EthCC 2: Frank Brinkkemper

all right good afternoon everybody my name is Franklin Kemper and I'm from Dutch software company called toka cos were a company of about a thousand people mostly software developers and we are creating software for the for for example in the finance industry we have tokens finance which has about 400 of the thousand employees and we make software for large banks and large financing industries also hello to all my colleagues and Dave during the livestream shadows so at our company we did a we did a successful SEO within among employees with real euros and we transformed it to an illegal sto and in this talk will I'll talk about this process about our the journey we've made so first a little bit about the goal of our company it's to we want to Democrat eyes the finance world and I think there's also a goal of the whole decentralized finance movement that's happening here in Paris and to give an example of what we do we have a we have democratized money through a crowdfunded mortgage it's a mortgage that every Dutch people a person can really apply for now it's called Hugo if you want to know more about that go to young Godot NL it's in Dutch sadly but it's really awesome so for the vision of our ICL we wanted to decentralize least funding so we there's a start-up within tokus it's called lee steel and we wanted to give the startup some capital so that they could fund lease assets and we wanted to democratize the funding so that's the Fen goes directly from the investor to the leased assets so there's some advantages to this because yeah we see the advantage that you democratize the funding you create a standard token for the ol lease market and you create tokens with real underlying value and especially at the moment that we started this there weren't many tokens that had underlying value but there's also a disadvantage that it's quite a big leap from the current state of the art in the lease market so explaining this to people was already difficult but yeah so so we thought let's take baby steps let's try to create a fair token for users and for for investors so a fair system but also let's create it so that it really has underlying value and our journey consists of three three phases the first phase was yeah the face before the ico that where we were brainstorming about how we should do this and then we launched the ICO in June last year and in December of last year we launched the SEO so the first concept how did it work investors invest in asset classes so we on the slides here I will show three asset classes and the the lease company lease deal they trade the euros for tokens and they transfer the euros and to assets so for example let's take the last one a hospital bed foreign hospital so the idea was that you have different asset classes that you can invest in so one asset class could have a totally different value than in then another because the hospital has a different profile than for example a bar or hotel or a farm so this was the first concept and we were pretty excited excited about it and we were thinking about the toe connect economics of this prototype and we came up with this so for example in the case of the hospital or the bar I see we use a bar Harkin there's a variable a variable monthly income from the lessees it's variable because there might be defaults if there are no defaults then it's just a fixed amount of income and the income goes in the asset class smart contract and from that smart contract it goes into the noses touch X we were inspired last year at CC by by their mechanism so we thought hey let's integrate with them and then investors have about 24 hours every month to return tokens and then the the notice - X mechanism finds the price and it executes and then the euros go back to the investors and the tokens are burned that we bought back however we we changed it up a little bit the reason was that at the internal I see the internal I see oh we only wanted to raise one hundred thousand euros and if you want to raise one hundred thousand euros and you want to spread that among different asset classes then you get really tiny market caps for each as class so we decided that there would be just one single least front and that least funds would decide which asses to buy and it wouldn't matter anymore if it would just be for example one hundred hospital beds so yeah it wouldn't matter anymore in which assets the funding would would go and we also changed up the investing concept we really like the Dutch X mechanism but the problem with it is it's really hard to explain to regular investors and even harder to explain to people who don't regularly invest and the people the the employees at Dobis don't are earned all active investors but we want it all them all to be involved in the projects so we change it up and we we made it to a more as something more familiar oh yeah and so we also changed the least fund at the asset class to least funds but also the mechanism we changed it to a buyback smart contract and in the buyback smart contract the price is known at every for every month and it's made through an annuity function and we just modeled the alone annuity function in a smart contract it's a really straightforward function most mortgages work with annuity is that you pay a lot of interest in the first month and in the last month of the loan you play you pay only a little bit and we also changed it up from 24 hours to a whole month that's the investor could could put back tokens because now it's just every month the price changes a little bit it rises a little bit and yeah but here still there's a variable amount of income from the lessees because we still models defaults in the smart contract so whenever there will be defaults there would be less euros available in the smart contracts for that month too I bagged tokens with so with this version we launched our ICO and we successfully got 100,000 euros from our employees we used a payment service provider called Molly to get the get the money and that's where the fun part began because in the description of the payments we put up the three letters that we that weren't very smart namely I see oh and then we were called by Molly what are you doing and we said we're doing an ICO and they said is that regulated by the Dutch financial authorities and we said well we don't need to because we're below the five million mark and below five million you don't need to be regulated and they said well we want to hear hear that from the Dutch financial authorities so we were like alright that's fine let's let's go there and we went to the French authorities and in the talks with them they they had a problem that they couldn't fit our our system into their legal frameworks so they have a legal framework for a bond they have a legal framework for a share a legal framework for crowd funding and we were a combination of those three things and that's legal in the Netherlands so we we must stop it they said and then we were like hell wait we don't want to stop this this is this is in our opinion the future so what can we do to to mitigate what can we do to fit in one of these frameworks so we decided based on our concept that we want to be a bond so we wanted to fit in the bond frame legal framework so what what did we need to do we need as a bar for a bond the investors shouldn't have any risk based on which asset classes you choose for a lease company so instead of investing in purely the least funds you invested it you invest in a full lease company and the lease company can just decide themselves in which asset classes they they go and the Dutch financial authorities were fine with this because now the least come you're investing in the least company and the least company decides the assets and because the lease company decides instead of the funds yeah you're a bond but it also meant that the the buyback mechanism couldn't rely on the defaults anymore so right now there's a fixed monthly income from the lessees if the cash flow allows so the the risk is not any more the risk for the investor is not whether a single whatever single hospital for example doesn't pay back their loan interests the risk for the investor is whether the lease company is solvable or not so the the risk profile change changed from a single asset to to the whole company and then again the Dutch financial authorities were fine with this mechanism yep so lease company so what did we learn in this process well actually that security token offerings have real added value and how exactly yeah the in our opinion it's that the security token offer offers of to decentralized but they're decentralized but also you automate part of the processes from from doing an offering of a bond for example so the decentralization provides add value and the optimization but furthermore the the technical work we learned is the least time consuming the most time consuming is all the legal and regulatory work because you have to set up all these you have to gather all the information and you have to supply all the information to the Dutch financial authority and we also learned that this legal work is pretty hard to automate so for almost every every sto for example will need to to talk to the regulators and to hand over their documents so that they can regulate your SEO and I'm really curious into how we as a community can automate this process furthermore we believe that the final financial authorities need to form an opinion so that this gray area that's hanging above a ciose dissolves and get is either black or white you don't want to do something and that you later hear from the authorities that you're you were doing something legal we aren't trying to do something illegal we are trying to do something fair for investors and for users so we we want to show that to to people but we still want to not end up in jail but another lesson we learned is that we are now as a our bond really relies on the longevity of the platform of etherion and it's currently pretty hard to make a good like hard based on evidence arguments about whether aetherium will be here in ten years and for example a Nasdaq or the a a Dutch exchanges they they really have a lot in place to make sure that they don't just dissolve they have all these trusted third parties and you might think that as something bad but it's also there to to enable this longevity so in our opinion what are the next steps for the SEO market well first the standards need really need to be finalized and in my opinion they really need to be finalized on every local regulatory level so for every local regulation there needs to be someone who takes off that the standard is fine according to for example the bond bonds in the Netherlands but also bonds in Germany and every every financial authority needs to check the box it's also important to create interoperable backbones because for our sto only employees from our company could could join and there's a wide list on in the smart contract but it would be nice if you could trade for example our SEO for an other SEO if you're white listed in both but it's really important that the technology allows that and of course it's also important to educate educate market but stay realistic don't recite the the hype stories of 2017 really explain why decentralized decentralization is important and why it adds value and for us a topic is what we're doing in this space is where we're finding and partnering with with people in the space to really see how can we move this all forward furthermore we want to continue the conversation with the the legislators and financial authorities to maybe also innovate on their help them innovate on their part maybe help them innovate in the automation of the the clearings of scos and we want to integrate with existing software so why why do we need to build a whole new exchanges when there are perfectly fine working exchanges we want to integrate on those parts so that brings me to the end of my presentation and I want to end with this notes that in our opinion security token offerings are merely partially automated its public offerings thank you all for your for your attention are there any questions whoo yes thank you for your presentation and very simple question what is your goal for this project what you expect to have as the end of your project of your investigation sorry I didn't hear the Curie what's my role in the project what what's your goal what you expect to have as the result of this project yes so for us as topic is this was really to get to know the sto markers so that was our goal and right now the investors are actually making profit on on the the assets that that the least company has bought so for the investors it has already been profitable so we're fine on that part but we're still learning on [Music] yeah really the regulation side of things how can we automate there so our goal is to to for example enable smaller and medium enterprises to have an SEO so the the global goal is to lower costs of doing an IPO yes hi I'd like to ask thank you for your presentation my question is for the legal section how long did it take you to complete that gathering information process and engaging with that the regulatory authority how long did that process take yes well it started in June of last year and it ended in December last year so it was yeah what's that that's about six months but that's I have mostly to do with that you you set up meetings with the authorities and in our case it took about three weeks every time to talk with them and yeah you have to form an opinion or self so that's why it took so long and also we we didn't work full time on this project it was for a few people it was a part-time projects aside from their normal day-to-day job at Turkish I will take one last question so you talked about synchronizing the white lists of different sto tokens how do you imagine the exchange ability and trade ability of these tokens to work and do you have any problems with regulations regarding the trading of these securities well I think for example if if a standard would be made per per country then if you are KY seeds in for an SEO in the Netherlands for SEO egg eggs and you want to participate in Y then you're already ok where seed for X so you you should just be able to use it for SEO Y but if you want to invest in a German SEO as a Dutch person yeah there are different laws there so you would also need to to go through the KYC there or there should become some global framework for okay we see in every country and look at the similarities and the differences and make sure that the standard really complies to all but in my opinion it's quite difficult to do that so I heard that's the last question so I want to thank you all and see you next time [Applause]