Regulations, compliance, and the evolving security token market are just a few of the things we discussed recently with Luc Falempin, CEO of Tokeny, a leading issuance platform in Europe.
• KYC and compliance need to apply at each stage, pre-, and post-issuance, and there are a lot of regulations to follow. Thankfully, they can now all be automated on the blockchain.
• Security Token Offering (STO) rules, such as the maximum number of investors, investors by country and authorized countries, along with rules for investors such as Know Your Customer (KYC) clearance, credit checks, and more, can all be coded on the blockchain.
• Partnerships with law firms can help create issuance offers with both the compliance and technology aspects included.
• With the compliance directly embedded in a token, it can function worldwide, because the infrastructure is global.
How does Tokeny stand out in the market?
Luc Falempin: We’ve been doing token sales for almost two years, we did a lot of ICOs previously, but with the initial vision of doing STOs. We know how to onboard investors, we know how to scale our platform and how to secure it. We did something like 19 token sales so far. There are a lot of interesting projects on the market but only a few of them are live, and Tokeny is one of them.
If I’m doing an STO, what can I expect from Tokeny post issuance?
It’s really after the issuance the compliance needs to be applied automatically because security tokens are supposed to bring liquidity and transferability. Each time you onboard a new investor, each time there is a transfer, KYC and compliance needs to apply and there are lots of regulations to follow. And it can all be automated thanks to the blockchain. So, it’s really post-issuance that the issuers will benefit from tokenization.
Is there a certain jurisdiction you’re more comfortable working in, considering the legal aspects?
We don’t provide legal advice but we do enforce compliance. So, we don’t make the rules but when the issuer gives us the rules, we enforce them, during and after the issuance. We can work in any country where securities laws are well defined. We can manage rules for the whole offering, for example, the maximum number of investors, investors by country, authorized countries etc., as well as rules for investors – some of them need to by KYC checked, credit checked etc. All of these rules can be directly coded in our validator, which is mostly on the blockchain.
You’re a technology provider, but did you have to move outside the tech aspect to build the platform?
We are a compliant platform so, of course, we need to know how it works, in order to code the rules. And from one issuance to another, we get expertise and we know how to develop our product. Now we also have some interesting partnerships with law firms to create an offer of issuance with the compliance and tech parts in a single offer.
Do you have a target customer? What kind of things are you tokenizing?
We are mostly focusing on private markets, private equity. It’s very interesting for companies too small to go public and look for other ways to get funding. We don’t think small startups would be that interested in doing STOs – when you tokenize an asset, you tokenize value, and by definition, with a startup, it’s difficult to define the value. We also work with real estate, commodities, any kind of debt financial instruments. We can basically tokenize anything.
What’s your view on liquidity?
Liquidity will come. What we do at Tokeny is not bringing liquidity to the issuer but bringing transferability, which in turn will allow liquidity – If you cannot transfer your share in a compliant way onto blockchain, nothing will work. Right now, in private market, if you want to sell shares, you need to have a lawyer, the other party needs a lawyer, you need to find each other, sometimes you need a notary – so a lot of paperwork and players are involved.
What we do is tokenize these assets so they can circulate on the blockchain easily. And the compliance is directly embedded in the token, so this compliance can be worldwide because the infrastructure is worldwide. So, the transferability will bring liquidity, because a marketplace for security tokens will emerge – exchanges, peer to peer trading etc. And we already see the first signs of liquidity, but it will take more time.
What are the STO red flags investors should be looking out for?
The normal key principles of any investment apply. We think distributors and financial advisors will remain very important in the value chain. Of course, thanks to the blockchain, selling of securities can be more direct, but asset managers and advisors still have an important role to play. I guess because we automate the subscription in the securities, it could make some investors a bit lazy and not pay attention to all the disclaimers, but hopefully the issuers will be more transparent, will explain more to the community around their product. Still, investors have to manage their risk and have their own opinion formed whether something is an interesting investment or not.
What predictions do you have for the industry for the coming months?
It will evolve very fast, it already is. We can see big financial institutions interested in tokenization, they are looking for the right approach to it. In the coming years all banks, all investment managers, will start to use digital assets. We will see how fast, but we will see it for sure. It will start from the private market and then change the value chain.
As Tokeny we bring compliance and seamless access to the blockchain. When you use our solutions you barely see that it’s blockchain, because as an investor or an issuer, you don’t care if it’s blockchain, you just want the benefit of it. Our role is to make it easy to use.
How do you see STOs financing developing?
For the moment fiat payments are used and we have many ways to do them. And hopefully soon investors and issuers will start using stablecoins, they would be the best way to make payments during subscriptions and after issuance, when paying dividends for example. In the US there are many stablecoin initiatives already, in Europe not so much for the moment, we are still waiting for the big players to launch their stablecoins.
Listen to the full interview with Luc Falempin on Security Token Podcast