For this new series of interviews and opinion pieces, The Tokenizer has reached out to a number of experts for their analysis of how the current corona crisis might impact the emerging industry of security tokens.
How is the corona crisis affecting you and your company?
Our team works remotely now, but this doesn’t affect productivity. We were lucky to gather a team of highly motivated individuals, which is an important factor when working at a distance from each other. As a matter of course, our staff is divided into several offices, so we have a lot of experience in quality telecommuting, conferencing, delegating etc. so the actual switch went almost seamlessly. We use different project management tools to keep track of tasks, do regular team meetings to discuss progress, and do virtual ‘water cooler talks’ from time to time. Helps us maintain team spirit.
Does the crisis mean a setback for the development of the industry?
Not at all. Distributed ledger technologies have the potential to transform financial markets beyond recognition and create a unique, unprecedented set of benefits for end-users – why would we want to stop and go back on something so wonderful and potentially revolutionary? Whatever application you have in mind – from equity issuance and capital raising for SMEs to post-trade processing, clearing and settlement of securities, the technology has the potential to challenge the current market paradigm, affecting infrastructure and participants alike – virus or no virus. We’re talking about efficiency gains driven by automation and disintermediation, transparency, universal liquidity and ultimate trade-ability for almost any illiquid asset. So to answer your question, it’s unstoppable – the list of benefits is too long.
The STO market was just about to take off when the corona hit the world – is that market drying up now, and when will it be back on its feet and ready for a new take off?
To say that the market is drying up is an exaggeration of a lifetime. Just this week alone HSBC placed $10 billion in paper-based private placement records on R3’s Corda blockchain with plans to tokenise them. Again, just this week, we saw Blockpulse, the blockchain-based shareholder management platform, partner with Lemonway to pursue an STO under French regulation. CasperLabs, the startup advised by Ethereum Foundation’s Vlad Zamfir, is partnering with Singapore-based BitMax to conduct a new registered token sale. The People’s Bank of China (PBoC) is “one step closer” to issuing its blockchain-based digital currency, and is in the process of drafting relevant laws. We can talk about Vertalo’s $200 million partnership with DealBox to tokenise 22 separate securities or Wave Financial tokenising 20000 barrels of premium Kentucky bourbon worth $20 million. These are all very recent developments – days, weeks.
Has it become significantly more difficult to raise investments for industry development?
It’s too early to say. On the one hand, investors are becoming more cautious; on the other hand, the financial crisis once again shows the importance of portfolio diversification. In this sense, investing in shares of tokenised assets is a great option. Therefore visionary startups involved in that field will always remain a subject of interest for both investors and VCs. This is where Smartlands shines.
What is your analysis of how the crisis may impact the emerging industry of security tokens and asset tokenization in the short and long term? Do you see anything positive coming out of the corona crisis for the industry?
Let’s take a look at the problems security tokens are out to solve and ask ourselves: do we indeed want those issues to be a thing of the past or are we perfectly content with their continued presence in our financial markets? One of the major problems with status quo, for example, is the recurring issue with problematic liquidity, especially in such shallow segments as fine art, luxury items etc. Also, extremely opaque private markets make settlements and transfer of securities slow and unwieldy (and some near impossible due to complicated, multilayered problems with oversight).
Crisis or no crisis – do we want those issues resolved? Of course, we do, so we’ll continue to work on them despite whatever hurdles the universe throws at us. In other words, I don’t foresee any meaningful exogenous “impacts” on the industry of security tokens. Asset tokenisation contributes a huge array of options to equity issuers, fundraisers, real estate dealers – any industry heavy on land titles, multiple stakeholders, multiple currencies, API banking services and many, many others can take advantage of tokenised fractional ownership in one way or another. Would we want that to be part of our future economy? Of course, we would, so the crisis will only affect the securitisation of assets on blockchain as long as there are fewer (or more) assets as a result of it.
Again, virus or no virus, I see a global, borderless, digitalised financial system emerging soon and not because of the pandemic or as a result of a crisis of any sort, but because in the realities of the current global economy it’s one of only two viable eventualities.
Tokenisation is part of the overall DeFi trend, and if you look at the current crisis from a more overall perspective would you agree that something like the corona crisis where suddenly people are unable to meet up and act in the physical world only confirms that digitisation is becoming increasingly important and so are next-generation digitisation like decentralised finance solutions?
While tokenisation is usually considered a part of DeFi, I think it’s an illusion to think that the world of DeFi is somehow detached from, so to speak, BigFi – we see the proof in tumbling cryptocurrencies whose creators are utterly unable to create and maintain a feasible decentralised monetary system completely independent of the legacy structure. Twelve years after the inception of Bitcoin, problems with volatility persist, scams, busts are rampant and, although I do believe that some of the technological solutions behind DeFi protocols are outright brilliant, I don’t see a decentralised financial system emerging as a new parallel (let alone replacement) channel of value transferring any time soon.
My hope is that we as a society will smarten up and instead of accelerating past the point of no return will curb the sovereign debt crisis and with the help of the most modern technologies available to us will design a monetary policy that would allow us to reinvigorate financial markets, stimulate the real economy and create conditions for universal prosperity.
Do you have any advice for the industry about how to get the most out of the current situation?
Adapt or die. Look for the window of opportunity in your sphere. Revise your business strategy to see if it fits the new reality. Don’t hype over coronavirus. Think about how you can help. Don’t get overwhelmed by the coronavirus news. Keep calm and continue to deliver on your plans, take new milestones, and embrace your vision. And, I can’t stress this enough, wash your hands as often as humanly possible and stay home!
What are you working on right now at Smartlands?
We have been busy preparing for the funding round on Seedrs, which is a part of our larger campaign that we plan to run with participation from VCs. The proceeds from both campaigns will be directed towards funding a freemium model for customers in 2020, expanding the internal engineering team, and obtaining the rest of the necessary licenses to advance the Smartlands+Smartee investment and digital banking ecosystem to a whole new level.
The reason we chose Seedrs for this is that it’s a highly advanced and widely recognised crowdfunding platform for early- and mid-round funding of fintech companies. Still, most importantly, Seedrs has a highly developed secondary market where Smartlands shares will be tradable after we close the funding round.
All in all, we think today is definitely not the time to lay back. On the contrary, any challenge opens a window of opportunity and this new financial crisis, as devastating as it is for the global economy, demonstrates the structural flows of current models that can be effectively patched up by taking a decentralised approach and implementing DLT-based solutions.
Ilia Obraztsov is an experienced technologist, visioner and business leader skilled to deliver efficient and robust proprietary solutions that rapidly facilitate the transformation from the startup phase to a fully-funded global enterprise. Over his 10-year career in the technology sphere, Ilia has quickly moved through the ranks of the IT sector growing from a backend engineer in a Russia-based machine learning company to CTO of multiple California-based fintech startups. In this role, he specialised primarily in full-cycle product development – cloud solutions, storage design, fault-tolerant and high-load systems, security, event-driven architectures, distributed and scalable apps, blockchain, smart-contract and distributed ledger technologies. He is now CEO of Smartlands, a global blockchain-based investment and alternative banking ecosystem headquartered in London, UK.