EXCLUSIVE by Kepler Finance: Q&A with Gene Deyev, CEO at STOBox Platform
Kepler Finance talked with CEO at STOBox about the establishment of security token offerings market and the challenges STOBox team is facing in the security tokens ecosystem.
Tell us about STOBox. What is your main expertise?
STOBox is a full-service provider for issuing digital assets or security tokens. Our services are concentrated at the STOBox Platform — private blockchain-based placement for issuing, managing and secondary trading of tokenized assets.
I have experience in different industries. I’ve started my career as stock market trader focusing on US securities market. We’ve managed a small trading/brokerage company in Brooklyn. Professionally I came across IT when we started to implement algorithmic trading. However, with the financial crisis in 2008–2009 we had to sell the company. After an intensive trading experience, I’ve decided to focus on automotive industry and purchased a stake at car dealerships, which later became playground for automotive startups. Since then I am following global technical progress and focus on innovations. Last year, with the upraise of crypto and blockchain sectors, it’s became clear to me that the next big thing would be around securities on blockchain. Moreover, in this field I can use both of my professional competences: securities trading and technology development. There could not be better fit for me. Since last year we helped series of ICOs as consultants which gave us a start in this industry. Today, we focus mainly on the development of STOBox Platform and play an active role in the development of the Security Tokens ecosystem.
What is the most frequent question that the issuers approach you with?
Most of them seek funding. STO for them is just a trendy tool that may have more downsides than upsides if you cannot properly manage it. We are building a compliant trustworthy platform and the last thing I want to accept is projects that are here just to raise funds. Some ask us to seek for funding, which is hilarious. Most of these people do not understand that selling or promoting third-party securities is a subject to regulation where responsibility and transparency are two key words if you want to survive in this market. Nevertheless, there are reasonable questions from first adopters. Most of them are startups, even though I believe startups are not the only fit for tokenization services by STOBox.
What do you think about capital formation? What should happen to bring investors into the space?
Any investor wants the same — their investments must be protected and generate revenues. Traditional instruments provide them a certain level of confidence with low risks. Some investors want to increase reward making risky investments, for example in Security Token Offerings. But we are talking about business-related risks, not outright fraud from crypto-world. So what should happen to bring investors into the space? The totally legal projects must come to the space — business with legal infrastructure, real products, paying dividends all the investors, and to honor all the commitments. This leads to capital formation.
There is a proliferation of security token “standards” out there. Why do you think there are so many? Does the industry need one standard for all marketplaces and exchanges to scale?
A newly emerged Security Token market is in the process of defining itself. That’s why some new terms like Digital Security Offerings, Digital Assets Offering are being coined every day. This is quite typical of а new industry. There is no unambiguous and structured legal framework in place, there are no global players, and market infrastructure is only being developed. That’s why it’s not important what to call it. What’s more important is what do we mean by security tokens. ST’s are digitally smart compliant and regulated asset-backed securities. They are convertible and mostly blockchain-based. Standards will appear along with the global legal framework. But I don’t think it’s feasible right now in our decentralized world.
Do you think the future of security tokens is going to exist on public or private blockchains?
We believe that enterprise solutions will be built on private blockchains. When we are talking about tokenization of any established business, where is the real value behind, we have reasonable doubts that public blockchain could be the best fit. Private blockchains provide legal relationship and any technical issues could be solved in a legal framework. Despite data in public blockchains is cryptographically protected, we see that it can become publicly apparent. In the case of STOBox Platform we use private blockchain, but there is an option to export tokens to public blockchain. But all data about tokens and investors will be saved in private blockchain.
According to the STOBox’s Prospectus, the team believes in the emergence of global legislation — the same for all countries. How do you think it is going to happen? The history teaches us that it is extremely hard for global powers to agree on something.
It’s hard to debate with history, but it’s rather a question of conception, nor agreements. It doesn’t prevent this ideal goal from existing. If we want to move somewhere, we need to understand the final destination. We set this destination as a global legal framework and we are ready to support the development of such with our knowledge and competence. However, the difficulty and time consumption of such transformation is beyond our control. It mostly depends on the government’s acceptance and market adoption, which is a long process.
Is there any aspect of the security tokens space that you think has not been adequately addressed yet?
The are two main constraints: legal framework and low liquidity. As for legislation, there have been some attempts to make provisions in the current legislation for a new asset class. However, it doesn’t look like there’s been a lot of innovation considering the fact that blockchain technology use is regulated by the Securities Act of 1933. That is not to say that we need а completely new legal framework. The point is to get rid of the limitations set by outdated legislation.
Another constraint deals with the lack of liquidity. Daily trading volume of security tokens is rather low. There are only three fully compliant security token exchanges: tZero, Templum, Open Finance Network. tZero has the sole listed asset, its own token TZROP (which dropped by more than 50% since the launch). Templum has three recent announcements, among which is the migration of St. Regis Aspen Resort after fundraising. OpenFinance Network is actively working and trading and is planning to add some new tokens in February. Let’s have a look at the data on other markets. Nasdaq has 100+ Bln USD, London stock exchange — 5+ Bln, Frankfurt — 4+ Bln, and the volume of the whole crypto-market is estimated at nearly 20 billion. It is a good reference point for security token market.
Tell us about the plans and goals of STO Box for 2019.
We have current plans to launch the platform and provide onboarding to first projects. We are not just issuer, that’s why our aim is to help business get on STO track and have successful fundraising.
Globally, we look outside our project, analyzing related industries and develop collaborations with open-minded projects. Our goal is to create the whole industry ecosystem and provide turn-key solutions and market frameworks. That’s how we can strengthen the industry of security tokens by our own powers.