Security Token News
DTCC Releases Security Token Principles Paper
Crypto advocates interests were sparked this week after the Depository Trust & Clearing Corporation (DTCC) released a whitepaper describing fair security token business practices. The whitepaper primarily focuses on post-trade concerns. The release of this document highlights the growing interests of investors in tokenized securities.
The paper lays out a concise market infrastructure in which security tokens must operate within the same rules as traditional securities. While security tokens are subject to the same regulations up to the initial trade, post-trade regulations are lax and in many instances, non-existent. The DTCC wants all players in the arena to operate in the same manner.
DTCC via Bizjournals
The DTCC proposes an identifiable governance structure to institute these regulations. The paper lays out seven areas of concern which the firm believes are critical in protecting investors and facilitating market growth.
- Demonstrable Legal Basis – All distributed ledger platforms must have clear and concise guidelines surrounding any financial products offered.
- Identifiable Governance Structure – Platforms offering security tokens must have appropriate governance support systems in place. These systems provide risk management.
- Identifiable Procedures and Systems to Ensure Settlement Finality – All security tokens are required to provide clear settlement of all transactions.
- Security Token Issuance, Custody, and Asset Servicing – Security tokens should have safety control measures in place to mitigate the chance of loss. These measures should include internal controls and robust accounting practices.
- Resilience – All security tokens must prove that they can operate securely in the marketplace.
- Required Record Keeping – All security token platforms must be able to secure their client’s information. Additionally, this information needs to be available to regulators upon request.
DTCC
The DTCC is a US-based firm that provides financial markets with clearing and settlement services. Originally, the DTCC’s task involved updating the aging securities token processes in use during the 1970s and prior. During these times brokers hand to physically exchange certificates. As you could imagine the process was expensive and time-consuming. Today, the DTCC performs securities exchanges on behalf of investors. The firm is a central securities depositary that provides custodial services to the global financial markets.
Market Power
As the central securities depository, the company holds incredible sway in the market. To give you an idea of just how large the firm is, in 2011 DTCC settled $1.7 quadrillion in transactions in the US alone. The company works with regulators from across the globe to help quell security concerns in the market.
Today, the DTCC works with lawmakers, regulators, and key stakeholders in the US, Asia, Australia, and Europe. The company is an advocate for sound public policy. In the past, the DTCC collaborated on both national and local financial regulations.
DTCC and Global Regulations
You can expect that these latest recommendations influence the future regulations of many nations moving forward. Consequently, these guidelines could create momentum for global security token regulations in the near future. For now, many governments are still clueless on how to handle the digitization of the economy.
Collaboration
In the upcoming Leonovus Galaxa STO, a pair of promising companies have decided to collaborate as co-advisers. This would be United States based Entoro and, Canada based, DigiMax.
With a mutual goal shared between the companies, this collaboration was undertaken to capitalize on the strengths and weaknesses of each company.
U.S. versus Global
In their announcement, the companies indicate that, while Entoro has much to offer, their experience lies within the confines of the United States. DigiMax, on the other hand, has experience on a more global scale.
Between the two of these companies, Leonovus stands to benefit from a versatile, and competent, team of advisors. The companies note that, beyond this perk, the collaboration will allow for future referrals between one another, as their client base requires it.
Commentary
In announcing their collaboration with one another, representatives from each, Entoro and DigiMax, took the time to comment. The following is what each had to say on the matter.
Chris Carl, CEO of DigiMax, stated,
“We are excited to be partnering with Entoro to assist one another in advising and funding our collective issuer clients…We believe that Entoro is the definitive leader in providing proper advisory services for issuers of digital securities in the United States and this is the kind of highly diligent and compliance-oriented company that DigiMax seeks to partner with. We believe there are many synergies to be gained for each of our companies from this formal collaboration with most of these benefits accruing to our clients.”
James C. Row, Managing Partner of Entoro Capital, stated,
“We view DigiMax as a global leader in bringing awareness of the importance of regulatory compliance to every step in the process of companies issuing digital securities and we are impressed with the global brand that DigiMax has built. We see a great deal of opportunity for both of our companies to accelerate as a result of this collaboration agreement. We have a high appreciation of the professional level of conduct by DigiMax from our observations working with them on our first client tougher.”
DigiMax
DigiMax is a Canadian company, based out of Toronto, Ontario. This young company has developed a suite of services built to facilitate capital generation events, such as STOs and DSOs.
CEO, Chris Carl, currently oversees company operations.
Entoro
Operating out of Houston, Texas, Entoro functions primarily as an investment bank. Since launch, Entoro has expanded their services to facilitate blockchain ventures and digital securities.
Managing Partner, James C. Row, currently oversees company operations.
In Other News
Both, DigiMax and Entoro, have found themselves as regulars in our headlines. Over the past few months, each of these companies have made positive developments, as well as found themselves working on the same project. Check out the following articles to learn more about these events.
DigiMax Designated ‘Exempt Market Dealer’ by OSC
DigiMax to Consult During Leonovus Security Token Offering
Entoro to Act as Placement Agent in Upcoming Leonovus ‘Galaxa’ STO
Entoro Eyes Secondary Markets Through Partnership with Unicorn
The Announcement – Calibra
Facebook announced a pair of tokens recently. The project, which is being spearheaded by Facebook subsidiary, Calibra, will see both a stablecoin, and a security token, released.
While the stablecoin is meant to provide a global consumer base with an efficient means of transferring value, the security token facilitates project governance, and the development of a cash reserve.
Due to the potential of this project to significantly impact global currencies, and the financial system, the project has received much backlash, to date.
True Suspicions
Upon initially announcing the project, many suspected that the world’s greatest population of humans, India, would not be eligible for participation. This suspicion was born from the on-going battles within the country, between blockchain advocates and central banks.
As suspected, Facebook and Calibra have since verified these suspicions by stating the project will not launch in regions where such currencies are outlawed. They do remain hopeful that perspectives may change in the future.
Alexandra Voica, Facebook representative, states, “Calibra will respect the legislation”, “But we are looking to work with regulators to see if the legislation can be updated”.
Meeting with Congress
On July 16th a Congressional hearing will be held, followed by a similar hearing in front of the House Financial Services Committee on the 17th. The main focus of these hearings will be the testimony of Calibra representative, David Marcus, as he discusses the project and two tokens to be released.
After making their intentions known to the public, Facebook and Calibra were greeted with a response of fear and outrage by government authorities. While some point to Facebooks past track record regarding privacy lapses as a main concern, others see Libra for what it could potentially be – a competitor to the USD.
Facebook has too much power and a terrible track record when it comes to protecting our private information. We need to hold them accountable—not give them the chance to access even more user data. #BreakUpBigTech https://t.co/eQr06VMMyx
— Elizabeth Warren (@ewarren) June 19, 2019
Whatever the case may be, this hearing will provide Facebook with the opportunity to give the answer Congress is looking for. Now is the time to allay any fears that regulators may have regarding the project.
Market Response
While there are surely a plethora of factors driving the price trajectory of Bitcoin, the outcome of the congressional meeting regarding the Calibra project weighs heavy.
Anticipation of these meetings has been met with a swift decline in overall marketcap and prices in the days leading up to it. Time will tell, but most suspect a positive outcome of these meetings will be met with a positive uptick in pricing. A positive outcome is, however, far from a sure thing.
Presidential Musings
Tweets discussing cryptocurrencies are typically white noise. There are an exorbitant amount of industry players always weighing in on the state of the industry. However, when the POTUS begins tweeting on the subject, people listen.
…and International. We have only one real currency in the USA, and it is stronger than ever, both dependable and reliable. It is by far the most dominant currency anywhere in the World, and it will always stay that way. It is called the United States Dollar!
— Donald J. Trump (@realDonaldTrump) July 12, 2019
Whether you are a fan or a detractor of the POTUS, the fact that cryptocurrencies have captured the attention of the highest levels of government speaks volumes to the development witness within the industry in recent years.
Satisfaction
Before the meetings with Congress ensure, Facebook and Cablira have already made it clear that they will not be launching the product until the authorities are satisfied with the projects structuring.
In his prepared testimony for the hearings, David Marcus writes the following,
“The time between now and launch is designed to be an open process and subject to regulatory oversight and review…We know we need to take the time to get this right. And I want to be clear: Facebook will not offer the Libra digital currency until we have fully addressed regulatory concerns and received appropriate approvals.”
While there may be unavoidable delays due to hearings and potential restructuring of the project, the fact remains that with the combined clout and influence of the companies involved in this project – Facebook, VISA, PayPal, UBER, MasterCard, etc. – it is hard to imagine Calibra failing.
Industry Hurdles – Custodianship
In under two years, the state of custodianship within blockchain has grown by leaps and bounds. A mere eighteen months ago publications were posting about ‘The sad state of crypto custody’. Six months after that, custody solutions were noted as a rapidly developing innovation within the industry.
A major driving factor behind the development seen, with regards to custodianship, is due to the narrative of ‘institutional capital’ entering the world of crypto. If this is to occur, they will require trusted companies to provide this service.
Today, various companies which recognized the lack of solutions in the industry have launched, and established beginning levels of adoption. The following are a few of these companies, and what they are bringing to the table.
Anchorage
In a recent, and promising, bit of news, payment processing giant, VISA, Blockchain Capital, and others, invested $40 million USD into a blockchain based custodial solution – Anchorage. This raise represented a Series B, with the company previously raising $16 million in their Series A mere months ago.
This young, promising, company has taken a different approach to providing a safe haven for digital assets. Rather than using passwords and usernames, the platform relies on a mix of human and artificial intelligence to verify transactions on whitelisted devices.
Anchorage has stated that, in time, their platform will support all forms of digital assets. This versatility, and interest in the sector shown by companies like VISA, points to a bright future.
Unbound Tech
One of the most anticipated digital securities exchange launches of 2019, is the upcoming Archax Exchange. With a projected launch in Q4 of 2019, it is imperative for Archax to establish all of the necessary partnerships and services sooner than later. The latest puzzle piece to fall in to place would be the decision to utilize custodial services, offered by Unbound Tech.
Unbound Tech, which operates out of New York, has developed a DLT based platform which breaks up and stores data among various parties. This is done with the intention of eliminating a single point of weakness within a storage network. No doubt, their innovative, and polished, platform led to this strategic partnership.
Copper
The rise of digital securities has also resulted in the rise of numerous issuance platforms. In order to remain appealing to their clients, each of these platforms must either offer their clients direct access to a custodial service, or redirect them to a third party.
One of the most promising issuance platforms, SWARM, has experienced better adoption than most, to date. Not offering any ‘in-house’ custodial service, SWARM established a strategic partnership with U.K. based, Copper.
Copper provides institutional grade custodianship through the use of a practice called ‘air-gapping’. This simply refers to the practice of ensuring their cold storage devices are, not only not connected to the internet, but not connected to any other device which maintains an internet connection.
Upon establishing their alliance, SWARM Cofounder Philipp Pieper, had high praise for Copper. He stated, “The integration between Copper and SWARM is a great fit due to the compatibility of our technologies as well as our teams…Copper provides the level of institutional grade security and convenience that is absolutely essential for the adoption of digital securities by institutional investors and retail market,”
Coinbase
Love them or hate them, Coinbase remains at the forefront of the blockchain industry. This means that when their custodial solution, ‘Coinbase Custody’ announced support for their first digital security, it represented an important step.
The reason this step is an important one can be broken down various ways, but is primarily positive, due to the increased exposure which Coinbase will afford the nascent digital securities sector. Most participants in the world of blockchain are well versed in ICOs, but have not necessarily been exposed to STOs and DSOs. Support of assets issued through these capital generation events, by an industry leader, is most definitely a step forward.
Carlos Domingo, CEO of Securitize, tweeted at the time of this announcement.
Great news for the ecosystem, @coinbase now supporting securities issued by @Securitize DS protocol starting with @blockchaincap BCAP token. https://t.co/AFeVNfypLk
— Carlos Domingo (@carlosdomingo) June 5, 2019
TokenSoft Knox Wallet
TokenSoft has been one of the busiest companies within the digital securities sector throughout 2019. One of their various steps forward, came through their various custodial solutions for clientele. While the company has formed an alliance with Coinbase Custody, TokenSoft has developed their own solution for those interested.
‘Knox Wallet’ is the name of this offering. It is a mobile custody solution, which brings full support for various digital security protocols.
- ERC-1404
- Harbor R-Token
- Polymath ST-20
- Securitize DS-20
Knox provides its users with security through the use of various tactics. These include cold storage, role-based access control, and cryptographic authentications.
While Knox remains in beta, it has the potential to become a key player in the digital securities sector. It remains one of the only mobile based custody solution to support the asset class.
Continued Growth
An entire subset of the blockchain industry was essentially birthed from nothing, in less than two years. It has since grown into a promising grouping of service providers. While time and development move slowly in the moment, reflecting on growth within blockchain shows fantastic speed of development, wherever you look.
The companies discussed here today are essentially writing the custodial solution blueprint on the fly. As these industry trailblazers demonstrate what works, and what doesn’t, we should continue to see increasingly polished solutions presented. One such example may prove to be the upcoming Facebook project, Calibra.
