But, what is it about ... I’m going to stick to the security token space. What is it about that that holds promise in your mind?
From my perspective, I come from a very regulated space, so, in my 15 years as a banker and as a buy-side person, I was regulated in all of the countries that I named, plus the US.
So you feel comfortable?
I’m very comfortable being regulated.
You’re comfortable with this.
I have a license. Be registered. The first thing we did when we put together our organization was, we went and registered ourselves as an RIA, a registered investment advisor, so we’re regulated under California law. As we grow bigger, we’ll get to the SEC level also, and this is something that I think as asset managers we should be doing. And very recently, I think Andreessen Horowitz, the A16Z-
Yeah, that was the big news.
They announced that they were going to do that, and we did that four or five months ago, so I’m just-
Putting it out there.
Just putting it out there, yeah, just that.
With that, we’re using qualified custodians. We’re using auditors and so forth, so we’re very careful in what we do with our funds, our assets under management and how we look at how we manage assets.
That being said, security tokens just fit hand in glove with that because the entire process, from issuance to secondary, all has to comply.
That’s right. That’s right.
You guys, that’s no problem.
That’s how you roll.
That’s right. I think, right now, people feel like it’s a very burdensome and an onerous process with many, many layers to get security tokens working, and I don’t think people feel that in the traditional equity space or in opening bank accounts and so forth because it’s already set up. All the interface, all the infrastructure, all the UX, it’s all optimized, simplified and so forth, so people don’t feel the stress there. They’re feeling the stress because we’re doing it for the first time.
There’s also a bit of fragmentation in our field right now in security tokens, where there are a lot of different platforms. You have to on-board with every single one of them and, as you move to trading platforms, you got to on-board with all of them and so forth and so forth, in many cycles. Where, in the traditional finance world, a lot of that is simplified. You on-board to a brokerage account somewhere and they’re connecting you to all the exchanges, for example, and so forth. I expect that consolidation or that simplification or even just simply partnering up to happen a bit more as time goes.
Yeah, that makes total sense. You guys also have some interesting vehicles that you’re toying with, let’s say.
Sure. Yes, so we’re exploring a number of things, so we’ve launched an investment index that looks after the large cap to try to give clients a feel for what a beta exposure would look like. We’ll be launching a series of different indices, which hopefully will give the client a better feel for looking at cryptocurrencies. I think a lot of people look at just Bitcoin, where is the market going, just Bitcoin. That may not be necessarily the right exposure. We’re going to try to find different angles to be able to show clients what the crypto market is going.
We’re also looking at derivatives. That’s a new market. That’s up and coming. We’re seeing people trade derivatives in Bitcoin right now. We’re starting to see nascent marks in ETH derivatives and, of course, you can call up an OTC counter. They’ll make you a derivative in whatever fashion you want or whatever token you want. But overall, I think we’re starting to see that.
In the third series, which I think we had discussed yesterday that was interesting-
Yes, this is my favorite.
We’re looking at real assets that we can tokenize. That would make a lot of sense. You would take advantage of the tokenization process. I believe that there are a lot of cash flows and yield curves that could be liberated using the token format so more people can have access to it. We can talk about things which are not boring, things that I do all the time, which is real estate and so forth, and we can talk about things that are interesting, which we talked about yesterday.
We’re looking at whiskey, potentially doing something with whisky in terms of tokenization and so forth. I’ve spoken to people about brand new whisky, the aging process. The interesting way of talking about it is we would hold barrels, and the boring way to say it we’re basically providing balance sheet to distillers for them to make their business more efficient.
The other direction is more on the collectible side, where I’ve talked to friends who are going to Scotland to buy 20, 30-year-old barrels and aging it for another five, 10 years to try to pick up the gain in value from that perspective, and that smaller volume-
Right, like series D barrel.
That’s right. Like, much, much later in that barrel. So obviously, the starting point is high, but the theory is that the ending point is even higher, as long as nobody goes and drinks it before then, and it doesn’t all evaporate away, yeah.
That’s fantastic. Now in those kinds of instruments, those would be security tokens or not?
So, we’re envisioning all of these things, basically in fund format, and we would issue securities tokens and what we call digital funds around these things.
In the fund.
So, they’re token representations of funds, and the funds would have these different types of investments. And we haven’t launched any of these yet, so we could talk about it to our liking.
Yeah, well I love that part.
And the concept is, that these tokens would then be tradable on security token exchanges. We have a very close relationship with the top three in the US and many others, overseas also. So, we would like to list them, have them be available. Just back to the whiskey example, we can have the 2018 vintage, we have the 2019 vintage. You can trade fractional barrels with other people, thinking certain barrels are better than others, and you don’t have all that debate. And I’m not a big drinker, so I’ll leave it to the experts to tray those tokens.
Yeah, amazing. Well, I’m excited by that, because I think a lot of the fun in discussing the possibilities about tokenization is, trying to game out what are people going to fractionalize. And here you are on the cusp of the actual execution, of whiskey barrel fractionalization, which I love. So today whiskey barrels, tomorrow, Pokemon cards.
We can do many things. People have talked to us about race horses-
Race horses? Yeah.
Well the race horse business, as far as I know, a lot of is really for fun for a hobby. I know people pay to play, it’s very much a vanity sport.
But isn’t that already fractionalized in sort of the real world?
In the real world it is, to a certain extent.
I don’t mean the real world, I didn’t say that. In the traditional world, let’s call it that, yeah.
In the traditional finance world, yes it is to a certain extent fractionalized also. But I think it is more of a vanity project rather than actual practical investment.
Yeah, there’s no fundamentals-
So from us, we’re an asset manager. We’re looking at things that we can invest in. And we’re doing whiskey really because we believe that there is profits to be generated in whiskey. You know, 10 years ago, people didn’t invest in barrels of Japanese whiskey, and now we have a shortage. And that could have been a great investment opportunity in retrospect. And we’re trying to catch that on the way forward.
Interesting. So looking at Wave for the rest of 2019, what significant things can we expect? What are you most excited about?
Sure. We’re looking forward to continuing to launch products and hopefully we can gather AUF for these products. I don’t know if this is a humble brag or not, we’ll get to a size where we have to go apply for the SEC registration and go through the pains of that, and then we complain to everybody all about it.
Oh, yes, it’s so hard.
And that’s how it works basically. It’s so hard, all the compliance.
The compliance, the regulators, yes exactly.
Wow, well I hope to hear you humbly brag about the pain of the SEC compliant process.
In the meantime, thank you so much for sharing with us about Wave, and you must come back.
Thank you very much, thanks for your time.
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