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.
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.
Aaron Kaplan, CEO of Prometheum – Interview Series
Prior to Prometheum you were the Founder of EquityArcade, a platform that enabled consumers to buy shares in video game startups. Can you let us know how your experience at EquityArcade transitioned over to Prometheum?
EquityArcade was a Reg CF equity crowdfunding platform that allowed consumers (investors) to invest in the future revenue generated from indie game funded on the platform. Reg CF is part of the JOBS Act, which also contains the Reg A+ crowdfunding rules. Prometheum uses Reg A+ as a means to allow the general public to invest in blockchain securities. All JOBS Act regulations relate to online equity crowdfunding. As a result, we have been able to leverage many of the experiences and lessons from EquityArcade in building Prometheum’s Reg A+ offering platform.
Prometheum enables companies to raise capital by offering their own Smart Security Tokens (SSTs). Can you share with us how SSTs differentiate themselves from other industry standards such as STOs (Security Token Offerings) or DSOs (Digital Security Offerings)?
SSTs, STOs and DSOs are all different protocols that are attempting to solve the same problem. Until there’s complete regulatory clarity around certain critical components – including custody – of the blockchain securities ecosystem, it’s not possible to conclude which protocol provides the best foundation.
What’s the process for a company to launch an SST?
An issuer looking to issue a SST will submit an application for an offering to Prometheum. At that point, the issuer will submit all relevant documents that will allow Prometheum to conduct the requisite due diligence in order to determine whether the company is qualified to issue an SST. Upon passing the due diligence process, the issuer will complete the Reg A+ offering circular and submit that document to the SEC for qualification. Once qualified by the SEC, the offering will be listed on Prometheum’s offering platform and begin their capital formation activities. When the stated amount of capital is raised, there will be a closing and distribution of the SST into the investors’ Prometheum brokerage account. Upon distribution of an SST, Prometheum’s issuance platform coordinates the multi-signature, multi-stage process that is used to place investors’ SSTs in either their Master or Personal Wallet. Once the distribution occurs, Prometheum will list the SST on our retail based (i.e. open to all investors) Alternative Trading System (ATS), and secondary market trading will begin in the issuer’s SST.
What type of fees should companies expect from launching an SST and hosting it on your platform?
Our goal is to allow companies to raise up to $50m in the most efficient way possible: faster, less expensive, and easier than any other legal capital raising method. In terms of direct fees, we plan on charging issuers a small percentage of the total amount they raise (1-3% dependent on the total raised). Once a token has been distributed and is trading on the ATS, companies are charged a quarterly membership fee of $2,500 for maintaining their order book.
Indirect fees not charged by Prometheum can vary and are related to legal and prep for the creation of the Reg A documents, accounting, auditing, marketing, and other possible professional services.
SST will be Reg A+ issued. For investors who are not familiar with this legislation and what does it mean? Could you explain the benefits?
Regulation A+ allows issuers to raise up to $50 million from the general public annually, and such securities, when issued, are freely tradeable on a secondary market. Reg A+ is really the perfect regulation for issuing blockchain securities as it meets the spirit that was initially conceived by the crypto community- it allows the general public to invest, and the asset is freely tradeable upon distribution but in a regulated manner (unlike many historical token investments).
Tokens that are created on your platform will then be tradeable on a custom ATS (Alternative Trading System). Could you elaborate on how your ATS will operate?
On the surface, the ATS operates just like a traditional equities electronic market. Every token has as order book representing supply and demand for that token – bids (what buyers are willing to pay, and the number of tokens they want) and asks (offers to sell, or what sellers are willing to sell for, and the number of tokens they want to sell). This order book is managed by the matching engine which uses an algorithm to arrange the bids and asks into a price, upon the price quote the engine then utilizes time priority, and ultimately “matches” buyers and sellers when they meet at the same price. There is an online trading platform, similar to Etrade or Schwabb, which allows traders and investors to see the order book, look at charts, enter orders and see their account status and previous transactions. Through the use of omnibus accounts, other broker-dealers will be able to offer their customers access to SSTs. Our ATS intends to operate 2 sessions everyday, both 11 ½ hours long with two 30 minute breaks for settlement. When there is an executed trade, meaning an order between a buyer and seller is matched, the trade is written to the blockchain, as well as recorded to a database to ensure compliance with traditional record keeping.
Are SST tokens launched on your platform tradeable on regular security token trading exchanges such as OpenFinance and tZERO?
SSTs are compatible with Prometheum’s ATS and work as both securities and utility tokens in the Prometheum ecosystem. It may be possible for SST issuers to create a bridge to other exchanges or blockchains by building smart contracts on the Prometheum Utility Blockchain. As the equivalent of a national market system for digital assets develops it will likely be necessary for digital assets to have the ability to trade across security token exchanges and alternative trading systems.
What are Ember (MBR) tokens and what role do they play in this project?
The Ember SST fuels all SST transactions and allows holders to provide services at the protocol and application layers. Prometheum’s Ember token has both profit-making utility (work/access) and proprietary payment currency features. Ember provides the fuel for the Prometheum blockchain Network and demonstrates the versatility and value provided by a modern approach to using securities to transfer value in a decentralized, blockchain based environment. Ember is the first SST issued on the Prometheum Blockchain and sets the legal and technical precedent for further SSTs.
It seems like you are building everything from scratch, why not use an existing blockchain?
The Prometheum blockchain is required in order to ensure that regulatory requirements are met while also providing a viable method for the use of blockchain securities as utility tokens. This includes direct interaction with distributed applications as well as processes for moving blockchain securities in and out of brokerage accounts when a user wishes to trade them on the Prometheum ATS.
Is there anything else that you would like to tell us about Prometheum?
Prometheum is creating the market infrastructure needed for digital assets to go mainstream. When the SEC essentially declared that tokens were securities in the 2017 DAO report, such infrastructure didn’t exist, which meant that there were no compliant facilities for the issuance, trading, clearing, settlement and custody of token securities. Prometheum sought to fill that void and is creating the infrastructure that will allow the general public to invest and trade in digital assets, while also providing mechanisms for clearance, settlement and custody after trades are made. The Prometheum Network is meant to allow the general public to participate, which is required in order for digital assets to go from a new asset class to a mainstream asset class.
DACS to Provide Custodial Services for Fundament Group
In an announcement issued by Fundament Group and Digital Asset Custody Services (DACS), it has been divulged that the pair will soon provide digital asset custody services.
More specifically, DACS will act as custodians on behalf of investors holding Fundament Group’s ‘Real Estate Security Token’.
Institutional grade custodial services have long been noted as one of the major hurdles between where the digital securities sector currently stands, and its potential.
DACS notes, in their announcement, that the services which they offer are specifically aimed towards large clients. They list the following groups as examples of those they expect to serve.
- Insurance Providers
- Pension Funds
- Family Offices
The technology used, in making these services possible, were developed through a strategic partnership between DACS and IBM. When this took place, DACS Cofounder, Brad Chun, commented,
“As adoption of crypto custody, exchange and blockchain-as-a-service increases, our potential market will only expand. We’re teaming up with IBM to take the DACS platform to market fast, opening up entirely new value proposition for both of our organization worldwide.”
Upon announcing this new partnership, DACS Cofounder, Neil Fillary, took the time to comment. The following is what he had to say on the matter.
“Fundament Securities is on track to bring institutional players into the space of decentralized finance. Smart contracts and digital-asset technologies are set to transform the way enterprises across industries do business. Now with our digital asset custody solution, Fundament’s underlying infrastructure can help bring security, and accessibility in the crypto-asset market to new heights.”
Fundament Group is a Berlin, Germany, based company, which was founded in 2018. Above all, the team at Fundament Group has worked to develop a suite of services meant to act as a comprehensive tokenization platform.
CEO, Thomas Ermel, currently oversees company operations.
Digital Asset Custody Services
Operating out of Boat Quay, Singapore, DACS is a custody service provider which was founded in 2018. In their short time in operation, the company has managed to establish multiple high profile relationships with companies such as IBM, and LG, on route to developing their custodial platform.
In Other News
Over the past few months, we have reported on Fundament Group’s actions various times. This includes multiple events which will see hundreds of millions worth of real estate undergo tokenization through their platform. The following articles take a look at these events, and the role that Fundament Group will place.
Knabu to Utilize IdentityMind and Factom in Pilot Program
It was recently announced, in a statement made to CoinDesk, that a trio of blockchain based companies will be taking part in an upcoming pilot program together. Factom, Knabu, and IdentityMind, will each play their respective roles in the pilot, which will test the viability for blockchain as a replacement traditional banking technologies.
In this alliance, Knabu will facilitate the pilot, while records are recorded on the Factom blockchain, with IdentityMind mind performing KYC and KYB checks.
The purpose of the pilot is based upon the elimination of efficiencies inherent to the banking system’s current method of doing things. These inefficiencies arise in the various functions still reliant upon manual completion – such as client onboarding measures, like KYC checks.
Knabu CEO, Gabrielle Patrick told CoinDesk that, “…the average cost of regulatory compliance for a bank is about 30% of its budget…We’re a blockchain-first company and felt that it was necessary to demonstrate the features that can remodel that.”
UK Banking Licence
While this endeavour is simply a pilot, it sheds light upon how Knabu will approach finance if successfully approved as a licenced U.K bank.
Knabu indicates that the goal of becoming a bank stems from, what can only be interpreted as, a shunning of the blockchain and DLT sectors by traditional banks. With companies worldwide involved in these sectors often being denied financial services, Knabu believes that they not only require, but deserve, an advocate that will serve them.
In announcing the launch of this pilot program, representatives from each, Factom and Knabu, took the time to comment. The following is what each had to say on the development discussed here today.
Gabrielle Patrick, CEO of Knabu, stated,
“The purpose of the pilot is to start proving some of the efficiencies that blockchain brings – specifically as core infrastructure for a bank. The average cost of regulatory compliance for a bank is about 30 percent of its budget. We’re a blockchain-first company and felt that it was necessary to demonstrate the features that can remodel that.”
Carl DiClementi, VP of Product at Factom, stated,
“This allows us to be able to borrow the security that you get from the power of the bitcoin and ethereum blockchains to verify that your data is what you claim it to be.”
While the announcement of this pilot program is a very positive development, Factom has experienced negative news this month, as well.
Unfortunately, a large majority of the trading volume for their utility token, FCT or ‘Factoids’, took place on the popular cryptocurrency exchange, Poloniex. This is unfortunate, because it was recently announced by the exchange that they would be ‘spinning-out’ from Boston based, Circle, and that this would see the company cease offering its services for U.S. based clients. This move had a greater effect on FCT than most, as the token is listed on very few exchanges.
While this news was definitely not positive in nature, Factom remains a very interesting, and potential laden company, – as made evident through their continued relationships with government entities such as DHS, large grant programs, and now a, soon-to-be, U.K. based bank.
Operating out of London, Knabu is a blockchain company which was founded in 2017. Above all, the team at Knabu is working to develop services to help ‘bank the unbanked’.
CEO, Gabrielle Patrick, currently oversees company operations.
Founded in 2014, Factom is a ‘blockchain innovations’ company, which maintains operations in Austin, Texas. Since their inception, Factom has managed to establish themselves as an industry fixture. This has been achieved through various impressive achievements over the years, which include partnerships with, not only government entities, but large private companies. Their efforts have also resulted in them being the recipients of high-profile grants, such as that from the Bill and Melinda Gates Foundation.
CEO, Paul Snow, currently oversees company operations.
Based in Palo Alto, California, IdentityMind was founded in 2013. Above all, the company works towards developing, and providing, services aimed towards the prevention of fraud and nefarious activity.
CEO, Garrett Gafke, currently oversees company operations.