I recently had the pleasure to sit down and talk with SEC Commissioner Hester Peirce about the current landscape of digital assets, and how the SEC is working on making a clearer path for people in the space. See our discussion below for some valuable information and direction for anyone involved or interested in digital assets, security tokens, and digital securities.
Commissioner Peirce is known affectionately in the crypto community as “Crypto Mom” for her progressive outlook and push for sensible solutions that still allow for growth in the community. She recently released her Token Safe Harbor Proposal (Proposed Securities Act Rule 195) which is a very well thought out proposal to bridge the gap between regulation and decentralization.
The views expressed by Commissioner Peirce are her own and do not necessarily represent those of the Securities and Exchange Commission or her fellow Commissioners.
This interview has been edited for clarity.
RS: For someone trying to determine if the business model is a utility or a security, what would you say are the three most important elements to consider?
HP: Well I think that what I would suggest is that you take a look at the Howey test and determine where you fit in terms of whether you are selling the token to folks wrapped with a promise that you as a promoter are going to do something to make that token increase in value. If that is how you are promoting it, then I would say you need to study Howey carefully and determine which side of the line you fall on.
You can read more from the SEC about the Howey test below:
- Digital Asset Transactions: When Howey Met Gary (Plastic), Speech by William Hinman, Director of Division of Corporation Finance
- How we Howey, Speech by Commissioner Hester Peirce
- Framework for “Investment Contract” Analysis of Digital Assets
RS: If a business model is a security, what are the first steps the business should take with the SEC?
HP: I would absolutely encourage everyone working on something to come into the SEC as soon as possible in the process and specifically reach out to the FinHub, which you can find on the SEC website. You can meet with us in person or you can meet with us by phone. For people interested in keeping me in the loop, And just get a sense from our staff what types of things to think about, like the first question you raised in terms of where you fall, security or non-security. They will not give you legal advice but they will give you things that you really ought to think about as you are trying to figure out which side of that line you are on and therefore how you can go about doing your token offering.
HP: I look at each offering on a case by case basis, so it’s really difficult to make blanket statements like that. I think people need to be looking at where things fall, if it is a security, figure out whether you want to do it as a registered offering or whether you want to use an exemption, and figure out where it falls best in terms of which exemption to use. It’s hard for me to say categorically that STOs are better than ICOs or vice a versa, again we take a facts and circumstances based approach; we see every offering to be dealt with on its own merits.
RS: Should investors be equally cautious with STOs as they are with ICOs?
HP: In this situation as in every other situation, I tell people who are buying things to ask the right questions, if you’re putting a lot of your money at stake in something you better ask a lot of questions, no matter whether it is a new car, or buying a token, or buying a stock or bond, you need to ask questions. If you can’t get the answer that you think you should get, and if you are not getting answers to questions that are reasonable questions to ask then you probably do not want to invest. There are some basic red flags that apply across any purchase or investment no matter whether it is a digital asset or a traditional security.
RS: Right around this time last year you said “we might be able to draw clearer lines once we see more blockchain projects mature”. How do you think blockchain projects have matured in the past year? Is this more/less maturity than you expected?
HP: I think there has definitely been a maturing, it is encouraging, and I like to see that people are becoming more discerning. People are asking more questions than they were a year or two years ago. I think that holding projects to a higher standard has been good for everyone. I do think that we would see more maturity if the securities law framework were more clear than it is. It’s a bit of a chicken and egg problem, you can’t see as much development without regulatory clarity, and you can’t see the regulatory clarity without knowing what it is you’re providing clarity for. I am hopeful that we will see some more development in the coming year, maybe a lot of that will happen outside the USA, but it may help us think about what the regulatory framework should look like.
RS: I know Malta is doing a lot of progressive regulation for blockchain and digital assets, I think that that is helping guide people in a better direction.
HP: We see other jurisdictions, Malta, Switzerland, and some other jurisdictions that are taking a forward-thinking approach. I think we can learn from what they are doing. I would like for us to be more on the forefront, but it is not bad that other people are thinking about this and we can learn from them – regulators can crowdsource too!
RS: You have been pretty vocal about the SEC taking a watch-and-see approach with ICOs and digital assets. Many people in the ICO/digital asset industry wish that the SEC would regulate quickly so they do not need to operate in a grey zone. What would you tell those people?
HP: I would tell them that I have an idea for a safe harbor. I would hope that people can take a look at that. There are many issues in the United States where there is lack of clarity, this only deals with one of those issues. I hope that people get back to me and give me feed back on that and we can develop something that is workable
Readers can see Commissioner Peirce’s Safe Harbor Speech and Proposal here. The Safe Harbor Proposal details five conditions that teams must satisfy to be able to take advantage of a time limited exemption from federal securities law provisions:
“First, the team must intend for the network on which the token functions to reach network maturity—defined as either decentralization or token functionality—within three years of the date of the first token sale and undertake good faith and reasonable efforts to achieve that goal. Second, the team would have to disclose key information on a freely accessible public website. Third, the token must be offered and sold for the purpose of facilitating access to, participation on, or the development of the network. Fourth, the team would have to undertake good faith and reasonable efforts to create liquidity for users. Finally, the team would have to file a notice of reliance.”
The Safe Harbor Proposal is a work in progress and Commissioner Peirce welcomes additional input.
RS: Last month, the SEC filed a proposed rule to amend the definition of “accredited investor”. Can you tell us a little bit more about these proposed changes and how you think they can benefit the digital asset and ICO industry?
HP: The changes really are focused on the institutional category rather than the individual accredited investor category. When we talk about accredited investors, I hear feedback about how frustrated people are that we are essentially judging financial sophistication by one metric, and that is by how wealthy you are. So there are a lot of people who have told me that they would like to see the individual class of what an accredited investor is expanded to people who have demonstrated their financial sophistication in other ways. It is open for comments and people can weigh in on that and if people do not weigh in on that, most on the proposed changes will be on the entity side.
RS: Can the general public weigh in on the proposed accredited investor changes?
HP: You can just send an email, it’s a relatively painless process. It does go up on the website so everyone will be able to see it. We certainly welcome feedback and it is especially nice to hear from people who might not have known that they could submit comments. We are always eager for our proposals to reach more and more people.
For more information about the proposed changes to amend the definition of “accredited investor” :
- Proposed Rule to Amend the “Accredited Investor” Definition
- Press Release – SEC Proposes to Update Accredited Investor Definition to Increase Access to Investments
The deadline for providing feedback to the proposed accredited investor definition is March 16, 2020. Feedback can be sent to email@example.com, noting File Number S7-25-19 in the subject line, or at the comment form here, and click on “Submit comments on S7-25-19” under release number 33-10734.
RS: Currently, companies can legally raise up to $1.07M through crowdfunding, in today’s environment this is not much start-up capital for industries like technology. Above $1.07M companies do not have many cost-conscious options for raising capital legally; the requirements for a company to have an IPO are enormous and bear an equally enormous cost. Some people have been using ICOs/STOs/IEOs as a bridge to solve this gap. What are your thoughts on this?
HP: I would agree that crowdfunding has not achieved the potential that it could achieve, and that’s something that now that it’s been in place for a little while we need to take a look at and see whether we need to adjust how it works and what those adjustments should be. One of the things that we have at the SEC that has been useful is a Small Business Capital Formation Advisory Committee that meets periodically, it’s a group of people outside of the SEC who are involved in capital raising for small businesses. They provide us input on existing rules and how they need to be modified so that they are more workable or on the need for potential new exemptions for people who are trying to raise money. Through that forum we have had some chances to think about crowdfunding and how we can make that work better. I do think people are trying to be creative in thinking about how they can raise money, so I suspect that you are right, some people are viewing token offerings as an alternative to something like crowdfunding. If they are doing that, they better seriously consider how the securities laws apply to what they are doing.
RS: There has been an uptick in IEOs (Initial Exchange Offerings) in the past six months or so; I noticed that the SEC issued an Investor Alert about IEOs recently which is helpful for investors who might not quite realize what is going on with some IEOs. I know some IEOs are trying to make the projects sound more official than they are.
HP: Yes, people like to do that. One of my constant mantras is that I want the SEC to be more open to letting people raise money and invest in projects. But I also want people to know, as a counterpart to that, the SEC does not sign off on investments. So, when you invest in something it is on you, the investor, to make a decision whether that is a good investment at all, and whether it is a good investment for you specifically. Do not assume that things have been pre-cleared or signed off on by the SEC no matter how official something looks.
RS: This is great advice for a lot of new investors that this industry has attracted.
RS: The New York Stock Exchange existed and operated for over 100 years before the Securities and Exchange Commission was established. If the public was able to successfully trade stocks on unregulated exchanges for such a long time, do you think that it is possible that people can self-regulate the ICO industry successfully until there is proper regulation from the SEC?
HP: There are lots of different ways to regulate. We in the US have chosen to regulate our securities market with a mix of self-regulation, government regulation, and quasi-government regulation. One point that I have made in this space, that sometimes gets lost on government regulators like me is that some regulation occurs naturally: markets regulate and discipline themselves. I think the securities industry is one in which we have seen that some versions of self-regulation that can be quite effective. That said, we have a framework that does involve a government regulator (SEC), to the extent that people are engaging in activity that falls within our purview we are the regulator that writes the rules so there should be interaction between what’s going on in that space and us. You can’t just do things that fall within our jurisdiction and say “well I am self-regulating so that’s an acceptable alternative”.
RS: And it comes back around to you saying earlier, contact the SEC, and the SEC can help guide people where to look.
RS: I’ve noticed over the past couple of years a pretty dramatic difference in the digital asset landscape: people are self-regulating, businesses are more professional, and people are asking better questions. I know many people would like SEC regulation so that they can easily follow the law.
HP: I understand that too. I think we are trying to come to a place where we can make it easier for people who are trying to do the right thing to do it in a way that is compliant with our rules that also achieves their objectives, that’s the place that I want to get to. It will never be particularly simple because our securities laws can be really difficult, but we can certainly make it easier than it is now.
RS: Do you foresee the regulations becoming easier for people to follow in the next year or two?
HP: I remain hopeful which is why we want to get the safe harbor draft idea out there so that we can get people thinking about it. One piece of the US regulatory infrastructure that makes nothing simple is that we have so many different regulators who have a potential interest in this space. So even if we do something at the SEC there are other regulators that may also have something to say. There is cross-government cooperation but I think we are going to hear even more calls for there to be even better and closer cooperation.
RS: Is there anything else that we did not touch on that you would like to share?
HP: No, I think you covered it well. You are right to focus on this question of where do things fall with respect to our securities laws and how can we work on adjusting those securities laws so that they help to make it clear to potential people who are interested in getting involved in the space. When a project is really seeking to do something legitimate with the funds and when they are seeing to do something not legitimate with the funds, trying to make a clear path for folks who are trying to do the right thing and I think will serve all of us well.
Below are some additional useful links:
- You can check the SEC database to see if a company you’re thinking about investing in has filed notices such as Form D, Form 1-A, Form C
- One stop shop for SEC news on ICOs and digital assets
- Investor Alerts
- FinHub, the main point of contact for innovators, developers, entrepreneurs to engage with the SEC
- SEC Spotlight on ICOs – for investors and market professionals
Benjamin Tsai, President & Managing Partner of Wave Financial – Interview Series
Benjamin Tsai is the President & Managing Partner of Wave Financial. Wave Financial offers early-stage investment, asset management, and treasury management to further the growth of the crypto and digital asset ecosystem
What was it that initially attracted to becoming the President and Managing partner of Wave Financial, an early stage venture fund focused on crypto currency?
My experience is mainly in the finance space, both sell side with BofA Merrill Lynch for 12 years and buy side with AllianceBernstein for 3 years. When I returned to Los Angeles, I started to get involved in blockchain technology and its various uses. The most natural one was to apply it to finance, and that application was most interesting to me. So when I met David Siemer, our CEO, we decided to put together Wave Financial, an asset management firm focused on blockchain/cryptocurrencies.
This platform allows me to explore the limits of the space, such as crypto derivatives. We have recently launched the Wave BTC Income & Growth Fund, which is a fund that pays a target rate of 1.5% yield monthly by selling Bitcoin options in the market. We believe this is an innovative product, first in the market, and should be attractive to both long time bitcoin holders and also new investors in crypto.
One of the index funds offered by Wave Financial is the ‘Select 20 Index’ which is a fund that rebalances itself monthly and provides exposure to the top 20 digital assets. How has this fund performed compared to a more activate trading fund approach?
Comparison between active and passive management is always difficult. This is especially hard in the crypto world, where there is not any established benchmark. We developed the Select 20 Index to serve as the crypto market benchmark that better reflects the market compared to just Bitcoin. With the index as a baseline, we also have our fund which tracks the index. Due to the low fees, we believe we are doing well to provide market beta to investors.
There are actively managed funds that may be doing better and worse, but they would have been taking higher risk compared to the market beta, and also have higher fees. The outperforming ones would have been able to justify the higher risk and fees, but the underperforming ones obviously do not. For an investor to determine which funds could outperform would be very difficult, as track records are very short, and the crypto market is still in its infancy. It would be difficult to show how that alpha capture can be replicated going forward.
In summary, there will be funds that outperform and ones that underperform our index and/or fund. But for clients to take a pure market beta, similar to an equity ETF, our product provides the exposure at a low cost, and is an effective tool for achieving that for the investors.
Wave Financial is clearly bullish with the future of digital securities having invested in both Securitize and Vertalo. What is it about this industry that has you most excited?
I believe the existing infrastructure for equity, fixed income, and various asset classes have all been building and improving on older systems which were silo-ed. As investments themselves become more flexible, the traditional infrastructure is no longer efficiently supporting the new way of asset management. For example, there use to be just bond investors and equity investors, then we had 60/40 target allocations, then the endowment model which included alternative investments of hedge funds, real estate, commodities, and more exotics assets, and so forth. For the next generation of investors, access to these asset classes and being able to get int and out of these assets should become more simple and more available to a wider audience. I believe digital assets can do that.
For example, we are currently working on a kentucky whiskey fund. This fund will give accredited investors access to investing in whiskey, with the opportunity to trade the ownership on the blockchain in a private exchange. This type of flexibility at a reasonable cost was simply not available before the advent of digital securities.
What are some of the issues that security tokens need to overcome to reach mainstream adoption?
I believe that the education and infrastructure are two things that are missing in the industry before we can have mainstream adoption. On the education side, we need to get investors comfortable about tokenization as a technology applied to existing financial instruments that improves the efficiency of it. The legacy ICO marketing issues and poorly thought out projects (along with frauds) certainly has given the concept a negative bias. But education will overcome that with time.
The second part is infrastructure; we need to have well accepted stable infrastructure for doing security tokens. This means issuance platforms (like Securitize and Vertalo) that have transfer agent license which allow them to track/change the ownership of the securities, qualified custodians (like Coinbase and Kingdom Trust) that can help clients hold the security tokens with peace of mind, and security token exchanges (like OpenFinance Network and tZero) that can provide a place for the tokens to be traded.
As an addendum to the infrastructure, we also need better user interface so clients can focus on the investment aspects of security tokens instead of worrying about what chain it’s on and other technical challenges that are not really relevant to their core investment thesis. When I log into Schwab to trade, I don’t think about what OS I am running and what language the interface is programmed in to complete my trade. Once done correctly, it would be very transparent and irrelevant for the users.
Out of all the different types of assets which can be tokenized such as real estate or art, what industry do you personally believe is best suited to tokenization?
Is this a trick question or a softball? I think whiskey barrels are the best thing to focus on!
Seriously though, I think any asset that gives off a cashflow would be interesting. We have looked at real estate, race horses, solar panels, and other ideas that can be done. Whiskey was good not because the portfolio gives off cashflow, but because we can sell a few barrels to generate cash and also provide a mark-to-market for the investors. This is hard to do with a single Picasso; it would be impossible for me to sell a fraction of it.
The real estate space is an interesting one. I am personally a real estate investor in Southern California, so I keep a close eye on this. In the US, deals have not generally been very successful due to the fact that the buyers of real estate are not really interested in the tokenization, and there are plenty of buyers to support the business without it. I believe that the development in Asia will be different, as more people are looking at both real estate and blockchain technology. The two combined should be attractive enough for Asian investors, and it should catch on better than here in the US. I have spoken to a number of top tier financial institutions in Japan, and real estate is an area of focus for them as they look at tokenization.
Circling back to the Wave Kentucky Whiskey (WKW20) that you mentioned earlier. For investors who are not familiar with this, could you explain what this is and the benefits of investing in this asset class?
Although we started the discussion with tokenization of hard assets, Wave Financial are a California Registered Investment Advisor (most of us are FINRA registered) so we have fiduciary duty to our investors to provide good products. We reviewed a number of different assets and decided to focus on whiskey because the return profile is very attractive.
We are able to source a barrel of Kentucky whiskey and store/insure it over 5 years for roughly $1000. In 5 years, that barrel of whiskey is estimated to be worth $3000 to $5000 on a conservative estimate. This is a 3x-5x return over 5 years, and the variability is very low. Also, as this is a commodity, we are able to get insurance for our inventory, which covers the value of the losses if we dropped a barrel or if the warehouse burns to the ground. (This has happened before, as the whiskey is over 50% alcohol!) The downside risk is limited. One last point I would bring up is that we have found whiskey to be very resilient in down markets. From industry research, through the financial crisis, American whiskey had only 1 down year in 2009, and the drop was 1.4% by dollar and 0.7% by volume sales. (This is not an anomaly, Scottish whiskey went up in value in 2009.) All of this means that the whiskey is a very attractive investment asset class in general and especially in this market.
In early 2018, you Co-Founded and became the CFO of the LA Blockchain Lab. Could you share with us some details on what the LA Blockchain Lab is?
LA Blockchain Lab is a non-profit that was founded to connect academia and government in Southern California to promote the use of blockchains. We count UCLA, USC, UC Irvine, and Caltech as founding schools and we work with the City and County of Los Angeles governments to education and disseminate information about the developments in this space.
What are some interesting projects that you have seen come out of the LA Blockchain Lab?
One of the roles we have taken is to provide consulting to large corporates as they explore the use of blockchain. For example, we worked on a project for Lamborghini a while back that explored how they can use the technology. It was fascinating as we presented to the board and had a lively discussion at Pebble Beach. We also consulted with Panasonic and helped them host a seminar on Smart Cities, with the CTO of City of LA and USC professors presenting on technological advances to cities and what more can be done. We plan on further seminars in entertainment, finance, healthcare, and other topics, although we are assessing the situation with the shelter-in-home order in place.
Is there anything else that you would like to share about Wave Financial?
We are very proud of the work we have done for the past few years in rolling out products and providing treasury management services for corporate and high net worth individuals. We think this is the professional and the right way to do business, and we look forward to growing our business to serve more customers over time.
Thank you for this fantastic interview. For readers who wish to learn more visit Wave Financial.
Paolo Ardoino, CTO of Bitfinex & Tether – Interview Series
Paolo Ardoino is the CTO of Bitfinex & Tether.
Bitfinex is a digital asset trading platform offering state-of-the-art services for digital currency traders and global liquidity providers.
You’re currently the CTO of two of the most successful blockchain companies in the cryptocurrency space, Bitfinex and Tether. How did you find yourself in such an enviable position?
I started in the Bitcoin crypto space between 2012- 2013, not too early, not too late. I was able to enjoy quite a few runs in the space. At the time I was working in the traditional financial sector in London. I had my own startup, and my expertise was in building highly scalable applications as a part of computing and distributed systems. Of course, finance and scalable applications and what the system sees is a perfect match for Bitcoin. So as soon as I started reading about Bitcoin, I fell in love.
I was experimenting and getting more and more excited about Bitcoin. And then at the end of 2014, I had the opportunity to join Bitfinex. They had a problem with the matching engine. Given my expertise, I offered my help to build the matching engine to be more scalable, so we were able to achieve 1,000 times the previous number of transactions per second.
Then, I started getting a little bored with my company in London which was mired in traditional finance. The old, outdated protocols were no longer interesting and I wanted to do something that was related to Bitcoin and the crypto space. I saw this as a huge opportunity to do something that would matter in the long run — to help change the financial system itself and leverage the groundbreaking technologies based on blockchain.
In mid-2016 I became CTO of Bitfinex and worked hard to bring the platform to what is today. The beautiful interface, carefully designed and really robust, the matching engine and APIs were all a priority, as well as making it all highly scalable. This is basically still my role today. Apart from managing my team, I keep working on the core of the platform. In 2017, I became the CTO of Tether. Tether is the biggest stablecoin by market capitalization. It’s really one of the most amazing ideas in this sector. Everyone today talks about Tether, but it was really created by a group of visionaries and Bitcoin lovers in 2014. They had this great idea to solve the problem of arbitrage, especially efficient arbitrage across crypto exchanges. The arbitrage opportunities were really big, but the problem is that to exploit those, you have to move wires around different exchanges. It was really painful and really slow — it could take days! Tether was the solution for that and worked out beautifully.
Tether Gold is a token (XAU₮) that is pegged to physical gold. Where is this physical gold located and what’s the redemption process should an investor choose to redeem their tokens?
The physical gold is located in Switzerland and for security reasons I cannot give the exact location. In order to redeem Tether Gold, a holder must have enough tokens for a full bar of gold. In order to start the redemption process we normally ask that a customer have at least 430 Tether Gold tokens. We do that because 400 ounce gold bars aren’t actually 400 fine troy ounces — they vary in size from as small as 385 fine troy ounces and as big as 430 fine troy ounces.
When a holder wishes to redeem, we run an algorithm that “consolidates” their Tether Gold tokens onto one or more full gold bars. Those bars are then made available to the token holder for pick-up at the location of their choosing in Switzerland. From there, they can bring the gold wherever they want, according to travel rules and transport mechanisms and various rules of Switzerland and their jurisdiction. Alternatively, the token holder can ask us to try to sell their gold bar to a purchaser in Switzerland. If we’re able to sell it, the token holder will get the proceeds from that sale, less our fees, instead of the physical gold bar.
Why do you believe that gold stablecoins are necessary for investors?
We are seeing a period of uncertainty in the market. Thus, gold represents an interesting alternative to fiat cash. When there’s a lot of uncertainty in the financial markets, usually hedge funds go to cash, so they sell their assets and they try to minimize the volatility. They usually use cash for that, but gold is representing a sort of middle ground between keeping the investment in full — let’s say equities, stocks, cryptocurrency, whatever — that are super volatile and something that feels more volatile than cash of course that is more novel. Gold is this middle ground, and is also one of the assets we see becoming more active when there is geopolitical uncertainty.
Tether Gold recently surged to a $21 million market capitalization. Do you believe this is based on coronavirus fears? What else is driving this surge in interest?
It reached $21 million, but for me this is just a start. I believe that in the next few months we’ll see additional growth. As I said, gold is not just a really useful hedging mechanism for traders. Gold is a good way to hedge part of the risk when you have your assets under management. Tether Gold is a good way to hold gold because you are not charged annual fees based on your holdings of Tether Gold. I believe that the $21 million Tether Gold is still a small amount. Our vision is that Tether Gold will become a preferred way to hold gold. As gold is used as a hedging mechanism for large funds, we expect Tether Gold will continue to grow in popularity. There will be the need of much more Tether Gold as a result. So we should see more and more users acquire Tether Gold.
Can you share with us the current plans of integrating Tether (USDT) on the lightning network?
Bitfinex and Tether are funding a project called RGB Spectrum that is meant to develop a protocol to issue digital assets on top of the Lightning network. I believe that the moment the protocol is live, stable, and well-tested Tether will be one of the first to utilize this new protocol. That’s because Bitfinex and Tether believe that Bitcoin and Lightning network are really important technologies and the network is really scalable, purely peer-to-peer. It’s as decentralized a protocol for micropayments as it should be. The RGB protocol will be ready to launch Tether on top of it because that will complete our vision of having Tether enable peer-to-peer micropayments.
Over the past year we have seen many new USD stablecoins. Why should investors continue to use Tether over some of these new options?
I believe that the reason is that Tether has some first mover advantage. It started in 2014, and the first big competitor started in 2018. Tether had four years of technological advancement and business advantage. One of the key qualities of a stablecoin should be cross-chain interoperability. Our major competitors are working mainly on Ethereum, while for us it is important to try and to serve as many communities as possible. Ethereum has a big community, EOS has a big community. Other blockchains that we support like Algorand, and Liquid, and Tron have big communities, so realize that for a stablecoin to be complete and to be really useful it needs to be the common ground of different blockchains. That is a huge advantage that we believe our competition hasn’t realized yet.
Bitfinex recently replaced IEOs with Bitfinex Token Sales which is digital assets offering and launch solution for high-quality crypto projects. Can you share with us what this platform is exactly, and why entrepreneurs should use it versus launching an IEO on Binance, KuCoin, or other competitors?
First of all, you can see that Bitfinex didn’t launch many IEOs. They didn’t launch many projects because we know that most of the projects that were launched had really bad performance. We don’t want to replicate the errors made by other platforms. We are more careful, and did an enormous amount of due diligence before deciding to launch a project through our Bitfinex token sales platform. I believe that our approach is more professional and more thorough. Projects that we’ll launch will be part of a really exclusive platform and will be fully considered as a high quality project just for the fact that we were able to complete our thorough evaluation process. We want to make sure that whatever we list is a quality project that respects the fair valuation, and has a high utility so that the Bitfinex customers that will be interested in participating in the offering will be protected. To achieve this, we’ll already have done a lot of due diligence for them.
What type of projects will be featured on this platform?
There’s a wide variety of projects. There are artificial intelligence-related projects. There are games. There are tokens that aim to bring banking to the unbanked in a poor region. There are new blockchains interested to get adoption and prove themselves through the process. It’s really a huge variety of projects.
Are there any new exciting projects in the pipeline at either Bitfinex or Tether that we should be aware of?
At Bitfinex, we are working on many new features that are really important for our customers. We are focusing on options when it comes to our derivatives platform. We are launching new integrations with third party providers in the near future around lending. And we are going to create an advanced version of our renowned peer-to-peer margin lending platform that has been powering our margin trading platform since 2013. So there are many projects that we are working on, plus launching additional pilot projects built on top of Lightning network to help market makers to try out how to improve their trading strategies, exploiting fast live network pay settlements.
Is there anything else that you would like to share about either Bitfinex or Tether?
As a general thought, Bitfinex is one of the key companies in the crypto space that for many years fought and allowed the industry that we’re all a part of to grow in a steady manner. Bitfinex shielded a lot of the problems to the crypto industry, especially being an on ramp to fiat and helping raise funds. Bitfinex built many interesting projects, a really solid trading platform that is home to a lot of traders. Experiment was the first to support the Lightning network, so basically Bitfinex is showing a lot of love to Bitcoin. We believe that Bitfinex is working for Bitcoin rather than using Bitcoin to just create profit.
Adam Vaziri, CEO of Blockpass – Interview Series
Adam is the founder and CEO of Blockpass – a self sovereign identity application for regulated industries. Adam Vaziri’s background is as a blockchain lawyer and set up Diacle in 2013 to assist blockchain projects with compliance. He is a tireless blockchain entrepreneur and labelled a ‘bitcoin pioneer’ by Bitcoin Magazine.
Could you explain what Blockpass is and how the platform benefits investors?
Blockpass makes compliance for blockchain and other financial services easy and quick to adopt. It is the only KYC & AML verification SaaS that businesses can sign up to and in minutes conduct compliance checks on on-boarding customers. It is fully automated and hosted in the cloud, and requires no integration or setup cost. You can set up your account immediately and test the service for free. For investors and other individuals, Blockpass is a secure, user-centric gateway to financial services and other regulated offerings, allowing one click KYC submission.
You have a legal background; how did you transition from law to cryptocurrency?
I discovered bitcoin in 2012 and set up the first legal consultancy in London to specialise in bitcoin. My job was helping bitcoin companies get licenses and operate their business compliantly. A lot of the problems these startups were facing was how to comply but not spend too much on lawyers and consultants.
When I saw that compliance was expensive, I thought it was unfair that only large businesses could afford to comply. Smaller businesses are faced with a lot of compliance responsibilities and that just adds to their costs. It means to be a successful regulated business you have to be big. When regulations come in, we usually expect that businesses will find it too expensive to continue. So, they sell off or move. Anti-money laundering regulations for crypto businesses are coming into force for the whole industry this year. This will put a lot of crypto businesses out of business.
This is why we created Blockpass. Make it very easy and cheap to comply but have the best compliance in the market.
Most of the KYC vendors in the market lock in their clients for 2 or more-year contracts. We take that out. Blockpass is pay as you go. You only pay for what you use.
Integrating KYC into a business is a pain. Sometimes you have to integrate a vendor to check passports and a vendor to check sanctions list. It is complicated and time consuming. With Blockpass we are taking out that friction completely. A business just signs up on our website and generates a button which they send to their customers. That’s it. The business doesn’t have to think. They choose KYC Connect our full KYC package and they know that we will cover everything.
The kyc market checks users over and over again even though those users have already been checked. It is a complete waste of money. The way to fix that is give users a digital identity. That’s what we do. So, our 10k verified users don’t need to redo the verification process every time they sign up with a business. By not repeating this we can pass on the cost benefits to business by reducing the cost of verification.
Basically, compliance should be easy and cheap for businesses. That is our goal. Make it easy to follow the law. If you make it easy, then less businesses will make mistakes.
For users their experience of accessing regulated services is terrible at the moment. By giving users a digital identity, they can start to enjoy trying out new services without the headache of KYC. Just one click on the Blockpass app and they are verified.
As banks shut bank branches and every financial services provider is online you need an online identity too that you can reuse for all the services you want to access.
At Blockpass our community matters most. We give PASS tokens to all our new members as a ticket for them to join the ecosystem we are building. Once they are verified, they get benefits of being a member and accessing the services of our partners in one click. We want people who are hearing about crypto for the first time to come to us and create a digital identity and have a great experience of choice of different services they can access in one click and special offers from our partner businesses. When I first discovered bitcoin I had to do a lot of the work myself to understand who could be trusted and what to use. With Blockpass we want to make crypto easy for people, compliant and safe.
Once investors are verified, how often will they need to update their KYC documentation?
That depends on the merchant and jurisdiction. In the Blockpass console, the frequency of updates can be set by the merchant.
This was designed for the blockchain industry but could be used for many more applications, can you share what types of merchants would benefit from this application?
It could be used by any business that operates in a regulated industry, such as banking, stock trading, precious metals and gems trading, insurance and gambling.
Blockpass has the PASS utility tokens, what are these tokens for, and are they necessary to use the platform?
PASS tokens have KYC within the token. We created a token that needs the sender to be checked to send the token to someone else. Our tokens are how we register new members into the Blockpass ecosystem. We call this PASS Club. PASS Club members get access to content and special deals from our merchants such as free bitcoin brokerage fees, gold storage or a fee waiver for a bank account opening.
The PASS tokens also enable access to the PASS club. What is this club exactly?
We want to create a community of people in crypto that embrace crypto and have access to reliable information about vendors in the crypto space. PASS Club is about users also getting access to the best deals from the merchants we add to our marketplace. If they have a special offer, we want to give that to our PASS club members.
Could you tell us about the Blockpass Identity Lab and its collaboration with Edinburgh Napier University?
We founded the Blockpass Identity Lab in September 2018, which is led by renowned British computer scientist Professor Bill Buchanan.
You also offer PASS Verify which could benefit Dapp developers, what is this exactly?
PASS Verify is essentially a lower level of verification compared to our flagship product – KYC Connect. PASS Verify only provides Face Match and AML Monitoring services, while KYC Connect, in addition to Face Match and AML monitoring, also includes ID document authentication and Proof of Address verification. PASS Verify is also the gateway for users to become members of PASS Club, an exclusive e-commerce network for crypto enthusiasts powered by Blockpass and the PASS token.
To learn more visit Blockpass.
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