Consensus 2019 – Six Takeaways On The Industry Woodstock

Opinion | June 4, 2019 By:

More than 8000 people and companies visited Consensus this year, which puts the New York crypto-Mecca far ahead of all other industry gatherings. It feels awesome to belong to an elite club where you get to casually rub shoulders with blockchain royalty. Take it from me, it does feel nice. However, the value of the event to a particular person or company strongly depends on whether you managed to draw inspiration from it or make some business deals/connections.

After all, the whole landscape of crypto is changing; the space is no longer about the get-rich-quick schemes. We are seeing a more mature industry of technologists, finance specialists and legitimate businesses creating blockchain-based real economy solutions. And the slight decline in visitors this year could be construed as a compelling call to action: we had our fun, now let’s get to work.

In the future, security tokens SHOULD be issued on public blockchains

This was a popular topic of discussion on the margins of Consensus, and in my opinion, the case for public chains remains strong. The power of the open source in terms of getting lots of people to build on top of it is more formidable today than ever as a result of the ERC20-driven ICO boom of 2017. And, what Ethereum gave us a few years back (an interoperability standard, wallets to custody new assets, etc.), Stellar, another public chain, is doing today much faster, and more efficiently.

If we must start over, we have to start from scratch

Today we have to rely on laws and regulations that have primarily been written in the early 30s and amended in the late 50s of the last century. It’s becoming more apparent that such age-old institutions as custodianship, transfer agents, and a host of others must at some point become a thing of the distant past, at least for some retail investors. That said, institutions will continue to need custodial solutions from the fiduciary standpoint – that’s not going to go away any time soon. But we will start seeing the parallel system we are building collapse some of the existing layers creating, for example, the legal and technological background for self-custodianship, advanced trading, additional layers of liquidity, and streamlining other features of the tokenized securities space.

At any rate, the traditional roles of custodians and transfer agents are going to evolve, and their functions are going to be performed by compliant platforms like Smartlands and others who are going to be tasked, among other things, with keeping track of the cap table and various other functions creating a more efficient version of the current system.

For the security token industry to scale, there must be “cancel” and “reissue/recovery of private keys” solutions

We’ve learned to appreciate the immutability aspect of bitcoin, but regulated securities are a completely different case. Whether the compliance platforms will perform the reissue of private keys or whether they’re going to want to outsource that service to a third party (Sagewise), some form of key recovery is a must. The problem with that, however, is that a key recovery mechanism is a backdoor for hackers, so the execution needs to be done very carefully.

There’s no such thing as stifling innovation by stiffening regulation

Yes, the brain drain is a real thing: the stiffer regulations become, the more projects move to jurisdictions that allow them to keep their wings spread wide (I’m not necessarily talking about the crypto industry, the causality is the same with any overly regulated line of business). Although, in most cases, regulators will meet entrepreneurs in the middle and keep the enforcement actions targeted without any industry-wide binding proclamations. In any case, the industry will continue to develop rapidly.

We must find ways to generate liquidity. Soon.

On April 16, Smartlands participated in Investor Property Show in London. The picture we saw was clear: in our opinion asset tokenization is the wave of the future and whatever asset managers, owners, and investors know and think of it today, in a year tokenizing an asset will be something as trivial as creating an e-trade account in 1998.

However, generating liquidity in such traditionally illiquid asset classes as real estate is an urgent issue. A lot of the traditional real estate investors are not yet comfortable with the involvement of crypto, platforms’ digital wallets, and other functions designed, ironically, to help investors navigate the world of tokenized securities. We must soon find a way for them to not only buy securities online in a compliant, but straightforward manner but to trade them on secondary markets with an equally positive user experience.

Smartlands Platform Ltd is an appointed representative (FRN: 841597) of Shojin Financial Services Limited which is authorized and regulated by the Financial Conduct Authority (FRN: 716765) (see for more information).