Beyond Traditional Investments: Unpacking Security Token Potential and Overcoming the Hurdles | KBW

[Music] thank you everyone and thank you for joining me I'm actually was in South Africa last year and it was the best trip of my life with my family so I'm looking forward to go back to South Africa we're going to discuss today traditional Beyond traditional investment and Beyond traditional investment means security tokens for us and why what are the advantages and and also what are the challenges in the industry so as I said my name is is is introduced my name is tyer I joined INX nearly three years ago just when we started the our blockchain IPO which I'll tell you more together with me here today is Bob audum our VP of cap capital markets and David our director of growth what we are going to uh discuss today are a few things the world is changing no doubt this is a fact the question is if we all agree and we are all here so I guess we agree that the digitization of of of finance and the future of finance will be the next big thing that will happen and how much time it will take the the H this change to happen I'll give you a short introduction about INX a little bit about about our past present and future through our eyes where the industry is going we'll discuss tokenization use cases real life examples in action that we're already seeing in our platform and as a foreigner one of my I'll say the most familiar brand that I know in Korea is Samsung so I want to Envision together with you what if Samsung will take the tokenized path what does it mean and how it how it will look like the world is changing we said we agree let's look at few verticals the first one is music so we all know Spotify I'm using spotify quite heavily for my podcast and music and and Spotify was founded 2006 nearly 17 years ago the market cup or the market value of the music industry today is evaluated at $35 billion with a combined an annual growth of 15% this is in 17 years if we're looking at the Transport company I used kacao taxi for the first time yesterday amazing service I also know Ober and I'm using obber quite frequently the trans transport the transport industry is valued at 90 billion with a compound annual growth of nearly 177% and holiday who doesn't like holidays booking Expedia Airbnb 100 billion market cap with an annual growth of 14 14% all of those vertical grew in the past between 14 to 16 17 years now the question is how quickly the tokenization of us assets industry and organization of real world assets will grow and we believe that it will be much faster it's not only us who believe it would be much faster it's actually many many traditional institutions trade fire institution already saying that it will grow much faster they are Paving their way they are moving forward they are building the rails for tokenization of assets Boston Consulting Group just recently L projected the market to grow 50 times to a value of 16 trillion by 2030 so not not that far away this is a big big statement and they are not alone Larry thinkink the CEO of Black Rock one of the most reputable hedge funds in in the industry or in in finance said the Next Generation for markets will be tokenization of Securities all of them are saying it now now we said it 6 years ago 6 years ago Shai datika the founder of INX basically late 2017 said I like the way to raise Capital with a token but I want to do it in a regulated way so he went to the SEC and started a process with the SEC Securities Exchange Commission in the US it took Shai and a very small team around three years to get the first SEC registered security token they wrote we wrote INX wrote a full prospectus 470 pages long of an F1 prospector that is available online and where we detailed how we're going to raise capital from the public and and in the towards the end of uh 2020 August 20 actually we started our blockchain IPO or security token offering in next raised 84 sorry $84 million coming from 72 a little bit over 7200 different retail investors from 73 countries the token is on ethereum network and is listed for secondary Market available 247 for the general public on our ATS since then we were very busy in building the industry and and leading the industry immediately after immediately after our token raise we launched two platforms one for Securities and one for crypto we acquired the relevant and and and important licenses we are clear to operate in 46 states in the US for cryptocurrency we hold a broker dealer license in the US alternative trading system license in the US and a transfer agent license in the US during 2022 we launched the first version of INX one in X1 today is the only platform where you can trade cryptocurrency invest in security token secondary market and also raise Capital if you are an issuer and wants to raise Capital this is part of the services that we provide in 2023 we formed two very strong Partnerships the first one which is very relevant to what uh the panel here before me mentioned is for cbdc Central Bank digital currency so we partner and formed a joint venture with Sika a Swiss company that are I would say the expert in in physical cash cycle they print money Bank notes for 180 governments around the world and and we are building a CBT C solution together with them that is based on the blockchain which is relevant also for wholesale cbdc and Retail cbdc relevant for for developing countries as well as advanced economies and the essence behind it is how different countries protect their economic sovereignity and how they grow their overall GDP this is the objective and this is the solution that we are that we are building next week I'm going to be in uh in the cbdc annual conference in Instanbul and we'll share more details about this joint venture but today we are here to speak about oranization and an asset organization Securities generally speaking the second partnership that we announced just recently is with Republic some of you may know Republic a leading investment platform in the US and also outside the US Republic became an investor and hold a stake now in INX and we also work on a collaboration we are integrating the Republic wallet into our platform we are going to list the Republic note on our platform for secondary market and and we are building a a whole set of I would say distribution funnel between the Republic ecosystem and the INX INX ecosystem in the past six month or so we launched seven primary offerings coming from different verticals different industry with different different economics behind them seven primary offerings only in the past 6 months and also direct listings we recently announced a Casper lab list listing direct listing the Republic note that I just mentioned and other listings that are expected to happen by the end of the year and we'll add tens of thousands of new investors to the INX Community we've gained a lot of experience in the past three years after our after our our IPO and now we are doing it for others what we like to discuss is the is the breath of the solution and and that we can offer through a single point of entry one onboarding an investor in INX can can trade cryptocurrency can trade security tokens and also if you are an issuer you can run your Capital raise on our platform so we're basically providing an endtoend solution for all of those companies who wants to raise there are few use cases that we can only already mention the first one is equity and debt so basically unlike tokenized shares equity and debt use case is an equity form of a token or token in a form of equity that represent H dividend rights that represent maybe voting rights that maybe represent eeld rights and when we are think talking about debt it can be converted to equity and all of this can be encapsulated or embedded into the smart contract this is one segment on one on one group that we are dealing with and we already have an example with the second segment is cash flow just like the INX token itself the INX token enables or or provide entitles the token holder 40% of the company profits as we have them be distributed between the token holders so cash flow token is very relevant and we're are seeing a lot of cash flow related tokens in our ecosystem it can be based on profit it can be based on revenues and other things around it existing Securities is very important so if you take a private company or an or a public company both of them are are we announced both example we announced a public company that is trading on on let's say NASDAQ or Canada can tokenize part of their shares and and list them list the tokenized shares on our ATS and the ATS is available 247 unlike maybe NASDAQ Monday to Friday 9 to4 so it gives you a much wider reach and much more potential liquidity the next group is engagement token fun token there is a lot of chatter also in this conference around fund token and we understand it we understand that security token can basically represent the next level of loyalty program it's not just about the financial a um attributes it's also about the engagement and brand ambassador to the Token itself and even if you want to offer even if you want to offer just voting rights or VIP tickets to a game or any other utility elements you must do it in a compliant Manner and if you want to register in the US you have to list this token in a in a regulated Securities Exchange that holds the relevant licenses just like INX the last use case that I want to mention is remediation there are thousands of security tokens out there today the SEC just recently said that most of them are basically crypto asset Securities and if you if they are crypto asset Securities they have to file and properly with the us if they want to accept us customers and US residents to trade in a compliant and regulate and regulated manner they have to file in the US and they have to register on an on a on a regulated Securities Exchange so we are seeing a lot of uh call it crypto asset Securities that are coming our way now and building or finding a way together with us on how they can basically register in the US all of those use cases are not happening for nothing they they are here because there are many advantages in in doing a capital raise or a security token offering I want to highlight some of the advantages and give you a few examples the first one is non-dilutive we raised 85 $84 million INX without losing ownership of the company without diluting our Cup Table it cannot happen in a regular VC round it cannot happen in a traditional IPO this is why we call it a blockchain IPO so security token is a non-dilutive instrument that's the first thing the second thing is when we are talking about F functionalization if you're a big company and we will see big companies coming into the space and you want to tokenize just part of of the business one line of business you can do it you can tokenize one line of business give your token holders some some uh benefits on this specific line of business we can see it in gaming we can see it in h in other verticals and without diluting or giving any benefits to the rest of the business the second the second or the third thing is flexible toomics I gave you few examples on different toomics we can do anything with the smart contract bring us your business we'll think together with you and build together with you the economics around around your your offering regulated defi is important we vet carefully vet and kyc every customer every issuer and every currency that is trading on our platform so it's very CI in a way centralized in a way but also when you trade security tokens on our platform you have to link your own metamask so it's your metamask your wallet your keys not us so it's defi in that sense we like to call it a bridge between CI and defi custody is a big thing and I will get to it in a minute loyalty program 3.0 as I said this is what we envision this is what we are seeing how everything come together both online and offline and and we're already seeing seeing this coming to uh to live Global retail audience is key Global retail audience mean that means that everyone from around the world can join the INX community and trade security token in their own time zone security token just like any other stock which also means that you can trade and invest in primary offering trade security token or invest in primary offering using your crypto you cannot buy apple or Nike or Amazon with your crypto but on our platform you can invest in a regulated way in a security token offering with your crypto in fact in our Capital raise in the INX Capital raise 50% more or less of the investment came in crypto and the 50% came in Fiat the last point that I want to mention is 24/7 availability the the platform is alive the platform is working 247 is the new new uh standard my son doesn't understand why he needs to wait until Monday morning if he wants to trade NASDAQ on Sunday evening for example this will not happen in INX I want to zoom in on one very very important component I mentioned the retail investor and I mentioned the community and we have to look at this new type of investors I I know that 85% of the crypto holders in Korea we are in we are here today are between the ages of 16 to 44 they are digital native there are technology service basically were born with the phone in their head and and it means that they are very open to technology and they this this language is not new for them we also understand they are very active on social network get all the data from the social networks different social networks and not like Like Me Maybe from the financial times or or or or the Washington Post but they are always constantly online and they are getting the the the data from from social networks they are under represented in traditional assets and in fact this is one of the core values not necessarily a benefit but the core value of a true security token offering democratization of Finance a retail investor is getting the same terms exactly as the VC guy and no more the days G gone the days that where where those VC are living me with the leftos are leftovers leftovers are gone they have higher risk for appetite and and they are very receptive for for educational material the last thing is that they are they need a sense of belonging they want to make an impact and they want to stand behind the community and I want to mention the INX Community a very Vivid and live INX Community we are very grateful and very appreciative of our community I met few of our community in the past 24 hours and I'm even more amazed of how dedicated they are all over the world not just here in Korea or Japan in the US all over the world the sense of belonging is very very important and this is why they become our best brand ambassador and every one of them is is like our marketing guy on the ground all of those benefits and all of those things has a lot of challenges there are few things that to mention around security token and hardles of the industry it's still a growing industry it's growing very fast but but there are few challenges and I want to share with you some of the challenges and how we address them and how we think they can become an opportunity the first one is liquidity and distribution liquidity and distribution is key in any Capital Market environment you want to have the volume you want to have the investors coming in and this is building this is building over time we can see that it's picking up very nicely in the past year and we want to push it even more faster this is one of the reasons that we partner with the with the Republic and we will have access to their distribution Network and also to all of those companies that raised capital on the Republic Network in a traditional way and tokenized their shares and list the shares on our ATS so the liquidity and distribution around the industry is growing fast and it will get to a Tipping Point where we'll start to see exponential exponential growth the second thing is about custodianship custodianship is a key yes there are many advantages around self custody model as I mentioned before the regulated defi but if we want Mass adoption which is a challenge here for itself we must find a way and The Regulators has a role here have a role here we must find a way to enable custodianship as we know it from the traditional world we know that it's moving forward we know that the SEC didn't for example Define exactly what is a qualified custodian for Securities but we are moving forward we we have a partnership with bitgo we have a partnership with bitgo on several front on several fronts there are our custody solution for digital asset cryptocurrencies and now they also will also provide custody through metamask institutions for security tokens we're also integrating with our with their offchain settlement Network so bito is one example on how we deal with the custody challenge the second thing is disparity of Technologies we decided to do our token offering on ethereum network there are many other many other blockchains out there today and we know that the foundations and the blockchains are are working very hard to attract new issuers and new security token to be based on their platform this is why we've decided we took a strategic decision to be basically blockchain agnostic and today on nx1 not only that we support obviously ethereum but also if you want to list your token on Avalanche you can do it and also on polygon and more blockchains will come so in gener generally speaking we are blockchain agnostic which means that we are also as part of our vision wallet agnostic so metamask is today but Republic wallet is coming and other wallets will be down the road as well must option it may be most important thing and relates also to uh it relates also to uh the distribution um education education education this is why we wrote a book about security token the Bible of the industry as we like to call it and I will share with you later on we believe that uh Regulators Tech providers issuers everyone needs to be educated on the benefits of security token on the process that that is require in order to do a regulate security token offering and this is this is key the last thing that I want to mention is institutional participation yes we value the retail yes the business is built on a retail Community Global retail Community as we said but the big money will come from institutions and institution needs to have the right foundations in place from a regulatory point of view banking Point of View and other elements that they are maybe missing today and we are working with on different fronts to to bring and attract institution into the conization uh play and we saw all of those trade F names already moving forward with different initiatives Samsung Samsung is an important brand here who has a Samsung phone in his hand or maybe a Samsung TV at home I guess a lot of us and and I want to try and envision how would that look what if samung took a tokenized path and I know that they have that they have uh a lot of financial products already in their Network I saw few only in the past uh 24 hours and I know they have many users only in Korea consuming or using different Financial products as part of the Samsung ecosystem system and this is one of the things that I see as as a an amazing example we can look at it all we can we can find an example also with Amazon or Uber or Nike for that matter but let's zoom in on on Samsung Samsung can decide that they want to develop or launch a new product and they can offer me as a potential token holder specific tokenomics embedded into a smart contract reflected or relevant to this new line of product that that they will launch to increase the overall commu communication to increase the overall engagement with their user base they can add utility elements to the Token so for example they can give me discounts when I buy a new device they can give me uh early adapter access for their new new device that will come around the corner or next year they can give me a different uh um service when I'm stepping into a a store an offline store because my tokens will be hosted in my Samsung wallet which is on my Samsung Mobile so when I walk into the store I can they can immediately identify me as a token holder and give me maybe a different type of service distribution for Samsung is easy they have billions of uh users and obviously it's the easy and most important uh building block that I can mention custody as well and regulation is is the last maybe piece of the puzzle I know that the Korean regulator the Financial Services Commission and the Korean Securities depository are working very diligently and pushing forward the security token regulation Korea will become the first I would say hub for security token we closely monitor the progress around the security token regulation in Korea and I believe it will be an amazing opportunity for the Korean market gener speaking as this regulation will evolve before I finish I have one or two more minutes I want to uh I want to summarize we INX believe in security token space we believe that regulation is is not a risk it's an opportunity and it doesn't prevent us from Innovative from Innovation we believe that this is the right timing we are all very fortunate to be here today just like maybe Bill Gates and Steve Jobs and and and Jeff Bezos were very fortunate to be in the right timing where personal comput Computing started we are all here today in the right timing when we see the launch and of of security token space and whether you are a regulator whether you are a tech provider whether you are an educator and you have a community please come and join our to iation Mission because we have a long long way to to go and a lot of work we can do this together Kam cha thank you for joining and and as I said the last piece of the puzzle the book you can scan the QR code to to get a free copy of our INX book where you get a lot of information about security token offering and generally speaking how we see the market going forward and what the services that we provide for the industry thank you thank you