Light on buzz, heavy on substance, free of ICO pitches and more dedicated to learning and conversation than to selling and raising — the Security Token Summit in New York this past Monday was a unique event in the realm of Blockchain. Most importantly, the organizers at Security Token Academymanaged to bring together a focused group of individuals dedicated to tackling some of blockchain’s — and the US securities industry’s — most pressing challenges: compliance, liquidity and accessibility of financial markets.
Our team was delighted to attend and spend the day with leaders of the tokenized securities world: Wall Street veterans like David Weild, former Vice Chairman of Nasdaq, regulation experts like Troy A. Paredes, former SEC Commissioner and experienced groundbreakers like Aubrey Chernick, owner and CEO of Security Token Academy. They were joined by blockchain professionals representing some of the industry’s leading names — Harbor, Polymath, tZERO, AlphaPoint and Templum among them — as well as broker dealers, exchanges, hedge funds and many others. Altogether, more than a hundred experts, practitioners and innovators who convened to discuss what blockchain, and tokenized securities as one of its most promising features, can do to enhance our economy.
The need is immense, as Weild stressed in his keynote address. Access to capital in existing financial markets is too limited, particularly for small IPOs and new businesses. The result is that the number of publicly listed companies today is smaller than it was in 1975, despite consistent growth in GDP terms. The opportunity cost for the American economy is enormous.
That’s exactly where Security Token Offerings, a form of initial coin offeringsthat strives to be compliant with regulatory requirements, can make a difference (check out Tatiana Koffman’s great Official Guide to the Security Token Ecosystem for some orientation). Weild pointed out the prime advantage of Security Tokens — they’re a more efficient way of issuing and trading securities, that can in turn increase accessibility to capital and drive innovation and growth. At the same time, in a reality where crypto is still synonymous with “shady” and ICOs are under increasing scrutiny (many having been deemed fraudulent or problematic) the industry has a long way to go and many technical, educational, legal and regulatory challenges ahead.
Those are exactly the challenges Monday’s Summit set to address. Throughout the day, the panelists and participants shared their knowledge, experience and analysis to push the conversation, and the industry, forward. All of those discussions and ideas are available on the Security Token Academy’s website. Below, is our main takeaway.
We, as an industry, need to move forward from the game of “chicken or the egg” played between blockchain innovators and regulators. At the moment, innovators are asking for regulatory clarity and guidelines. Regulators, on the other hand, are “underwhelmed” by the industry’s effort to self-regulate, report and do due diligence.
There is, however, a path down the middle and it requires that both sides work together. As former SEC chairman Paredes said in a panel on legal and compliance challenges — regulation takes time and iterations to develop. Innovators can’t expect perfectly clear and matured blockchain-specific regulation to just drop in full form one of these days. They should work towards compliance within the existing conditions.
That being said, regulators can also provide more clarity within the existing framework by better explaining how current regulation applies to security tokens, and potentially making small tweaks where possible. Even a simple list of just a few actions innovators in the field can do to come closer with compliance, can go a long way.
At Solidus, we believe one such step is instituting strong market surveillance standards for crypto-based financial services. Systems that would detect and help prevent manipulation and fraud, and allow cracking down on malicious activity. Establishing surveillance can provide investors, innovators and regulators alike more confidence. Just as importantly, it can happen now — without having to wait for evolved regulatory requirements.
Whatever the roll you play in this ecosystem, we can all be proud for being here at this point. Chernick, who founded a software company — Candle Corporation — in the 1970’s in Manitoba, Canada, knows a thing or two about being a tech pioneer. In a fireside chat early in the day, he opined that few things are more exciting than being involved in an industry at the stage blockchain is in right now. That moment when it’s already clear how big the promise is but as the initial buzz is phasing out, it is just as clear how complex the challenges to fulfilling that promise are. “The moment a new technology industry encounters hurdles, that’s the most exciting time to join in,” he said, sending us off to get the work done.