Could you please give just a brief presentation of DigiShares?
DigiShares is a provider of white-label tokenization solutions for security token issuance, corporate management, and trading. Our preferred client is an asset manager or financial services provider that wants to offer tokenization capabilities to their own clients. As a company, we have chosen a focus on the real estate industry as we view it as the largest potential homogeneous market for tokenization. The real estate industry is plagued by complicated paper-based workflows and very low liquidity, so a good target for tokenization.
How is the corona crisis affecting your company?
The corona crisis has had several effects on our clients, most of them negative. Many of our clients have existing real estate properties that they own and operate, including hotels and residential buildings. They are experiencing that their renters are stopping to pay rent and that their hotels are closing down. Obviously they are going to focus their efforts on keeping their existing assets alive and not on creating new ones. Other clients are seeking to raise funds for real estate development projects from retail, professional and/or institutional investors – however, many retail investors are going into cash and many professional and institutional investors are refraining from new investments in order to protect their existing portfolio.
So there is no doubt that we will see a postponement of many tokenization projects, certainly in the real estate industry, for at least 3-6 months, potentially longer than that.
DigiShares as a company will survive. We are set up for the long haul and can survive almost indefinitely on the current activities of the company. However, part of the tokenization industry is venture-funded (or STO funded) and may suddenly start to suffer from “premature scaling” – the number one cause of startup failure.
What is your analysis of how the crisis may impact the emerging industry of security tokens and asset tokenization both in the short and long term?
The short term effect will surely be negative and will cause parts of our ecosystem to die or weaken. The roll-out of the global tokenization ecosystem will surely be delayed. For a period of time, tokenization as a concept will not be as interesting or attractive in the eyes of investors.
The crisis will force us to reinvent ourselves and to find new ways to be relevant and provide value. Some elements of our value proposition have the potential to make tokenization increasingly relevant during a crisis, such as:
I have spoken to several of my colleagues in the industry and there seems to be a consensus that for the above reasons, the tokenization industry will emerge stronger after the crisis. Our value proposition will become more sharply focused on the areas where we actually provide huge value compared with the status quo.
Has it become significantly more difficult to raise investments for industry development?
I spoke with a venture capitalist last week. He said that most VCs were postponing new investments and instead focused on keeping their portfolio alive. I believe this is a quite general sentiment that we as an industry must take seriously. The tokenization industry suffers (like most other industries) and like any other industry we have to find ways to provide value throughout the crisis – both to survive but also to help the world recover from the economic setback.
The STO market was just about to take off when the corona hit the world – is that market drying out now, and when will it be back on its feet and ready for a new take off?"There seems to be a consensus that the tokenization industry will emerge stronger after the crisis. Our value proposition will become more sharply focused on the areas where we actually provide huge value." – @clausskaaning Click To Tweet
I am not sure the STO market was about to take off prior to the corona crisis starting up. Actually I think the industry as a whole was still struggling to prove its relevance and get its act together to showcase some convincing STOs with real value to both the issuer and investors. This work will surely be delayed but as indicated above, I believe the corona crisis may actually strengthen the tokenization industry and force us to focus on bringing real value to our clients in terms of automation, cost reduction and increased liquidity.
In my estimation, we are looking at a 3-6 months postponement. I believe parts of the global industry will recover faster than expected, but other parts will linger for years. Our technology is industry-agnostic, so we will just focus on those types of industries and investors that are fast to recover.
Is there anything that the security token industry can do proactively to help combat the global crisis?
There are some specific application areas where tokenization may provide real value during the corona crisis and actually help the world recover. We actively seek collaboration with companies and individuals who are interested in working on these, such that we can do our part in the recovery. Some of these areas are:"I am not sure the STO market was about to take off prior to the corona crisis starting up. The industry as a whole was still struggling to prove its relevance and get its act together." – @clausskaaning Click To Tweet
Tokenization 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?
Yes, certainly. The tokenization industry is 100% about digitization and any industry that has digitization as its basic raison d’être stand to gain from the crisis. All else being equal, it will become more natural for people to take investment decisions without prior face-to-face meetings. The real estate industry is very traditional in this regard and many deals are settled with a handshake. When handshakes are no longer an option, maybe some of these deals can be settled with an electronic signature instead?
Do you have any advice for the industry about how to get the most out of the current situation?
Re-adjust your burn-rate to account for lower income during 6-12 months to ensure survival. And sharpen your focus to provide real value, both during the crisis and after.
Read the other articles of the series: