When security tokens first appeared on the cryptocurrency industry scene ca. 2017, a number of analysts were quick to identify them as the long-awaited “bridge” between crypto and mainstream finance; a perfect marriage between DLT and traditional fundraising methods; the key to widespread adoption.
However, two years later, the STO space is still in the development phase--a growing numbers of companies and projects have been formed to tokenize everything from startups to fine art to real estate, but none of them has yet been picked up as the de-facto system in any industry outside of the cryptocurrency ecosystem.
After all, there are still a number of regulatory nuts and bolts that need to be put in place, and technology that needs to be finalized; entrepreneurs, end-users, and investors alike still need to be educated about what security tokens are and how the security token ecosystem works.
One of the individuals working to educate new markets about STOs and how to grow the STO ecosystem as a whole is Roel Wolfert. Wolfert is the founder of CryptoDelta, a foundation that works to connect traditional finance with the digital asset industry, and the co-founder of Liqwith, a firm that tokenizes shares in companies. Wolfert is also Chief Marketing and Sales Officer at Qoin, Managing Partner at VMLeaders, co-founder of Whirl, and was the Senior Vice President of Consulting & Analytics services at Visa Europe from 2011-2014.
Finance Magnates spoke with Wolfert about the future of the security token space, entrepreneurs’ ethical responsibilities to the cryptocurrency ecosystem, and the opportunities that STOs provide to companies of all sizes.
Who is primarily interested in holding STOs?
Wolfert’s primary dealings in the Security Token so far space have been through Liqwith.
“We are focusing on two target groups: entrepreneurs that want to tokenize their business to increase shareholding and raise capital rather than take out a bank loan to grow their business. In that zone, we tend to look at established companies with revenue streams--those can be relatively small, versus mature companies that have millions in revenue.”
The companies are the kind that “prefer to work with a lot of smaller shareholders, because for example [they] make a social impact, and [they] want to have a [kind of] ‘crowdfunding’ identity,” Wolfert explained.
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“The other target is to look at other capital markets and stocks that are relatively ill-liquid--their stuff is difficult to sell or otherwise difficult to participate in, with high barriers of entry.” This could include things like commercial real-estate and green energy funds.
STOs promote an atmosphere of accountability in entrepreneurs
Wolfert explained that a lot of the work that Liqwith does with its clients is to educate them about the responsibilities associated with holding an STO--namely, accountability to and open communication with investors. It’s a bit like holding a small-scale IPO: “there’s a lot of obligation,” he said. “There’s no easy money--you can’t just disappear anymore.”
And as such, while Liqwith doesn’t have a specific set of criteria for the companies that it chooses to work with, “we do some selection...if we don’t feel good about an entrepreneur, then we don’t want to expose them [to the world.]”
Liqwith also asks that each prospective company provide a third-party value evaluation. “It’s not always easy,” Wolfert said. “Entrepreneurs are successful businessmen because they’re a little bit stubborn”; a third-party may say that a business is worth $5 million when the entrepreneur believes it is worth $10 million.
Typically, though, “the technology is not where the problem is. The problem is making sure that people understand what their responsibilities are, what they should be doing--and also to make them aware of the huge opportunities [that holding an STO presents]: to get rid of debt from your balance sheet and to add equity, to increase your credit rating, to become liquid as a company.” Becoming tradable immediately raises a company’s value.
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Additionally, “because you do the marketing to promote your business--that is a huge opportunity,” Wolfert explained. “The marketing funds you can use on all sorts of things--you can use them to raise [the amount of capital earned] in crowdfunding; it’s also loyalty to your customers if you are in, [for example,] the retail industry.”
“So, there’s huge potential in STOs,” he continued. “Rather than [simply] getting some quick money in to grow your business--it’s a marketing opportunity, it’s a communications and loyalty opportunity, as well as a great financial construct to clean up [your company’s] balance sheet and take control of your growth.”
The regulatory structure for STOs can improve, but in many jurisdictions, “the basic infrastructure is there”
“I think they haven’t reached their full potential yet, definitely,” Wolfert said. For starters, “There is very limited secondary market trading--so, from a tradability or an exchangeability aspect, I think there’s a lot to be gained.”
Additionally, regulatory standards need to be established and put into practice. “International regulation from the EU [makes it] pretty clear how to deal with it,” he said, “but then you still have people from the US buying security tokens from European companies in Europe--how will that be sorted out with the SEC, and that sort of thing?”
“There are a lot of problems to be solved--or opportunities to be taken, so to speak,” Wolfert continued. “So, we’re not there yet, definitely. We need to get more clarity about how much you can raise, what the conditions are in which you can raise...the amount of money for retail investors versus business investors, or commercial and professional investors.”
Despite these areas of necessary improvement, Wolfert said that “the basic infrastructure--at least, in a number of countries--is there.”
“If you’re an entrepreneur in Belgium, do it in Belgium under Belgian law, and force your own country in the right direction. If you’re French, do it in France.”
But even if the basic infrastructure isn’t there, Wolfert said that it’s more important for entrepreneurs to work to improve the regulatory structures of their home countries than it is for them to attempt to skirt regulations by incorporating their companies offshore.
“If you’re an entrepreneur in Belgium, do it in Belgium under Belgian law, and force your own country in the right direction. If you’re French, do it in France.”
“As an entrepreneur, I have customers and I develop in certain markets,” Wolfert said. “So why would I do my investments in a different market, and not take the responsibility to develop the ecosystem, including regulation in the country where I am based--my home market?,” he asked.
The easier way is generally not the right way.”
“I know that there’s a moral dilemma--because, yeah, you can get a tax discount [somewhere else], and it’s easier there because somebody else has done the work for you, and you can maybe grow your business [more quickly] or ‘get the money in’ faster and easier.”
However, “I’ve learned one thing in my life,” Wolfert said. “The easier way is generally not the right way. The harder it gets, the more rewarding it is.” Wolfert explained that this was part of the motivation behind his decision to found CryptoDelta: “to build the ecosystem for equity and security tokens in the Netherlands, where we can work together as an industry...to work on technology standards, regulation, lobbying,” and the ecosystem more generally.
Wolfert added that when an entrepreneur works in their own market, “no matter how difficult that is, you at least help create [a better] system. Because when the whole world starts to move, then we have to [have it.] We can create a level playing field.”
“This is the dreamer in me,” Wolfert added. “I understand [as an] economist the principles of low-cost labor, lower taxation, and the competition between countries to get the business in.”
“But at the same time: why should we compete as countries? Ask yourself that question--it’s because we want to be better-equipped than anybody else. Now, personally--I would see that everything is equal. Of course, that’s not easy because of geographical position, all those sorts of things--but, as an entrepreneur, I have a choice.”
“So, I [give this] moral appeal to entrepreneurs and people in this business to develop their own countries. At the same time, I’m not saying that you shouldn’t move into another legal jurisdiction--but please, even if you do, keep developing your own market and your own ecosystem within your own country, because it’s valuable for the whole of Europe and the whole of the world that all countries get moving.”
This was an excerpt. To hear the rest of Finance Magnates’ fascinating interview with Roel Wolfert, click the Soundcloud or Youtube links.
