Mark brings technology vision, international team management and extensive experience in cloud-based delivery of mobile and social products along with the experience of having built and sold several companies.
At the age of 10, Mark met and fell in love with the Apple II computer, putting aside a promising career as a violinist and diving headlong into business and technology. Mark sold his first program that year, had his first company by the age of 13 and entered university with 25 employees and the top-selling video game of the year under his belt. Since then Mark has built and sold several companies and has become a sought-after adviser and mentor. Mark's first online success was VR-1, a company he helped build into the world's largest publisher of Massively Multiplayer Games by creating a vision for MMO gaming, inventing novel communication protocols and leading development around the world. Mark's latest posting was as Chief Technology Officer of Electronic Arts Interactive, which he joined through the acquisition of a company he co-founded, and where he led the evolution of EA's mobile, social and online products and platforms.
Hey everybody, it's me again Adam Chapnick, with the Security Token Academy. We are here in Los Angeles at the 2018 Crypto Invest Summit, and I'm joined right now by a very special guest, it's Mark Vange the CEO and founder of Token IQ. Thanks for being with us.
Pleasure, nice to have you.
So, for everybody who hasn't yet had the pleasure of hearing about Token IQ, why don't you just give us sort of a high level. What is Token IQ?
Sure, Token IQ is a platform for the tokenization of securities. We believe that tokenization needs to be done in a fully compliant legal way.
And we enable issuers to do that while maximizing access for investors, but still complying with the regulations of the US or whatever jurisdiction they happen to be in.
Got it. So you guys have chosen to operate on a chain that isn't sort of what everybody tends to go with.
You're not on Ethereum. What are you guys using?
Right, so we use the stellar distributive ledger. So Ethereum, great, virtual machines, great, that full capabilities wonderful, but also presents a lot more complexity, a lot more cost, and much lower transaction rates. And I know that there's lots of smart people working on expanding and reducing and making more effective all those things, but the reality is most securities transactions do not require the virtual machine.
Now we do have a capability to bridge across to Ethereum if an issuer does need to manage, let's say their shares with smart contracts, but for the predominance of the issuers that we work with it's just not an issue.
So for example our first deal that we announced just the other day is a tokenization of a 10 million dollar deal. It's a company called Oxygen Hospitality. They build very cool hotels. They wanted to do a deal in crypto. It's basically a note, right. They pay interest. None of it requires a virtual machine. It's all just standard kind of financial operations.
Interesting. And so do you guys have a focus on what kind of tokenization you are doing, or is that either by choice or by just de fact who's showing up? Are you doing lending? Is that a thing?
So, we do the tokenization of any securities. So lending, it could be a pile of gold. It could be ...
Shares in a company, whatever it is, right. Our kind of key qualification si the company needs to want to be compliant, right?
So whatever exemption you're filing under, whether you're doing a Reg D or a Reg A or going to a full-on Reg S1, whatever it is. The paperwork needs to be filed, and the issue needs to reflect the issues of that type of filing.
So for instance, if you can only accept money from exempted investors we have a process that allows you to qualify tokens, and our technology makes it possible for you to be assured that your tokens will never go into a wallet that has not been pre-qualified.
So is that not ... It's not a smart contract functionality.
It's not a smart contract functionality.
How does it work?
So, I mean, Stellar has its own kind of programming. It's not the same as Ethereum programming. It's not as a capable. It's not MP complete, but it allows us all the capabilities we need to achieve our goals in terms of the kind of limits that we place on.
For example, for me a very important capability of securities is token recoverability.
In the crypto universe you lose your password, you lose your tokens. In the real word if I invest in your company you'd give me a share certificate, take it home, the dog eats it. I'm still an investor in your company.
If I get hit by a bus, my wife's now an investor in your company.
And the issuers are ultimately the ones that are responsible for this, and are liable for this.
So, our platform gives them mechanisms to control that. Our platform gives a mechanism to create options and do things like vesting and swaps and other kind of market making mechanics.
How cool? So it is a smart ... I don't want to say a smart contract because it isn't, but it is intelligent control, perhaps.
Perhaps if I'm riding the market.
Exactly right, and essentially ... and again, in our universe because the law says so the issuer's ultimately in control of the shares. A lot of people, there's especially people who have kind of been drinking the ICO Kool Aid, how can you trust the issuers, and my simple question to them is if you don't trust the issuer, why are you investing in them?
That's a very good question, very simple. Cool, okay, so what, in terms ... We're called The Security Token Academy so we love anybody who plays in and requires that everyone play in the compliant ecosystem. What do you see from your vantage point, which is a unique one, as sort of an early, maybe early adopter for lack of a better word, in terms of verticals. Is there a kind of issuers that seems to be more gravitating towards this?
Absolutely. So, actually I'm seeing a lot of activity from real estate.
So, I told you our first deal is real estate, but actually a lot of activity in real estate, and I actually welcome this a lot because when you take the risk of, let's say, an early stage technology company plus the risk of crypto, people just freak out and say oh my gosh.
Everybody understands real estate. Real estate is just very safe, kind of fundamental asset, and so it's easier to think about tokenizing it because you know that the asset's always going to be there.
There's only one.
Exactly. You just think about that, and so it's not that that's necessarily a focus of ours, obviously we work with a bunch of people in different industries, but that definitely seems to be kind of an emerging trend that a lot of the early adopters of this stuff are tokenizing real estate assets.
Yeah, and we've seen that across the industry. We saw the Aspen St. Regis, and we see all kind of ... There's a property in the East Village in New York that just tokenized. So that makes total sense in the way that you said it's not double risk. That explains it. What do you think is the next one coming around the bend after real estate, or if there is one? Maybe it doesn't' say it.
I actually think the next one is probably the tokenization of funds. The tokenization of meta investments, right. You still have a professional investment manager in the mix, and it's a way for them to reach out to a broader audience.
Especially under US law this whole notion of having to have fully qualified investors really limits the universe of investors.
Because the overhead of kind of going through the qualification process is quite high, right. People need to fill out forms, prove their income, and so on. So we spend a lot of time working on the work flow involved in that. Not that we've changed the fundamental requirements, but we have really optimized the workflow and have made it possible for people to essentially accept smaller checks, right.
Less overhead means you can open the investment opportunity to more people, right. There's a lot of qualified investors out there. Millions and millions of them in the US who have over a million in assets. Make over 250,000 bucks a year, but who are never going to write a 200,000 dollar check or 150,000 dollar check. So if that's your minimum you're not talking to any of those guys.
Whereas if you can take a 10,000 dollar check from that sort of an investor it makes sense, but for that your overhead has to be reduced. On the funding side working with a lot of IRAs to actually, through them, give their customers exposure to these kind of deals. We're expanding, essentially the investor pool for our issuers, and we're also working with the second largest custodian in the US to allow people invest directly from their managed IRAs into these deals.
Wow. So that's a component that I hadn't grasped entirely. You not only give them sort of the technological and sort of functional process, underpinnings to do the issuance, but you actually provide some access to the investor side.
So, we are a software as a service platform. I'm not a lawyer. I'm not a BD. I'm not any of those things.
But yeah, we definitely, in our platform we have built in rules for all of these different players because they're all an important part of this ecosystem.
Of course, yeah.
And ultimately issuers aren't there because tokens are cool. Issuers are there because they want to raise money.
Right, exactly. Oh this is fantastic. So gazing into your crystal ball, how long do you think it will be before sort of the de facto way to raise money will be through a token offering instead of the other way, and it will just seem quaint that we ever did it another way? Are we 1 months, three years, five years, one month.
I think we're quite far away actually because a lot of investors by charter cannot invest in tokens.
And so that's a real limitation.
At the fund level.
Exactly, yeah. So in fact what we did for instance with our own offering because of course we want to eat our own dog food, right, we actually created binary structure with recall, so we have one class shares with just paper. One class of shares with just token. They're complete equivalent.
And you have the option of moving between them, but what it means is if you're a more traditional offerer ... Sorry, if you're a more traditional investor or because you're precluded from investing in tokens you can just buy the paper with the option of transitioning to tokens when you can.
Conversely, if you want to be one of the cool kids, you can buy tokens, but still have the security blanket of being able to transition back to paper if this whole token thing falls apart.
That's very clever. I haven't heard any ... I don't think I've heard anyone who's doing that.
Well, you heard it here first.
We heard it here first.
I invented this, and we've been working with the State of Delaware through our attorneys to kind of make it happen, and we're there now.
I love it. Fantastic. Okay. So what do you think you see as some of the frictions that exist that are preventing more people from just jumping right in to use a platform like yours or any other mechanism to go security token?
The biggest issue we've had has been disambiguation between crypto, ICOs, and STOs. So we spend a lot of time educating people, and honestly my number one response when I talk to issuers today is they look at my demo, and they see the platform and say that is super cool. I can see how that saves me piles of money. I'm not sure about this whole crypto thing. Can I just use your platform to raise conventional PPMs.
Oh funny, interesting.
People are definitely still nervous about it.
Yeah, for sure.
Not there. Interesting.
Well thank you so much for sharing with us all about what you're doing. Your thoughts and your prognostications, and please come back and tell us how it's going.
Pleasure to meet you.
All right, you too.
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