STO: Telegram AMA with InvestaCrowd

Julian Kwan STO

Julian Kwan, CEO at InvestaCrowd, joined yesterday a 45-minute live AMA (ask-me-anything) in STONetwork’s Telegram group to discuss the latest trend and development of Security Token Offering (STO).

Here are some of the questions asked in the AMA section.

Q: It is a general belief that STO/ DSO creates huge potential for the real estate market. Can you please explain in more details why should these projects launch their fundraising campaigns through STO/DSO rather than traditional ways?

Julian: It depends on which project, not every real estate project belongs in STO land, meaning we believe STO is purposely built for larger investment projects where a minority interest of debt/ equity is tokenized and sold, and a high quality reputable real estate company manages the project.

They should use STO if they want to offer their investors some liquidity optionality which is typically not available with traditional real estate investments.

STO for us is a digital share vs a paper share, everything else remains the same, the quality of the underlying real estate is the most important component for investors.

When we get to STO 2.0 (a bit further down the track) , we will start to see many more offering types other than the traditional debt and equity and this will bring many more reasons to issue an STO, as the STO is a programmable contract and can bring more value to investors and real estate companies.

Today they can take their holding company structure/vehicle and create a digital share representing the same rights etc, as the “paper shareholding”.

Q: Do you see any advantages for projects to issue STO/DSO in Singapore vs America?

Julian: It depends on the structure of the offering and what the issuer is looking to do. If a USA project is looking for global capital and they have constraints on the number of American investors they can have, it might make the most sense to seek foreign capital.

At the moment it is also about regulatory concerns. But our position is that we don’t need to laws we already have them. The most important part about your question might be based on are Singapore or Americans more likely to invest in an STO.

Q: Do you have some good STO examples to share with us? Either being successful cases or ongoing projects? Would also love to know if it would be easier to structure the company in Singapore for STOs.

Julian: Yes, we looked at 100+ STOs around the world last year. And we finally found one that we are willing to stand behind and raise capital for. We are the Asian distribution partners for Muirfields EVER STO.

Q: Where do you think the biggest opportunity for real estate STOs are? In terms of geography or type of asset.

Julian: An STO, backed by USA private equity real estate with a team of experienced real estate professionals who spent 18 months working out how to issue the STO.

I think this is now global. the most important aspect of any STO is the quality of the security underlying, so the biggest opportunities we see are actually in Hong Kong and Singapore with high-quality real estate.

There are many more buildings than new investment projects and once we start to see building owners tokenizing stakes in their assets and willing to pay a premium for some liquidity, we will see a whole new world of investment products hit the market.

Q: I wonder what are the major reasons that projects are interested in doing STO at this moment. As we don’t see a lot of real liquidity options available for STO tokens, save for like tZero and OpenFinance which can hardly claim to be mature, can you explain what other advantages does STO bring?

Julian: Everyone is focused on limited liquidity today. No one seems to want to add “quality of asset or price” to the conversations about liquidity. We need time to build up the product and liquidity, and what is also missing is the fact investors will be able to trade their STO on P2P or OTC platforms with or without “STO exchanges”.

There are many benefits, one important benefit is that typical fixed life PE RE funds mean that the fund is forced to liquidate at a certain time (even if it means investors might lose their capital) this happened for investors in funds in 2004, 2005 when in 2009, 2010, they were forced out of their positions. Fixed life for any investment vehicle was previously needed because we had no other options.

Q: What are your thoughts on the application of Security Tokens in traditional finance, beyond crowdfunding?

Julian: Now if investors can have some liquidity optionality (with STO), the issuers do not need to put a fixed timeline on the investment and can manage it in a more long term (not short term) view which will bring better returns for the investment.

Crowdfunding is just a form of capital raising, we are speaking with private banks and some investors looking to invest $25M USD in once check, so STO will become the standard of all security offerings.

Right now we are in a 1 step phase where if an STO was to be traded, the issuer needs to reconcile the ownership “at the paper level” i.e with the cayman regulator or BVI etc, but soon the governments where investment vehicles are set up will issue the new company or new fund 100% digitally through an STO per say. If it exists today in traditional paper form, it will exist tomorrow as an STO.

Q: What do you expect the regulation environment, esp in Singapore, to look like in the coming few years? When do you expect the market to be real mature?

Julian: Singapore wants to own the blockchain space and making extremely positive moves to attract the right types of businesses and people. They are also forward thinking in assessing what may or may not need to change in relation to blockchain etc, we are very excited by what we are seeing in the market here.

Q: As STOs are actually like traditional financial assets, what exemptions or special arrangements would you expect Singapore regulatory bodies to apply on these digital assets?

Julian: STO to us is simply a digital share vs a paper share, the area that needs the most attention would be in relation to secondary trading as important elements like tax treatment need to be defined.

Q: How does the Singapore market respond to this new STO idea? In both projects and investors perspective. As the project you’ve picked is from US, are there actually also good projects in Singapore that are interested in STO?

Julian: Yes there are, we have many real estate companies (some listed) working with us to “tokenize” parts of their portfolios. Singapore MAS has even proposed 2 new types of exchange licenses to welcome STO trading, probably the most progressive govt on the planet at the moment although we know Switzerland and other areas are making positive moves also.

This is a global movement and what’s needed most now is for investors to support good projects and for more companies like ours to continue to build out key infrastructure required for the tokenized future of all securities.

Q: You guys probably rolling out STOs on Ethereum right? I heard from my junior that Ethereum will have a hard fork and split into 2 chains in the future (which is likely to happen particularly when Ethereum migrates from PoW to pure PoS), which chain’s tokens represent the true ownership of the underlying asset?

Julian: Good points, the USA PE project is issuing themselves as an ERC-20 token, my position is it doesn’t matter what protocol is used for STO, what issuers care about is investors and licenses to ensure the raise is legitimate. we are also seeing STO being issued on private blockchains IBM, Corda etc.

There is much to debate here we should take this discussion over a coffee someday, it is hard to give a solid response without a 10-15 min conversation about all the possibilities and factors to consider here.

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