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 – Zoe Adamovicz, CEO & Cofounder of Neufund
Zoe Adamovicz is the CEO and co-founder at Neufund. She is an experienced entrepreneur and occasional angel investor.
Zoe is passionate about building technology businesses that are impactful, positive and at the same time profitable and powerful. Prior to Neufund, she founded Xyo, a company that re-imagines how people discover apps, Priori Data (app store intelligence), and Concise Software which provides software development and engineering services.
RS: Neufund has been described as a “stock exchange without the operator in the back”. What kind of similarities and dissimilarities has Neufund to a traditional stock exchange?
ZA: On one hand, Neufund provides companies with a technical ecosystem that allows them to tokenize their equity, and on the other hand it serves as a primary market for securities offerings, making it easy for companies to conduct a quasi-IPO on Blockchain. The latter may remind investors of the typical role of a stock exchange. However, secondary trading of such tokenized securities is happening outside of the Neufund platform. Equity which is tokenized through our protocol is ERC20 compliant, meaning that on a technical level it is possible to trade the tokens on any crypto exchange.
RS: What is the advantage of conducting a quasi-IPO on Blockchain over going public on a typical stock exchange?
ZA: Conducting an STO is much more accessible to companies than going public on a traditional stock exchange. You can conduct a public offering on Blockchain at almost no cost and at any stage of growth. It is interesting to observe, which gap in the existing fundraising market STOs will fill. We think it is a natural fit for a pre-IPO stage, when a company is too big for a typical VC round, and too small to file for an IPO.
Going public on Blockchain carries different benefits both pre- and post-offering. Companies no longer need to involve multiple middleman on the various stages of their offering, their cap table is updated in real time and investor can now manage their assets with greater flexibility. Also worth noting is the programmability of tokenized assets, which means that issuers can include utility functions in the asset itself such as automated dividend distribution. At the same time, making a public offering on Blockchain includes all typical advantages of going public, as well as the ability to conduct secondary offerings easily.
RS: What types of investors do you think will be attracted to Neufund’s ecosystem?
ZA: During our recent and also first Security Token Offering we have attracted a very diverse group of investors, which includes prominent venture capital firms like Atlantic Labs or Freigeist Capital, as well as angel investors, many of whom had no previous experience in this area. We find this especially interesting with the ongoing debate in mind on how Blockchain will impact the venture capital world. To us, conducting the offering on Blockchain isn’t contrary to typical investment rounds but rather enhances them, bringing much needed liquidity which so far only existed in capital markets.
But that’s not all, we also receive wide interest from many crypto and retail investors. The former see Neufund as a safe way to invest their crypto capital, while the latter appreciate the ease with which they can make their investments and manage assets at a later stage.
RS: Why is Neufund a good platform for investors to make their investments?
ZA: Neufund serves as a market with different offerings, coming from different companies and we encourage all of the investors to review each opportunity independently. However, all equity tokens offered through Neufund have similar advantages over paper-based assets that are known from traditional markets.
First, token holders will potentially have, once regulated, access to a global pool of investors across multiple secondary exchanges which potentially increases liquidity. Second, they are programmable assets which makes it possible to embed utility functions such as automated dividend distribution or voting mechanisms. Third, one real world asset can be represented by many tokens which lowers barriers to entry for retail investors.
What makes Neufund stand out from the crowd of primary issuance platforms, many of which were created over the last months, are our unique token economics – for every investment conducted through our platform investors are becoming economical co-owners of the Neufund platform itself, and thus can claim shares in the revenue that we generate. We often compare it to investing through NASDAQ in Facebook, but on top of equity in Facebook investors get a piece of NASDAQ itself.
RS: What types of companies are best suited to launch with Neufund?
ZA: We have a lot of companies in our pipeline and many more businesses which showed their interest in fundraising with us. Eleven of those were already publicly announced in 2018. They are at different stages of growth (seed, series A, B, D) and with different products (Banking, IoT, Mobility). What is important is that they don’t have to be necessarily connected with Blockchain.
RS: Why should companies launch on Neufund versus other competing platforms?
ZA: First, Neufund stands with the crowd, as we aim to make the offerings accessible to people from across the globe with different financial status, with a minimum ticket as small as a couple of hundred euros. This makes it possible to address the offering to a global community of investors. Secondly, we provide the companies with full technical and legal support over the course of the preparations for their Security Token Offerings, for instance, we are providing them even with a prospectus template, if needed.
RS: Last summer you partnered with MSX (an innovation division of the Malta Stock Exchange), how will this benefit Neufund? And you also announced a partnership with industry leader Binance last summer, could you tell us more about the Binance partnership and what it entails?
ZA: Both partnerships aim to bring much needed liquidity and create a complete environment for the issuance and, at a later stage, secondary trading of the security tokens issued through Neufund’s set of protocols.
RS: What is the biggest challenge that Neufund faces with the launch of your first security token and how do you plan to overcome that?
ZA: We have faced most of the challenges at the pre-offering stage. It included making sure our legal architecture is compliant and technical solutions secure. Now, that the tokens are about to be released, which will happen after the signing period, we focus on building the governance system and the UX around it.
RS: Neufund did an ICO in 2017 and raised approximately $15M. What will happen to the utility tokens when Neufund launches the new equity token?
ZA: During our ICBM (Initial Capital Building Mechanism) we have managed to secure an equivalent of €12.5m. It is important to note, that Neufund had no access to those funds. The committed ETH and EUR got locked on a smart contract and investors will be able to invest them into coming offerings placed through Neufund. In exchange for their early commitment investors have been rewarded with NEU tokens, that represent economical co-ownership in the platform. With those, investors can claim their share in the revenue Neufund makes.
RS: You’re based out of Berlin which has a great blockchain community. Has this community helped foster the development of Neufund?
ZA: Yes, absolutely. Neufund is surrounded with an amazing community here in Berlin which offers access and the support from top minds in Blockchain development. Germany is at an interesting intersection between traditional VC, innovative spirit of startups and a regulatory gateway to the EU.
RS: Is there anything else you would like to tell the readers about Neufund?
ZA: Blockchain is one of the greatest opportunities we’ve been presented with in modern history. Decentralization is ultimately about equalizing opportunities, so a young entrepreneur from the third world receives the same access as a wealthy investor. Building solutions that perpetuate the mistakes of existing markets solely for the purpose of increasing revenues is not enough. We, as a Blockchain community, can and should do better.
Interview Series – Dave Hendricks, CEO & cofounder of Vertalo
Dave Hendricks is the CEO and cofounder of Vertalo which is a stakeholder Registry and Cap Table platform for SEC Compliant Security Token offerings. They connect broker-dealers, issuers, exchanges and ATS’s.
AT: Could you share with us what Vertalo does?
DH: Vertalo seeks to help more issuers, tokenize more assets, at lower cost and lower risk. And at less expense. Vertalo’s core offering is a crypto cap table, in other words a ledger of token holders. ICOs didn’t care about cap tables, but equity investors do.
Investors can be added to a Vertalo-built cap table before, during, or after a fundraise or ICO. Vertalo’s wallet registration process is the connective process between issuers – who want to know who owns how much of their company – and investors, who want to know how much they own of the company. Vertalo is glue for the overly confusing STO ecosystem. Vertalo helps issuers manage their investor community and Vertalo helps investor manage their holdings – all via a simple graphical interface that is way better than etherscan.
AT: Is this on a public or private blockchain? If both, could you elaborate what information is on the public versus the private?
DH: Most Security Token issuance development is Ethereum-based, and most smart contracts are written in Solidity, so Vertalo started its work in alignment with the community, but Vertalo was designed to be chain-agnostic. If an issuer wants to write their token using Hyperledger, or Hashgraph, or NEO, or Stellar they can do that and Vertalo’s cap table and investor registration functions will operate the same way. We see benefits of permission-less and permissioned Blockchains for Security Tokens.
AT: Do you perform the KYC/AML accreditation yourselves?
DH: Vertalo partners with major Accredited/Qualified and KYC/AML Services, since there are more than 200 different jurisdictions and we want to focus on what we do best. We are developing a subscription service with several of these vendors to simplify secondary trading (where KYC-AML is so important). More on that later in Q1.
AT: Could you describe how the platform enables issuers to manage the investor community?
DH: Vertalo’s Cap Table combines the features of a traditional ledger with network connectivity. The Vertalo cap table represents a relationship between two parties, determined by consensus. Issuers use the vertalo registration smart contract process to invite and add an investor to the cap table. That registration process creates a ledger which is more than a list of holders, it facilitates communications between the issuer and investor so that tokens, dividends, and documents can be transferred between the parties.
AT: There are many non-blockchain options to manage a cap table. What are the benefits of using a blockchain, and more specifically Vertalo?
DH: Token trading is real-time. If someone trades a security token, the investor ledger by law must be updated with the new address/holder of the token. So a blockchain-based cap table ledger operates at the speed of blockchain, faster than paper and with better record-keeping. Without a blockchain-based ledger for a blockchain based security, who would manage the legal requirements for maintaining a list of shareholders? This was not a concern for ICO issuers, so they didnt create this tech. ICOs just cared about exchanges. STO issuers need to maintain compliance with securities law.
Developing blockchain-based cap tables is also the first and fundamental step towards greater liquidity for private assets, because cap tables are where the investor ownership rights are best enforced. The reason that issuers and investors are tokenizing their offerings is to ultimately achieve greater liquidity by enabling their shareholders to sell on exchanges and ATSs subject to the issuers rules.
No traditional private equity cap table platforms connect to exchanges, and even obtaining a stock certificate from a traditional cap table platform is a days-long effort. And when you receive a paper share from a traditional cap table platform there is no where to sell it, since you have to get permission from the board, and then there are few marketplaces for anything other than Uber or Lyft, etc..
Tokenized offerings are issued on the predication that the tokens/shares will be ‘tradeable/’ after a restriction is lifted. By connecting the Vertalo blockchain-based cap table to exchanges and ATSs, we enable token holders to achieve the liquidity that is main differentiating feature of a security token offering, while complying with basic securities law.
AT: How does the Vertalo registry reduce costs for Broker dealers?
DH: Broker-Dealers have fiduciary requirements to check KYC and AML. Vertalo’s investor registry function, which connects KYC verified email addresses to blockchain wallets, was designed in conjunction with major broker dealers to help them comply with basic AML requirements. Vertalo built its platform to be whitelabeled by broker-dealers so they don’t have to build or manage this process themselves.
AT: You offer investors who register with Vertalo the opportunity to instantaneously share their investor profile with broker-dealers and issuers. How do investors sign up for this?
DH: This feature will be built out later this year. Our focus is on the Picks and Shovels for our business clients.
AT: One of the tools that you offer is the verification of wallet ownership? How is this performed?
DH: The Vertalo Wallet Registration process uses a smart contract to run a process that is similar to the method by which a bank verifies your ownership of an account, by depositing random amounts into an account. We send an email to the registered account holder, with a link to kick off a process. If you can log into that account and verify the amounts, that is the beginning of proven ownership. It’s actually a little more complicated than that, but to the proper owner of a wallet, it is a very smooth process. We use a special utility token (no, you can’t trade or transfer it) and smart contracts for this process.
AT: Are there any notable projects that are currently using the Vertalo platform?
DH: We were our first client. I think that Vertalo issued the third or fourth real, US compliant Security token in March 2018. That is why we built this. We are working with PrimeTrust, Issuance, Entoro, and we will be announcing some Major real estate, fund, and debt issuances that are launching in February and March. By the end of Q1 there should be more than 10 projects or Broker-Dealers using the tech to simplify their token issuances, investor relations and cap table management.
AT: Is there anything else that you would like to share about Vertalo?
DH: Issuers should create a great product, find a great law firm, find a great broker-dealer and call Vertalo. We can stitch all the parts together for you and also help you save a tremendous amount on your overall tokenization costs.
Interview Series – Darren Marble, CEO of Issuance
I recently had the pleasure of interviewing Darren Marble, CEO of Issuance. Through his role as CEO of CrowdFundX , Darren has extensive experience marketing Reg A+ IPOs and Digital Security Offerings to institutional and retail investors. This experience perfectly aligns with Issuance (a platform that connects digital security issuers with investors) as Darren knows what investors are looking for, and what is needed for a successful and compliant offering. Check out the interview below to learn more about Issuance.
RS: Can you tell us a little bit about what Issuance does and the long-term vision?
DM: Issuance is developing a technology-enabled investment bank for digital securities issuers–a modern Goldman Sachs. Our vision is to be the leading investment bank for digital securities, which we believe is the next mega-trend in capital markets.
We believe in regulated markets, investor protection, and are confident that the U.S. will be the leading market globally for digital securities.
RS: Issuance recently announced the acquisition of CrowdFundX, how will this acquisition be integrated with Issuance?
DM: Issuance has executed a Letter of Intent (LOI) to acquire the assets of CrowdfundX (CfX), a FinTech marketing firm known for marketing some of the industry’s most notable digital securities offerings (DSOs) and Regulation (Reg) A+ IPOs. Some of CfX’s clients include Drake’s Virginia Black Whiskey, KODAKOne, and tZERO, among others.
The dominant investment banks of the future will effectively blend digital securities technology with traditional financial services. Issuance at its core is a technology company, while CfX is a services company with notable industry clients and established revenue streams. As such, CfX is a natural acquisition for Issuance.
The transaction, which is expected to close in February, 2019, will be subject to due diligence and definitive legal documents acceptable to all parties. Once completed, the CfX brand will be sunsetted, and Issuance will be the enduring brand.
RS: How is your platform different from similar issuance platforms like Securitize, for example?
DM: Issuance is in the business of deal marketing and capital raising, which is the biggest pain point in the market. We act as a bridge between tokenization platforms and secondary trading platforms, since neither of these players are true capital raisers.
In September, we announced a strategic partnership with Securitize to give their clients exposure to the right network of investors and increase their likelihood of funding. Conversely, Securitize offers a proven tokenization solution for our clients, who require a proven compliance solution for the trading of their digital securities.
RS: How does Issuance market to potential investors?
DM: Issuance is developing an app that will allow issuers to market their deals directly to authenticated, interested investors. Issuers will pay a fee to Issuance each time they send a message to an investor on our platform, with the fee varying based on the type of investor messaged. For instance, a message to an institutional investor will carry a higher fee than a message to an accredited investor.
Issuance is in the process of partnering with a broker-dealer, which will allow us to capture success fees when investors sourced through Issuance invest into a deal.
The Issuance app is expected to be available in mid 2019. In the interim, we are selling traditional advisory and marketing contracts where Issuance serves as an introducer between our issuer clients and our network of investors. We have trusted relationships with some of the most active digital asset investors around the world, and have successfully sourced capital through this model for multiple clients. Our advisory and marketing engagements are sold in a fee-for-service model where Issuance is paid a flat fee month-to-month.
RS: Your website notes that Issuance “provides unique incentives for investors”, can you tell us what incentives Issuance offers that sets it apart?
DM: Investors generally want access to the best deals in the highest discounted rounds. Issuance has access to some of the industry’s most proprietary, desirable deals, which is an incentive for investors–particularly institutional investors and digital asset funds–to work with us.
As an example, we just signed a NASDAQ-listed biotechnology company running what it believes to be a historic digital securities offering (DSO). The company has a $250 million market cap and has been publicly traded on NASDAQ for more than a decade. This is one of most unique DSOs in the industry, and Issuance has exclusive access to the deal. The initial reception from our investors has been incredibly positive, and will further credentialize Issuance as a firm with true proprietary deal flow.
RS: Issuance “allows investors to only receive certain deals”, can you tell us how this works and how it is beneficial to investors and issuers?
DM: The problem with current platforms is that they are issuer-focused, and they market every deal they take to every investor in their database. Moreover, the majority of investors on these platforms are self-directed retail investors. This approach has resulted in a lose-lose-lose scenario for issuers, investors, and platforms alike. It’s one of the big reasons no equity crowdfunding platforms have had any real success to date.
Our strategy to solve this problem is counterintuitive, yet simple: Issuance will solve for investors first. Our app will cater to investors–the most sought-after segment of the market–and ensure that we protect both their privacy, and, more importantly, their time.
The Issuance app will gather investor profile and deal preference information up front during the sign-up process, which can be completed through the app itself, or through our institutional sales reps who will input profile information on behalf of investors.
By gathering profile and preference information up front, Issuance knows what deals investors are interested in seeing, and what deals they have no interest in. When an issuer pays a fee to market their deal to an institutional investor, for instance, that deal will only be sent to an investor who has explicitly expressed interest in that type of deal.
Think of it as a matching technology. By better matching the right deals, to the right investors, at the right time, we increase conversion, and everyone wins.
RS: Can you tell us some more about the ranking system that exists within the platform?
DM: We are developing an algorithm that we can share more about when we launch.
RS: What is the most important criteria you can recommend to issuers to achieve a high ranking within the platform?
DM: Issuance is focused on working with established businesses and publicly traded companies. Ultimately, issuers whose deals are the most highly de-risked, and offer the most fair and compelling terms to investors, will have a higher ranking on our app.
RS: Issuance offers aftermarket services, can you tell us a bit about those services and the benefits?
DM: Issuance offers aftermarket support services for issuers who successfully raise capital and list their digital securities to a secondary trading platform. Raising capital is only half the battle: issuers must continue to aggressively market to investors post-raise in order to increase the visibility, liquidity, and market cap of their digital securities.
Aftermarket support is one of the most overlooked yet critical services that digital securities issuers will need to succeed long-term. Issuance currently offers aftermarket support contracts with 6-month or 12-month terms, with our 12-month terms offered at a slight monthly discount.
RS: Is there anything else you want to share about your project?
DM: Issuance is currently raising our own round of capital, and some of our current and committed investors include Alpha Omega Capital Partners, Slim Ventures, Proactive Capital, and Business Instincts Group, to name a few.
If you’re looking to invest in the digital securities ecosystem, and want a company with a proven team, traction, and revenues, I’d say we’re a great bet–and our investors would agree. To access our complete investment package, please visit www.issuance.com.
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