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The Tokenization of Assets

Transcript


 

Henry James:

There’s two kind of trends that have emerged from the groups that we’ve spoken to around the world that are interested in security tokens. One trend is from institutional investors that are looking for more complex products, products that they can’t buy and access through traditional markets. In other words, they’re looking for a new investment product and we’ve a, let’s say, IRR of like 20%, which is high.

Adam Chapnick:

That is high.

Henry James:

It’s a high yield product. Whereas on the other hand, there’s another client segment that’s emerged, and their trend there is an investment mandate that is focused more on what I like to coin the vanilla security tokens, maybe real estate backed or precious metals backed or even oil backed, right? If people want to buy and access oil, trade oil, it’s quite difficult for them to do that. I think these kind of products appeal more to family offices and high net worth individuals. They have a different investment thesis. These guys are in the game of wealth preservation, and the fund managers, of course, the institutional guys are here to make some good returns.

Benjamin Tsai:

We’re looking at real assets that we can tokenize that would make a lot of sense. It 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 are interesting, which we talked about yesterday, where we’re looking at whiskey, potentially doing something with whiskey in terms of tokenization and so forth.

I’ve spoken to people about brand new whiskey, the aging process. The interesting way of talking about it is we would hold barrels, and the boring way to say it is 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 and value from that perspective. And that smaller volume-

Adam Chapnick:

Series D barrel.

Benjamin Tsai:

That’s right, like much, much later than that barrel. 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.

Adam Chapnick:

Right. That’s fantastic. In those kinds of instruments, would those fall... Those would be security tokens or not?

Benjamin Tsai:

We’re envisioning all of these things basically in fund format, and we would issue securities tokens...

Adam Chapnick:

In the fund.

Benjamin Tsai:

... and what we call digital funds around these things. They’re token representations of funds, and the funds would have these different types of investments.

Alex Nascimento:

You’re going to have democratization of investments. It can bring venture capital deals or startup deals to retail investors that just because they don’t have the connections, they’re not at this conference circuit like myself and yourself. They just don’t have the connection to those deals. Right? Then obviously tokenization of different assets that are naturally or traditionally illiquid assets or assets that don’t have a lot of liquidity, like art, collectible cars, real estate, or capital-intensive projects like building a commercial building. You need capital. The people who invest in real estate projects are accustomed to writing large checks and via a tokenized share of a real estate project, you can disperse the way you do fundraising for a project, you can facilitate the payments and the distributions of that project, and you can easily provide a lot more liquidity to the first investors.

Leeor Shimron:

One industry that we’re starting to see get tokenized is actually the non-traded REIT space. Now, this is traditionally a very illiquid marketplace that you have maybe a dozen or so private equity funds that trade these assets amongst themselves, and they need at least $100,000,000 in order to participate. When you’re introducing tokenization and security tokens, you can actually bring down the barriers to entry. You can bring down the cost of capital, allow for much smaller bite sizes, and this allows a much larger investor base to actually participate.

Adam Chapnick:

Yeah, for sure. Well, other than the REITs, do you think... People talk about things like fine art or wine or things like that. Is that sort of a pipe dream, or do you think we’ll see those kinds of things?

Leeor Shimron 5:

Yeah, you always see these stories about Picasso being tokenized, and people being able to buy $100 worth of a $100,000,000 piece.

Adam Chapnick:

Yes.

Leeor Shimron:

I think we’re quite far away from that, but I like to think that we’ll get there someday.

Adam Chapnick:

Yes. Me too.

Leeor Shimron:

I think it’s going to take some time. There are definitely some issues that need to be resolved before we can get there.

Adam Chapnick:

For sure.

Leeor Shimron:

First of all, how do you verify the value of the artwork? How do you verify that it’s worth a certain amount?

Adam Chapnick:

A price. Yeah, Right.

Leeor Shimron:

How do you actually custody those assets?

Randall Crowder:

If we believe that data is one of the most valuable assets on the planet, could we introduce a security token that leveraged our existing platform to allow people to fundamentally tokenize themselves? You can tokenize a venture fund. You can tokenize a building. Why not the digital representation of you? Every time you engage with any device, someone is making money. Just not you.

Antonio Brasse:

At some point, you’ll see the retail crowd getting involved too. I think about real estate, like the little person can’t really get in on a real estate deal in Manhattan. Right? We were actually talking to a blockchain project that’s tokenizing real estate in Manhattan a couple of months ago when they’re doing it also to, obviously, institutional money, but they want to give the normal person a chance to buy into some of these properties and get involved.

Adam Chapnick:

Yeah. That’s exciting.

Antonio Brasse:

Yeah.

Adam Chapnick:

There’ve been a few. Yeah. We did a thing on the Aspen St. Regis. They did the tokenization on those.

Antonio Brasse:

Yeah. Yeah. Yeah.

Adam Chapnick:

The East Village, there were a few little properties.

Antonio Brasse:

Yeah.

Adam Chapnick:

Yeah, so we’re seeing it.