Kriptomat CBDO Dejan Davidovic and Ethan Pierse link up for a talk about Security Token Offerings at the Adria FinTech Conference in Rovinj, Croatia. They discuss Kriptomat’s Security Token Offering and the subject in general.
Ethan Pierse is a keynote speaker on Tokenised Securities, CryptoAssets and the Blockchain Economy, as well as Corporate/Startup Innovation and a serial entrepreneur in digital and commerce in the US and Western Europe. He has 20+ years of experience in digital marketing strategy advising Coca-Cola, HP, BP, large banks, airlines and governments.
He kindly shared his knowledge and personal views on security tokens. Watch the full interview in the video below:
We have prepared an overview of Ethan’s most interesting points, but keep in mind that this isn’t a full transcript of the interview.
STOs are a value-based investment where we pick a good horse, put some money on the table and we let it ride. Since it’s a legal relationship between a company and an investor, you know that the horse is real, the money is legal, and the parties will be fined if the investment fails. — Ethan Pierse
You can jump directly to each question by clicking the YouTube timestamp.
00:00 [YouTube timestamp]—Introduction with Dejan and Ethan as they compare big and small conferences.
Ethan: I love small curated conferences, some of these big conferences like what I was just out in Paris, there are a hundred thousand people come to these things and you meet 10 or 20 interesting people over 2 or 3 days but you had to go through all the effort, where you come to something like this where it’s more curated and you also meet 10 to 30 really interesting people so I actually think there’s a lot more value.
01:38 [YouTube timestamp]—Ethan introduces himself and what he does, and where his passion for security tokens comes from.
Ethan: A mixed background. I built a couple of different digital and e-commerce companies in the US and in France. Then I joined a venture capital fund in Hong Kong which ended up running a bunch of accelerators across South East Asia.
07:08 [YouTube timestamp]—Dejan: The idea behind Kriptomat was to enable anyone to enter into the world of cryptocurrencies, meaning especially those who are not that tech-educated and find it hard to understand what this is all about. They also find it hard to understand what an STO is, so can you try to describe in a couple of simple words what a security token offering actually is.
Ethan: A security is a legal arrangement between the investor and the company through the regulator, which clearly defines the fact that you’re saying that you’re going to do a certain thing. [For example] You’re going to pay a revenue share on a quarterly basis because you have revenue and the revenue is going to scale.
As an investor, I look at the details of that deal, and say: “that looks like an interesting thing for us to do.” And so I’m willing to give money to that, and in exchange, you have to provide me with the revenue share every quarter. It’s a legal contract.
A tokenized security is simply a way to invest in securities (like we do in stock markets) without having to go through those intermediaries. But we do have to go work with the regulator to organize this offering because they want to make sure that the details are done right.
11:56 [YouTube timestamp] — Dejan: What are the benefits that [Security Tokens] bring to the company (the issuer), the investor, and the investment market itself?
Ethan: The only way to do this at scale is to do an IPO (initial public offering), but this will cost you a minimum of $2 Mio in the United States and you have tremendous yearly reporting costs and complexity. You also don’t want to be a public company at the size that you are right now because it creates an enormous compliance layer that you don’t need.
The benefits of tokenization in terms of doing an STO is that you’re able to get the benefits of securities offering without the historical infrastructure that an IPO requires.
What it brings to investors is the following. If you’re a retail investor, then you’re not legally capable of investing in these assets because you generally don’t meet the income requirements of being an accredited investor.
STOs will create opportunities for these investors to invest in assets that they couldn’t invest in before.
16:10 [YouTube timestamp]—Dejan: People often mistake or mix the words ICO and STO. Some say that STOs are an evolution of ICOs, which I don’t agree with. The similarity lies in the fact that they’re both trying to pitch and raise the funds, but how do you see those two things and how are they different?
Ethan: It looks like they’re similar, but I don’t think that they are in a lot of ways. I don’t think they’re the same thing at all.
With ICOs, almost all utility tokens are considered future utility tokens by most of the regulators now, because, at issuance, you can’t actually use the token to do what it is supposed to do because you haven’t built the solution yet. By definition, that is a future utility, which generally means they’re going to be considered a security.
So almost all ICOs are going to be considered securities, but that does not make them a tokenized security or a security token. That is because they’re still a utility, but they’re considered an investment that appreciates.
Ethan goes on to explain this in more detail, so make sure to listen to the rest of his answer!
21:50 [YouTube timestamp]—Dejan: The maturity of our security is for 20 years. Do you see investment in STO as a long-term or a short-term investment?
Ethan: If you’re thinking short-term about security token offerings, then you didn’t understand security token offerings. Because why did you buy something that gives you X-percent of revenue every quarter just to flip it next week, this quarter, or even this year?
Ethan goes on to explain in detail why he thinks this way.
31:33 [YouTube timestamp] — Dejan: Today [22 May 2019] is an important day for Kriptomat as the payments for our offering just started. You know what our business is about and I’d like to hear your opinion. Is this a smart thing to do as a fundraising method for our business? Any why?
Ethan: When you have an idea and you want to build that idea, you need money to build the first pieces. I think you still can’t get around equity capital in order to build your first version and do all the stuff you have to do.
Once you’re actually showing some traction and some revenue, or even more so in your case, then I think it’s very interesting to find the mix of equity and non-equity diluting capital.
The scale is not just about size, it’s also about speed — about how you get to your maximum level. Eventually, every business is going to plateau in terms of how much revenue it can make and how much reach it can have.
So sooner or later you need money to grow and to grow faster.
Ethan then talks about why Facebook would have been a bad STO while Uber would have been a great STO, and goes on to explain why he believes that Kriptomat is on the right path if it manages to continue its growth.
DISCLAIMER: Nothing in this video is to be considered as financial advice. People in this video are simply sharing their personal opinions. Always do your own research and never invest more than you can afford to lose.