Security tokens, at last!

Transcript

think I've got something like 20 minutes with questions included I'm just gonna talk for about 10 minutes 10 to 15 minutes quickly about security tokens and what I'm interested in right now and what I'm doing and you know then I'd like to have some some Q&A session because and interact with you on certain aspects which I find particularly interesting so why you know just this very simple title security tokens at last you all you know you'll remember it and know it there was you know

especially two three years ago this whole discussion about you know token types and token typology and so forth is that better okay and you know and there were I mean especially on this you know on the side of academics and people I think in the blockchain space and community there was a lot of excitement because of you know all these different token types and so you know this is just an old just to know the graph which you that came from the token classification framework but I think you probably two or three years ago you must have seen like hundreds of the of these you know with different

categories and because of the hybrid nature of tokens and especially utility tokens you know security tokens and all and so forth there was you know a lot of excitement now why do I want to mention this is that at the time and I'm you know a bit probably unfortunately a bit older than the average age in the room but someone like myself we used to work in you know traditional finance and derivatives and so forth I thought at the time and I said it that you know it was a bit unfortunate that for that

there was this sort of stance to avoid regulation and to avoid you know for various reasons which I totally understand and which I think you know sometimes were valid reasons but this whole discussion around the token type was probably somehow preventing mass adoption of block strain which I thought was you know particularly interesting and which you know which which i think is the the most interest of the most interesting pieces of of the overall situation so right now now you know make it very quick you know very short formula what I'm interested in is you know bringing traditional finance to

blockchain and you know bridging between the old and the new world very simple so you remember you know in 2017 December there was the SEC chairman J Clayton speech on crypto currencies and I cos you know in particular and you know there had been many successful I cos and he emphasized substance over form you know I'm not gonna go back on what do we test is and so forth you've probably you probably heard it as well you know thousand times but it was always the risk to satisfy the four-pronged holy test and end up with an investment contract and why is that because essentially and you know I

advised a few startups doing icos on the time at the time there was always the risk that you know why would people buy your token I mean you some of you I are idealist in the room and I think that's great I'm also an idealist but you know I also have some form of financial you know interest in me obviously I have a family to feed and you know I wouldn't buy any tokens if I didn't think that they were gonna go you know the value was gonna go down to zero or you call it philanthropy and that's another activity and that's also great but you know so there was always a risk of qualification of an investment

contract and it was very hard to pretend there were no profit expectations in utility tokin ecosystems or you know so-called talk anomic switch you know by the way as an economist you know is is a great area of research and one of the fantastic things I think do to you know to block train is obviously the opening up of economic fields and you know economic research to you know sort of new business models so but all in all the the main point was that the traditional finance and you know I've I forgot to mention but for instance within the blockchain perspectives joint

research initiative which is a blockchain initiative that you know I call started a few years ago and we work with in particular one large French bank BNP paribas and you know one of my sort of overall interest and year after year is to see how blockchain you know can be used and whether traditional financial institutions are gonna adopt it or not and you know from I've seen you know from a very different you know very distant stance starting three four years ago now you know that there's real I mean I think some real things have happened and are gonna continue

happening so and just you know the the title what I thought at the time was you know to stop dodging and start embracing and embracing what embracing the fact probably one of the most powerful blockchain application is just you know bringing traditional finance unto blockchain and using security tokens and assuming completely the fact that they were security not in the sense of safety but that they were financial instruments so my key message here is that I strongly believe it you know many people question it but security tokens and that may be you know security tokens are a cornerstone in the future of traditional

finance and I'll be happy to see what happens you know three years from now but I think we're gonna see a lot of you know we've already started seeing many many new you know applications and decentralized finance and so forth but it's you know essentially one of the one of our problems I see that you know it remains in terms of volumes and flows very marginal so for instance if I ask you you know give me one blockchain killer app okay I mean there's gonna be you can always say okay you've got your wallet and you can buy Bitcoin and Kryptos and you know that that's the first one but after that that is something you know I ask myself like

every other month okay so what is the blockchain killer app and why you know so I'm gonna skip a few things but and I will get back to them but obviously the vision the long-term vision for me and I saw that there was you know other talks on neo banks the vision is very simple for me the blockchain killer app is just getting you know here you have a whole slew of neo banks but it's just getting you know a smartphone app your neo bank smart you know app giving you availability a full potential to buy pretty much any financial assets you want and that is you know traditional

assets sheriff funds in particular you know crypto obviously for whatever you know whatever crypto you want I mean whether it's for using a particular system or other things or you know I would call it payment crypto and you know other applications but and through some top-up situations I just go to a you know I don't know it was going by something with with my new bank app and I decide that to invest as I do that to extra euros or to extra dollars in whatever share of the retailer that I'm currently buying from because there's something cool I like

about it you know something like that so this whole possibility of just tapping into the existing you know financial assets and you know that is called tokenization and that is all the excitement that we see about tokenization but for me that will be that won't be the only killer app but that's gonna be one of them and that is where I would like to to go in in the future years so now if you you know if you look at the benefits of tokenization so this is a simple you know this is

taken straight out of the seven criteria brought forward by token II which I'm sure you you know of maybe there's someone here in the room working for them I mean there's many tokenization providers on the market I mean there's obviously you know consensus but token is one based in Luxembourg that's another one and you know that there's a couple of other ones if with my finance professor cap on I look at the benefits [Music] claimed those seven benefits automation it's obvious shared information and transparency it's also obvious cost effectiveness I'm going to go back to

this immutability also obvious inclusivity liquidity and speed all those criteria are sort of you know intuitively obvious to me to you as well and that is why financial institutions I have decided you know to really pay strong attention and increasing attention to a blockchain now I've highlighted and I'll maybe I'll make some additional comments and on some of those benefits but on cost-effectiveness I want to highlight this because this is currently I've been I'm trying to finish a report on this and that is something which is very both interesting but hard

to do I mean if you look at the cost effectiveness of using blockchain for you know tokenization and tokenizing finite I mean all sorts of assets there's three perspectives I think which need to be looked at the first one is the issuers perspective obviously so you know you really state fund your whatever company you start up you know what have you you you know instead of doing an IC or using crowdfunding or any centralized form of Finance and of issuance you you may want to tokenize you know to do an sto and you want to make sure that it's

going to be the one off cost of doing the sto is gonna let you know it's going to be less than other alternative forms you also want to make sure that the running cost is also going to be be no less than other alternatives and you know there's a lot of qualitative assertions out there but I've never said you know and that that would be one one question actually I may have for the audience for you guys is you know I've never seen any properly assess cost-effectiveness study on this question now the second perspective is obviously the investors and the third and not much debated perspective is the

infrastructure providers you know that is a very dull subject actually even for finance professors but what is called post-market the way you know the financial infrastructure which is used to make you know to to make sure that the financial system works and you know proper recording of who owns what is done one stratum made the post market you know infrastructure is a subject that is not you know very covered very much covered even in finance courses but which is a very important one and that is what is hopefully gonna change and you know the key issue in in in stos now I want to

link it to the decentralized finance you know track obviously because here you know you want to the infrastructure providers right now you have you know things like clearing houses you have custodians and so forth all those guys all those agents are probably and this is also debatable but we'll have to evolved and when you talk about the centralized finance here I would guess that you know it will be more you know be to be decentralized finance then you know peer-to-peer strictly speaking and hence you know using consortium or Enterprise block chains and you know a theorem as one obviously but that that is my view on

this I would go very quickly because I've got three three minutes left but for you know stos if you make an assessment of what happened in 2019 it's good start you've been you know a few issues I mean in in France I don't write names you know you know on purpose but you know you've had things like meta Capital which is a real estate fund which actually do you know did it in two transfers which you know I believe has been very very successful and raising in the order of like something like 90 millions I think but most st you know there was another one with four subsidiary of Societe Generale but you know they didn't take much risk and

issued sort of a hundred million dollar bond to one of their own subsidiaries so you know it's all under Diaz umbrella and they you know they manage risk very carefully but the thing you know and I could go on on names but you know essentially the you can notice that it's mostly in real estate essentially private placements and one of the reasons for that is that the regulatory framework and I you know I'd be happy to discuss with that I mean to discuss about that outside the room but the regulatory framework despite I think energetic efforts on the European regulators has not been you know it's not been as effective maybe as one could

have hoped there was a lot of efforts you know during the ico wave and you know in France in particular there was what pact and you know certain achievements and and big consultation by the AMF the the French Regulatory Authority but you know then the ICO wave dried out and now we know left with stos and I believe that essentially the only two jurisdictions that have clear regulatory frameworks as of now our Switzerland and Singapore so in terms of feedback if you talk to you know and I'm trying to talk to anybody who's done an sto these days the very positive feedbacks you see that you know there's

there's clear benefits that are identified by those asset managers and those various funds and your financial institutions things such as you know having unsane identities and reducing the cost of you know kyc and AML procedures and so forth everybody knows i mean it's sold on that now the negative feedback which i see which was X you know to be expected is that still you know a lot of traditional as asset managers are unfamiliar with you know blockchains setting up their own wallets that's you know that that's another level of complexity for some of them and things like managing private keys I mean let alone you know things like managing

provide private keys so there's a lot of education and the other professor it's it's useful and you know genomic I call them ergonomic api's that would need to be developed so very quickly in one minute you know the takeaway points for me is that the easy thing to do if there any asset managers among you I doubt it but who knows you know the first thing and is to I've come to the conclusion the first thing is to on board you know portfolios and unblock sales I mean that is something quite easy to do and I'm

discussion with some providers to do that for some of the startups that I work with now the second thing is you know shadowing existing systems is obviously the Brackenbury cannibal sorry recommendable thing to do that is what the Australian Stock Exchange so you know done I mean has been doing with a chess system and it's just common sense maybe some people you know focused on the theorem community won't appreciate that very much but I strongly believe that actually some kind of blockchain agnosticism is you know it's highly recommended obviously you know obviously I think if theorem if you look you know some of the

stos that I've mentioned well it's meta capital for Santander also did one you know they were all done on a theorem I mean there were others you know bit bones teller and so forth but a theorem clearly has the lead and and I would actually praise the fact that of all communities the theorem was one of the first communities that understood what you know that business needed to be conducted on blockchain and that to you know to have enterprise solutions you need to have you know solutions for enterprise to adopt so now what you see is that other blocks are in

ecosystems and at last understood that you know it's great to have a blockchain but you and you need to have flows you need to have business it's not a dirty word for me running on black chains and so that you know for instance it would be interesting and intelligent to incentivize startups to you know develop on your block train and so you know a theorem and with institutions and people like you know Joel Lubin consensus and so forth understood that a long time ago so you know clearly theorem as elite but but I would still think that you know I wouldn't invest in a business that there's not you know that cannot interface with with two or three block chains clearly for stable coins I will you know it's a great

subject very you know trendy I would say I just keep on that but you know it's common sense key questions for adoption is really to work with you know traditional finance guys and asset managers to show them that processes are more efficient that there will be cost-effective in the long run second point report that I'm currently working on and last thing how new value-added services can be you know can be added and that is that is something very important and here there's a lot of room for creativity and I've seen a few talks here that that that addressed that and I finished that on the ambitious programs

eventually as a someone who's worked in derivatives and your securitized products do great one of the great applications of blockchains would be you know smart contracts and so forth would be to be able to port securitized products and you know algorithmic portfolio management and you know over blog trains and issuing sts against that so i give you a precise example something that I used to do over writing you know using systemic option strategies you know over blocks mean over writing for instance is something that would be greatly done by smart contracts over blockchain with that story if I if I was a bit long but I'll

end up here maybe 30 seconds for a question or not even know okay sorry so I'll be outside you know if if anyone wants to discuss that thank you very much [Applause]