Craig Mc Gregor is the CEO of DSTOQ and has been involved in the cryptocurrency space since 2013. Some of his previous experience includes working at Bloomberg where he focused on analysis of the banking, insurance, and real estate sectors. His work experience also includes investment analysis and management of a portfolio of +30 companies worth ~$600m.
We are pleased that Craig took time off from his busy schedule to discuss DSTOQ.
A.T: For the benefit of our readers, can you please explain DSTOQ in a nutshell?
CMG: DSTOQ is a licensed stock exchange for the trading of security tokens. We have an end-to-end solution for the security token market through the two main pillars of our business: firstly our regulated decentralized trading platform, and secondly we also tokenize securities to be traded on our platform. The combination of the two allows us to service both sides of the industry: issuers and investors.
A.T: This end-to-end approach sounds quite different to a lot of your competitors, what is your reasoning behind it?
CMG: After in-depth analysis and market research, we found that the combination of tokenization and a trading platform was the best approach to maximize value and deliver to customers what they required the most. Many projects in the security token space look only at tokenization, which in and of itself is not particularly valuable if there are no trading platforms for security tokens. Likewise creating a pure trading platform for security tokens without understanding tokenization is not likely to succeed in our opinion.
We are lucky enough to have been able to build a strong team with core competencies in both fields and therefore chose to create both a tokenization and trading platform, which we believe is in dire need within both the blockchain industry and traditional financial markets.
A.T: It seems you’ve done your research. With your understanding of what the customer’s needs, which assets do you think the market has the most demand for?
CMG: Our data indicates that there is a large demand for tokenizing traditional securities such as government-backed bonds, stocks, gold, oil, and more, and as such we make them available to investors worldwide on our platform. We can also help companies raise money via STOs through both the creation of their security tokens and a platform for them to be traded.
A.T: Can you explain how the peer-to-peer trading of tokenized securities using the DSQ token will work?
CMG: The DSTOQ platform allows users to purchase high-growth assets such as stocks, ETFs, government bonds, gold and more using crypto. Traders can use the DSQ token to buy the assets in the form of tokenized securities – this happens as the real-world assets go through a tokenization process. Users can then invest and trade these assets via blockchain technology without ever leaving the token economy.
A.T: Can you explain the reasoning behind your focus on emerging markets?
CMG: Being South African myself, I experienced firsthand how difficult it is to invest in foreign assets. I was forced to pay almost 10% in fees to invest abroad, which I found utterly ridiculous. In many emerging markets, South African included, investors are charged monthly fees of around $30, in addition to security broker fees between 0.2% and 0.9% per trade. This is on top of a minimum charge of around $25 and foreign exchange fees of 2.5–5% for foreign investments. This means South Africans easily pay 5–10% in fees to invest abroad, especially when investing small amounts. Such problems prevent individuals from accumulating even modest wealth.
In addition, companies, especially in developing economies, lack channels of access to capital markets – this gives them virtually no options for raising funds to grow or innovate.
When you add those things together it becomes clear that a blockchain platform like DSTOQ has a massive value add and huge potential customer base in emerging markets, which is why we focus on them – because we can add significant value to emerging markets.
A.T: What does your stock exchange license from Vanuatu allow you to do?
CMG: Our stock exchange license allows and enables us to do three main things: accept cryptocurrencies for our exchange, tokenize securities, and conduct IPOs directly on-chain. The latter is effectively an STO.
A.T: What made you choose to launch on the Stellar blockchain?
CMG: Stellar is a good starting point for our business given that their current capabilities fit our requirements and are already in production, unlike many other blockchains that have yet to be implemented.
Through our technology choice we are able to offer fast transaction speeds, a high level of security, and the infrastructure for our decentralized exchange where we never control our customers’ funds.
A.T: Can you share some details in regards to your partnership with aeternity, and what this entails?
CMG: Our partnership with aeternity will allow for the integration of aeternity’s decentralized data oracles, which track and record information on real-world data such as financial data, global prices, exchange rates, and news into the DSTOQ platform. We also plan on using them to confirm real world data points such as completion of a building construction, or delivery of goods. Oracles could even be useful for things like numbers of users or sentiment on market penetration of a product or technology.
A.T: You have an ambitious goal of tokenizing bonds, commodities, ETFs, and equity in real companies. What will you target first?
CMG: Yes – it was ambitious of us, but we’re on track to launch and are very much focused on delivery. We’ve been working closely with regulators and have multiple people on our team with ample experience, including DSTOQ Head of Capital Markets Christopher Schuetz, the former Managing Director and head of the Primary Market Group at the Stuttgart Stock Exchange.
The first security tokens on our exchange will be ETFs, as they are a diverse asset class that can represent funds, bonds, shares, or commodities. If you’d like to vote on which assets we should list, please take part in our upcoming poll.
A.T: How will you on-board your first clients?
CMG: We already released our MVP (https://app.dstoq.com/) to introduce the basic version of the DSTOQ platform, which runs on the Stellar blockchain testnet.
In addition, we’re constantly in touch with our community via Telegram, Twitter, LinkedIn, Medium and more, constantly releasing informative explanatory content to give our future users a better understanding of how our product and ecosystem will function. We are also soon launching our Community Program, a rewards-based initiative seeking to mobilize our existing and future community members. We want to give clients the chance to contribute to the growth of our platform and receive reward tokens for doing so.
A.T: How does DSTOQ differentiate itself from competition in the space?
CMG: DSTOQ has a stock exchange license, permitting us by law to issue real world assets in a tokenized form through blockchain. This is a huge edge for us, as we’re determined to launch to the market and provide security token services ahead of our competitors – many of which don’t have a license and don’t comprehend what it takes to develop a global platform for security token trading. In fact, most tokenizers do not offer equities, bonds, or index funds the way DSTOQ does.
A.T: Thank you again for the interview. Any readers who wish to learn more may visit DSTOQ.
Interview Series – Erich Spangenberg, CEO of IPwe
Erich Spangenberg is the CEO and founder of IPwe, a company using blockchain and artificial intelligence to create the patent asset class. He also was a founder of nXn Partners, a company that is focused on predictive analytics. He was the founder and CEO of IPNav, a company that was one of the pioneers in patent monetization.
AT: Can you give a brief overview of how IPwe plans on revolutionizing the patent market?
EP: IPwe is leveraging technology—in particular, AI and blockchain, experience and changes in market attitudes to create the patent asset class. Billions are spent on regulating, obtaining and maintaining patents and the returns to owners and society are low. We are going to help fix that. AI and blockchain make things much easier to understand and far more transparent. Intangible assets—and patents are one of the key intangible assets for many companies – are just too important to be ignored and left to underperform under the management of people who are not asset managers.
AT: Are you using a public or private blockchain?
EP: IPwe’s Global Patent Registry – the first registry of the world’s patents—and our transaction platform are built on Hyperledger Fabric. After evaluating other solutions, we concluded that our market is best served through a private blockchain—we are not dealing with a fungible commodity where issues of who you are transacting with are not of any importance. We will be building public components as part of our product roadmap—but it will take time for the market to accept these solutions.
AT: How will you educate companies to register patents on the blockchain?
EP: We are fortunate that our management team is well known in the space and has extensive connections with key players in industry and the nonprofit and government sectors. Leveraging these connections, we reach a large swath of the world’s patent owners. In 2019 you will see IPwe more aggressively advertising and raising its profile.
AT: One of your goals is to enable the easy access to any patent from any office in the world. What incentive will those offices have to use the blockchain?
EP: Many of the world’s 200 patent offices already understand the importance of blockchain and its ability to increase transparency and improve things like how title is recorded. The most forward-thinking offices are already in conversations with us and we will be publicly announcing initiatives with them in 2019. We are not selling anything to these patent offices—we do not seek revenue from patent offices. What we offer is a way for these offices to better fulfil their public mission. Will all of them participate? No, as there are some offices that harbor curious beliefs that their mission is to do something other than serve innovators and society—we wish them well and believe they will soon enough recognize they can play an important role in improving the patent system.
AT: The IPwe blockchain is linked to your patent analytics platform, Zuse. Can you explain how Zuse is able to both estimate the worth of a patent and its validity?
EP: Zuse has been under development for 10 years and is the only analytics system that we are aware of that can lay claim to being central to and directly involved in over $3 billion of identified licensing and financing transactions and raising over $1.4 billion of capital as part of a strategy to invalidate patents. Zuse has been used by experts in recent US patent cases. The “how” is fairly complex and white papers are available on our website for those who want to dig deeper, but the system closely mimics the methodology experts use to assess validity. Our valuation efforts are progressing and we will be announcing an initiative in December as part of a joint effort with key industry, accounting and academic participants that will advance patent valuation to a new level.
AT: One of the intended goals of IPwe is cheaper patent transactions. How will the blockchain help with these cost savings?
EP: We have already announced our pricing for traditional transactions – 10% of the purchase price or license price– which compares to current market rates of 25%–and pricing for other services that owners pay for things like annual maintenance fee that are over 50% lower than what patent owners currently pay. We use a variety of technology–including smart contracts built on Hyperledger–to lower transaction costs. Since we are making the pie bigger, there is still a critical role for legal, broker and other patent service providers that we want to work with the improve the system and increase the transaction volume. A key goal of IPwe is to dramatically lower the cost of patent ownership.
AT: IPwe did not pursue an ICO – happy with that decision?
EP: An ICO was not a viable option for IPwe. At the end of the day we are a B2B market solution. Today most large companies simply cannot get past the regulatory issues raised by traditional ICOs. This will change—but it will take time. We also believe that forcing customers to transact with you only through a single purpose token is not a viable way to transact or build a platform.
AT: How about security token offerings—do they play a role in IPwe’s future or the future of the patent market?
EP: STOs are something completely different from ICOs in our view. We are huge fans of regulatory compliant STOs and will use STO structures for both IPwe and for our patent finance solutions. This is a huge development in the patent space that will become apparent soon when we announce our first two STO financings next month.
AT: It doesn’t sound like IPwe is seeking to eliminate intermediaries that exist in the current patent market—why?
EP: Patents are in fact complex assets and certain intermediaries will play a critical role going forward and some, we expect, will either change their business models or disappear. Many enjoy singling out lawyers as non-value creating intermediaries, and while this may be true in some contexts, it is not true in the patent space. We think their role might change as they will become focused on higher value services, but we believe they play an important role in the new market IPwe is helping to create. The patent intermediaries that charge exorbitant rates to, for example, do nothing more than make annual payments to patent offices – we think their days of exploiting these types of inefficiencies are limited.
We think some of the abuses and negatives in the system—patent trolls, efficient infringers and lower quality patents, for example, will be addressed and remedied by these same changes. The intermediaries that embrace AI and the transactional efficiencies that can be realized through blockchain and focus on high value services are going to do even better as the market expands. The sloths and luddites will disappear.
AT: If we visit with IPwe again in a few years, what will we be talking about with respect to patents and the patent market?
EP: The biggest changes that AI and blockchain are going to facility is that new managers will likely take over the patent asset class and, as capital becomes more comfortable with patents, patent based financings will dramatically increase and large and small patent owners will regularly use patents to access capital. Intangible assets – which includes patents – are a majority of most companies balance sheets. Today, these assets are largely managed by departments other than finance and not well understood by finance types. This will change and it will be a change for the better.
Interview Series – Ari Shpanya, CEO, of Slice RE
Ari Shpanya is the CEO at Slice RE, an STO that offers institutional grade commercial real-estate in prime markets.
AT: Is investing restricted to accredited investors?
AS: This would depend on the investor’s nationality. In general, Slice dedicates a great deal of time and resources to comply with the regulatory requirements of each jurisdiction our company targets. Accreditation is a US regulatory process, so in the United States investing is restricted to accredited investors. Other countries have different definitions and requirements, and Slice complies with these requirements. Oftentimes, we get approached by individuals of countries we’ve never dealt with, so our compliance officer helps these individuals find out whether they are eligible to invest or not.
AT: Slice RE currently enables international investors to take advantage of US real estate. Are there any geographical restrictions on the location of investors?
AS: Our current focus is on EMEA. More specifically, we are currently working with investors from countries like Singapore, Hong Kong, Japan, Europe and Israel.
AT: You recently partnered with StraightUp which offers commercial real estate in major hotspots such as Boston, Los Angeles, San Francisco, and New York. Any plans on further diversifying into secondary cities?
AS: In the long run, definitely. Our focus at the moment is commercial real estate projects in major US cities. For example, our Manhattan One project is in the heart of Manhattan in the sought-after Chelsea neighborhood. Our experience has taught us that international investors look for opportunities in markets they understand or are somewhat familiar with. Once they experience these investments first hand, they’ll be more inclined to invest in secondary and tertiary markets. We have a team of real estate analysts in Los Angeles and San Francisco that actively vets and sources deals nationwide.
AS: We don’t consider these companies competition. Slice is in the business of cross-border RE investments. Our current investments, like Manhattan One, can be treated as a traditional private equity deal. The tokens and optional liquidity are just an additional layer of benefits that lives on top of our core business. Liquidity is something that is going to be fully realized when secondary markets (like OpenFinance and tZero) will mature and facilitate meaningful trading volume.
AT: Can you explain what happens after an investor signs up and logins in for the first time? What’s the KYC and AML process?
AS: Our investors must go through 3 simple steps before they are able to invest in our offerings (registration, onboarding and investment).
During registration, investors provide general details like email and phone number to quickly set up an account. Onboarding is the process of Slice getting to know the investor on multiple facets: (1) initiating a KYC/AML/Accreditation process, (2) learning the investor’s intentions, expectations and experience with alternative investments (3) cultivating a meaningful relationship by assigning the investors with an account manager.
The KYC/AML process includes uploading:
- A selfie
- A government-issued ID (in English) or a passport
- A utility bill
The uploaded documents and information are then being verified and screened.
Once this is done, investors can explore offerings suited for their preferences. The investments can be subscribed using the platform, which includes a data room, eSigning and online payment modules. Later on, and depending on market volume, investors can expect to enjoy liquidity for their investments.
AT: Will investors be able to handpick the investment that they wish to be involved in? Or will it be simply an investor holds a security token, and that security token is invested in multiple properties?
AS: Slice lets investors cherry pick a specific project, as opposed to a traditional REIT model, where investors have to invest in a basket of projects of varying quality. We let investors get involved with a fairly little capital, because we understand that this type of investment vehicle is new for most investors, and we want to give them the opportunity to experience the benefits of this investment before adding more capital to their Slice real estate portfolio. The beauty of this model is that it allows investors to allocated small amounts to different projects and thus create a truly diversified real estate portfolio.
AT: Can you explain the investment style option which currently offers conservative, medium, or aggressive investments? I’ve seen this in traditional mutual funds, but it’s something that might be new for a lot of people in the real estate space. What are the different levels? Is this based on a projected yield/risk analysis?
AS: Real estate investments are typically divided into 3 main strategies based on perceived risk and projected returns. As the projected returns increase, so does the potential risk.
Core – Core assets are relatively stable yielding assets, located in major developed markets. They are characterized with strong fundamentals, high occupancy, credible tenants and a low degree of leverage. These projects are usually owned by institutional investors for a long holding period. These assets are considered to be a conservative investment, and the main objective investors choose them is wealth preservation.
Value-Add – These investments holds a higher level of risk with a greater upside potential. These assets can be found in primary or secondary markets, where the manager can actively add value by renovating the asset, increasing occupancy, or improving the tenants quality.
Opportunistic – There are many types of opportunistic investments, but generally these are either highly distressed properties (major vacancy, financial distress), new development projects, or assets in emerging markets. These assets typically require significant rehabilitation and have little to no cash flow. They carry the highest risk, and require experienced management, but can generate the highest returns (most of the return will be generated when the asset is sold or refinanced).
AT: Investors can earn dividends from real estate. Will you be outsourcing the collection of rent, managing properties, etc. to a management company or will you create a management company to manage these assets?
AS: Slice is a tech company that specializes in the tokenization of commercial real estate investments. We believe in domain expertise and therefore work with professional property management firms and legal advisors to best serve our investors. These services are being outsource to contractors with a proven track record, as we have no intentions to become a property management company.
AT: With the potential economies of scale that can be had, what are the property management fees that we can expect?
AS: Again Slice is not a property management firm. The industry has its standards regarding fee structures, depending on the property type. Due to our team’s vast experience, and the numerous relationships we have with developers, we are able to compare and negotiate attractive terms and fee structures for our investors.
AT: What’s the average projected holding time? For example, is the idea to purchase the development in pre-construction, tenant it for a year, and then flip it?
AS: The holding periods depend on the underlying asset. This might be a 2-3 year hold for a new condo construction or a 5-year hold for an income-producing asset. Our model lets investors take charge of their own holding period and liquidate their position without having to pay a hefty premium. We believe that the introduction of secondary markets is around the corner and that the revolution of tradable private securities will be expanded to other asset classes like fine art, stock options, and more.
AT: How are you planning on attracting the retail investors who are new to the concept of blockchain and tokenization of real estate?
AS: At Slice, we are not in the business of overpromising; we believe that retail investors should be handled with special care and with full transparency. The true adoption of retail investors will come from the fruition of projects led by developers with a meaningful track record (like our partners @ HAP NYC), the continuous development of quality project, and the emergence of secondary markets with meaningful trade volumes. Once these three pillars are in place, we believe that more retail investors will be actively looking for these kind of deals, and regulators worldwide will approve investment vehicles that are aimed specifically for retail investors.
AT: What are your marketing plans for the next 12 months?
AS: We focus on educating the market about the benefits of security tokens for cross-border investors. Most prospects we talk to don’t fully understand the difference between utility tokens, which are backed by empty promises, and security tokens that are backed by real-world assets. These same investors certainly don’t understand security tokens advantages like fractional ownership, increased liquidity, rapid settlement, reduction in direct costs, automated compliance, and asset interoperability – so educating the market is key. This month, we are launching a webinar series to help prospective investors understand the benefits of our technology and get to know our strategic partners (like HAP) which build some of the projects we tokenize. This effort gives our audience an opportunity to meet our management team, ask questions, and ultimately build trust with our brand.
Interview Series – Andy Strott, Co-Founder, of Realecoin™
Andy Strott is the Co-Founder, of Realecoin™ – A fund that invests in income-producing multi-family housing that needs redevelopment or renovation and in distressed mortgage debt opportunities across the U.S
Andy has worked as an executive with some of the largest fund managers in the United States – BlackRock, Alliance Bernstein and MFS Investment Management. He has worked in two different European countries, having been selected to lead new initiatives abroad. Mr. Strott has structured real estate funds and joint venture opportunities as well as performed underwriting for more than $5 billion in new development, multi-family redevelopment, non-performing loans, bridge and mezzanine financing. Mr. Strott has also served as an advisor to technology startups, and developed the first of its kind cross-border commercial real estate listing portal for Chinese investors in collaboration with Fang.com, the largest real estate website in China. Mr Strott received his Masters in Business Administration from Columbia Business School.
AT: You mainly specialize in income-producing multi-family properties that need redevelopment or renovation. How do you source these properties?
AS: The Realecoin fund invests in multi-family properties that need redevelopment or renovation AND distressed mortgage debt across the U.S. We source all of our projects from a longstanding network of relationships in the real estate industry dating back more than 30 years.
AT: What’s your average holding time for a property?
AS: Each investment is unique, but for our multi-family properties, our hold time should average between 3-5 years. For our distressed mortgage debt, our hold times are approximately between 18-36 months.
AT: Are there certain states or cities that you focus on, or alternatively that you avoid?
AS: For our multi-family properties, we look across the U.S. in primary and secondary cities. For our distressed mortgage debt, we invest mainly in the Southeast, Southwest and Midwest regions. We tend to avoid the NYC metropolitan area and many parts of California due to a more litigious environment that adds to our hold time and cost.
AT: Currently you focus on US real estate. Any plans on going international?
AT: The first property you are purchasing is 162-164 East 82nd St. on the Upper East Side of New York City. What made you choose this development to be your first?
AS: This has been a property the Azrak’s have been working on and have invested more than $2MM into to renovate the apartments and raise the rents. The property is fully leased at this stage and represents an attractive IRR to the fund portfolio.
AT: How are you planning on differentiating yourself from competitors such as BlockEstate and Property Coin?
AS: Our main differentiator is that we are a diversified portfolio of both real estate equity and debt.
AT: Will you be paying dividends? If yes, are these to be distributed quarterly or annually? What’s the expected dividend payout?
AS: Yes. Quarterly. 6-8%.
AT: How is the fund’s senior management compensated?
AS: 2.5% Management Fees, which will pay salaries of our entire team. Plus 20% of profits. We will also hold 10% of Realecoin digital securities that are issued.
AT: Could you briefly share with us some of the items on the due diligence checklist when you are reviewing properties to potentially acquire?
AS: This includes:
- Tenant Information – Leases, copy of current rent roll, listing of security deposits, copied of common area agreements.
- Third Party Agreements – Structural Reports, Environmental Reports, New Phase I Report, when available HVAC Study, when available Roof Repairs.
- Title/Survey – Commitment of Title Policy with Exceptions, Survey, Title Insurance, Copy of Declaration of Easements.
- Reports/Plans – Certificates of Occupancy, Building Certificate, All Tenant Certificate of Occupancy, Complete Set of Building Plans, Complete Set of CAD Files for Property, AsBuilt Plans.
- Site Development Plans and Approvals
- Schedule of Outstanding TI’s and LC’s
- Service Agreements – Elevator, Water Treatment, Security, etc.
- Warranties – Roof, Other
- Financial/Operational Documents
- Operating Budget (Past Three Years, YTD)
- Operating Budget Forecast
- YE Monthly Income/Expense Statements
- Itemized Capital Improvements
AT: Anything else you want to mention about Realecoin?
AS: We at Realecoin are at the forefront of a tremendous initiative at the crossroads of real estate and tech to make investing in U.S. real estate easier for investors. Needless to say, a substantial amount of time and work by many people has gone into reaching our Presale, and yet, we are only at the beginning days of this venture and look forward to the next phase of our business.
AT: Thank you for taking the time to do this interview. Anyone wanting to learn more can visit the Realecoin website.
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