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Security Tokens – Trends that will lead investment in the next decade

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The next decade will see the growth of three primary investment trends that will have a major impact on demand for specific financial products: women entering the investment arena, the aging population and global economic uncertainty.

Combined, these three trends will in turn create a surge in demand for new types of investment, facilitated by a stable and solid technological infrastructure, opening doors to the future of investment. For alert companies and investors, this type of platform presents a valuable opportunity to future-proof their funding and investment strategies.

Investment By Women – Different risk appetite and investment strategy

Women live longer and experience different salary curves over their lifetimes than men, all details that traditional financial advisors and robots don’t take into consideration. For example, during childbearing years, women tend to earn less and contribute less to their pension or investment portfolio, which sharply changes when they re-enter the workforce. And when they do, they are closer to the retirement age than their male counterparts when they enter the investment game, which means they can take fewer risks with their investment. On the other hand, since women tend to live longer, so they’re more likely to look for financial products that can provide a stable return over the longer course of their retirement. Studies show that women are also more goal-directed in their investments and trade less. For instance, women are more likely to pick a target-date fund in their employer-sponsored retirement account. Women also generally invest more of their income and are willing to wait longer for payoffs.

Traditionally, men have scoffed at these investment strategies, but in fact, they can pay off, and within ten years, investment firms hoping to stay relevant and competitive will have created models specially adapted to these distinctive investment patterns. They’ll also be able to cash in on women’s tendency to seek advice from professionals rather than taking a “DIY” approach to investments.

Aging population – Longer-Term Investment Bias

The aging population is not only a challenge for the healthcare system and a dilemma for policy makers deliberating effective pension systems, it’s also a gamechanger for the investment world. Investors who believe they could live to the age of 90 or 100 generally understand that they need to take a long-term approach to investment. As a result, they’ll pick more stable financial products, as well as those that resonate with their sense of what society needs and uses, such as consumer product company stocks and real estate.

Income property is particularly attractive for this type of investor since it provides a steady supplemental income for when they retire, as well as stocks that pay periodic dividends. This trend should make pension funds happy overall; however, even though the aging population may demonstrate a lower risk appetite, savvy investors are still looking into alternative investment classes and are paying close attention to trends. They have lived through quite a few financial crises, and they need a contingency plan in case things go south. Because they plan to use much of their savings to improve their health and deal with health crises as they arise, this age group also prefers their investment to be fairly liquid.

We’re living in an era when there always seems to always be a crisis right around the corner, and that means investors in all demographics are looking for ways to secure their investments, increase stability and liquidity, as well as select products that are likely to withstand the test of time. Over the coming decade, this trend will feed the expansion of the market of new financial products that can satisfy this demand. Each new asset class offers investors a glimpse of hope for improved odds of beating the market or other benefits such as flexibility of trade, improved liquidity, or fit with global market direction.

For example, the trend towards asset tokenization is creating opportunities for fractional ownership of such assets as real estate, luxury goods, and private equity. Even though private equity is ordinarily a high-risk investment, the ability to easily liquidate it prior to the exit event lowers the overall risk profile for the investor groups and trends outlined above. Real estate, which is a traditional asset class that appeals to both female and aging investors, as well as a powerful value-preserving asset in times of economic uncertainty, is now accessible to investors with much lower investment thresholds due to fractional ownership.

When these threats and trends are combined–the rise in women investing, the aging population, and increasing economic uncertainty–the result is increased demand for products with the following features:

• Longer-term positioning

• Lower risk appetite

• Broader portfolio diversification

• Basic forms of investment, such as real estate, especially yielding

• Products representing essential consumer products that will be in c constant demand

• Health and foodtech investments that promote the values of this population, as well as long-term consumption

• New asset classes that improve investor position without significantly increasing risks.

Another major factor redefining and upgrading the structure of traditional securities is blockchain. Blockchain-based security tokens, while they possess traditional attributes of a safe investment asset class, also enable innovative features and investment strategies, creating flexible financing schemes for companies that fit their business models and go-to-market plans. Tokens offer both investors and asset owners a high degree of flexibility: they can represent the right to equity shares in a company, the right to share in profit, a loan or any other debt obligation. Tokens can be backed by real assets like real estate and represent a unit of a mutual fund or collective investment scheme, such as a VC or a private equity fund.

Tokenized participation in an investment fund carries the benefit of liquidity, as well as higher transparency with respect to asset valuation at any given time. With their combination of higher liquidity, the solidity of real assets, low entrance thresholds, and the ability to invest in assets that support the investor’s values, this new asset class is ideally suited for the three trends described here, meaning that security tokens are likely to be an excellent fit with the major upcoming trends of the next decade.

The trend toward blockchain and security tokens, while it has tremendous appeal to these demographics, requires the underlying infrastructure of a solid technological platform specially created for issuing security tokens for a variety of assets. This platform would ideally create a secure and seamless process for funds, governments, corporations, and nonprofits to tokenize their current or expected assets, revenue streams or IP, as well as to issue securities to raise funds for discovery, expansion, development and overall, value generation.

DGCAMP for Himalaya Labs provides this type of blockchain and smart contract driven platform, offering issuers access to a broad class of primary market investors, guided through a variety of automated transactions and processes in order to issue a broad array of digital assets to investors without intermediaries.

Looking at the way financial technologies and asset classes are already being reinvented for the coming decade, one thing remains constant: since the dawn of investment itself, there really has been only one single goal –the desire to beat the market. What we’ve seen changing from decade to decade is the makeup of the investors, and these changes necessarily influence their position and their risk appetite.

Anticipating the transition to a streamlined investment process and increased liquidity and availability of global investments to investors at lower thresholds, security tokens seem like the next logical step: the perfect fit for the top asset class of the coming decade, centered on a platform which can facilitate issuing and utilizing those tokens to raise funds and facilitate trade.

As the financial and investment space grows more and more decentralized, companies will be able to eliminate or reduce intermediaries in the securitization process; this, in turn, will potentially increase opportunities for innovative companies with high-quality offerings for accessing adequate financing. While the gold standard for the security token industry has yet to be developed, platforms that factor in the industry’s current and future investors will emerge as leaders in this market, driving the greatest growth over the coming decade.

The Evolution of Security Tokens, Competitive Landscape, and the future ahead

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The crypto economy has made rapid strides in just two years since the phenomenon of ICOs took off in 2007. A lot of innovators jumped on the ICO bandwagon in 2017 lured by the ease of fundraising. Sturdy demand outstripped supply of crypto goods ensuring an oversubscription of every ICO in 1H2017 notwithstanding the quality or absence of due diligence, though by 3Q2017 regulators started playing spoilsport and raising objections and demanding greater scrutiny and oversight, though most did not go as far as China, the hub of crypto financing, in outlawing ICOs altogether.

Most financial incumbents like Goldman Sachs, JP Morgan, Citibank were caught unawares by this massive phenomenon. Thus far, they had been giving press bytes on blockchain playing a neat, predictable, preassigned role in their business stack and the incumbents had been preparing well for this new . Just as they had paved way for previous stacks such as CRM, SAP and other such technological upgrades where incumbents were not disrupted, but rather went on to acquire an advantage over the upstarts However, cryptocurrencies and ICOs raised a specter they little understood and were much less prepared for.

Goldman Sachs, JP Morgan each have filed applications and even obtained patents for use cases such as using smart contracts, blockchain and tokens for issuing traditional Wall Street securities. They thought, just like in earlier tech advances like cloud, SAP, CRM, they would have an advantage in this scenario too. They would protect their fiefdoms with this intellectual property protection, strengthen their competitive positions and preempt upstarts from entering this space, this holy grail which constitutes $80 trillion of global securities. All the incumbents had their eyes firmly set on this long term trend. Several startups focusing on blockchain came into existence in 2014, with huge investments from Wall Street, like Digital Asset Holdings, Circle, Chain, Symbiont etc. Digital Asset Holdings was incorporated with the express purpose of catering to incumbent Wall Street firms, and to date has raised $115m funding from 15 Wall Street investors such as Goldman Sachs, Citigroup, Deutsch, ASX, JPMorgan, BNP Paribas. Symbiont intended to help Wall Street firms in upgrading their clearing and settlement firms and also to create private securities on the blockchain. Chain was founded in 2014 and raised $40m from NASDAQ, Visa, Fiserv, Capital One. ICOs continued unabated, but the early ICOs were mostly limited in their fields of application to the cryptocurrencies ecosystem, and the industries amenable to use of the crypto such as gambling, prediction markets, exchanges, wallets etc.. There was no ICOs targeting Wall Street – The bastion of the old guard.

However, what happened in 2017 was beyond what anyone ever imagined. No one had anticipated the upswell of crypto so soon. The upstarts were not playing to the script, nor by the rule book. Appalled, it was natural for the heartbeat incumbents to sing paeans of regulation and obituaries of ICOs in the same breath calling them frauds, scans, Investor inanity. No one listened, and it failed to quell the fervor for the ICO. ICOs continued unabated, but the early ICOs were mostly limited in their fields of application to the cryptocurrencies ecosystem, and the industries amenable to use of the crypto such as gambling, prediction markets, exchanges, wallets etc.

There were no ICOs targeting Wall Street – The bastion of the old guard. None of these ICOs posed a real threat to Wall Street, however. Bankers’ greed, fabled for smelling opportunities from afar, this time left them immobilized, as they did not know how to break ground in this new territory and the momentum of the $5.6 billion in ICO funding entirely bypassing the traditional fund raising mechanisms was too fast for the street. Then I wrote the first ever white paper detailing a process transforming the way for issuers to issue legally compliant securities, with no middlemen, and architected a whole new paradigm for modern-day capital markets. This was groundbreaking, and the world’s first ever crypto white paper. I had fun breaking this story to audiences around the world and got much carried away with my travels instead of staying put and doing our own ICO swiftly.

Prior to this, only Wall Street banks and the Big 5 consultancy firms had conceded that this could potentially be done, but not how. Certainly, none of the earlier corporate papers revealed that the very authors could be removed from the picture. Their illustrations, tellingly, very much had them intact in the whole new paradigm they were architecting, and in essence not saying anything new other than that they could upgrade their current databases to the blockchain, to continue to do whatever they weredoing. Either they had not understood the magnitude of this technology’s potential, or if they did, they were disingenuously keeping it guarded against the world.

The securities landscape has traditionally been a densely populated terrain with millions of intermediaries such as Broker- Dealers, Exchanges, Commission Agents, Custodians, Clearing & Settlement Agents, Allan providers against securities, futures exchanges, market makers etc. Then we started to see the first batch of ICOs targeting a Wall Street-related businesses. So the initial slew of ICOs related to securities industry was launched a good 6 months after my white paper.

These ICOs started taking aim at either:

• Very niche applications such as tokenized real estate, tokenized Assets such as Gold backed tokens, which were innovations hitherto unseen in Wall Street, and did not threaten the incumbents as these were new territory.

• Tokenizing existing walk street securities and derivatives instruments, as IOUs, thereby improving liquidity for existing owners of securities, enlarging the pool of customers, expanding the market for incumbents, and also did not threaten the incumbents.

• Creating new infrastructure such as a marketplace for these tokenized securities, which is a greenfield opportunity where Wall Street incumbents can also compete, but still does not threaten the existing market shares of incumbents. The ultimate promise of smart contracts to disintermediate, had by and large escaped these first crop of ICO innovators in securities space, despite my having publicly revealed the secret sauce – of architecting a crypto filled Wall Street, or democratizing capital raising by empowering small humble entrepreneurs to launch their public fundraising without having to incur the high threshold costs charged by Wall Street banks to manage an IPO – which is rent-seeking and a huge barrier.

On the other hand, dissecting the statistics of corporate IPO pipeline, private funding rounds are getting ever larger with $100 million + financing rounds now a norm, thanks to mega funds of $100 billion Size such as SoftBank which invested in 16 US companies totaling $10.8 billion in 2018. That pre-IPO private funding by a single megalith investor is close to the cumulative ICO & STO financings of an estimated $13 billion in 2018. Median amount of funding raised prior to tech IPOs has quadrupled from $64 million in 2012, to $239 million in 2018, meaning that successful companies do not face any challenges raising large amounts of private capital prior to IPO, and may even prefer to stay private because of interests of their share holders, as well as active ongoing M&A activity amongst tech startups. from Wall Street, like Digital Asset Holdings, Circle, Chain, Symbiont etc.

So IPOs as a fundraising mechanism can be exploited more and more by small & medium enterprises if the cost of going public can be brought down significantly, and IPOs can happen outside the precincts of stock exchanges and investment banks. This is the whole promise of HCX! The way IPO costs can be dramatically reduced is by rearchitecting the whole process with the use of technology and by bringing down the fees paid to middlemen. Though regulators never necessitated the role of investment banks in an IPO, few firms have taken the initiative of doing IPOs on their own, Spotify being a leader in this regard. Pages Jaunes had also explored trimming the role of banks, and had managed to change the process but stopped short of eliminating investment banks al-together. Daimler Chrysler issued a bond on the blockchain. London Stock Exchange is now exploring creating a direct issuance process on the blockchain. So rapid strides are being made in the direction of automating securities issuance.

However, going by developments at the intersection of crypto and Wall Street, not many have a solution to remove the biggest entry barrier, namely fees paid to investment banks. We are the first and only ones to propose an automated investment banking platform. This is the ultimate promise of smart contracts, that we wish to unlock for the benefit of the humble entrepreneur in any remote corner of the planet. This is the ultimate promise of smart contracts, that we wish to unlock for the benefit of the humble entrepreneur in any remote corner of the planet. Virtue signaling, quality stamping, and aggressive marketing, all necessary ingredients for any fundraising company, have significantly pushed up the costs of fundraising in the crypto verse today. Except that these functions are now performed by new crypto intermediaries and crypto marketers rather than Wall Street banks.

What are the pervasive problems here? Why have companies needed investment banks historically? – Lack of access to investors – Inability to handle tedious processes and the need to outsource – Inability to determine a reasonable valuation of the company equity on their own. – The absence of an independent entity to assure the quality of an issue: virtue signaling and quality stamping. Let us try to tackle each of the above limitations faced by entrepreneurs, summoning technology. Lack of access to investors It is true that intermediaries have over the decades kept a close guard on the investors. Even big companies like Facebook and Google whose brand strength is enough to have investors swarming to their IPO, do not dare to execute their own IPO (like Spotify did) because these are rich companies. They want to behave rich and have no need to skimp on fees, and they might want to outsource the investment management process. This is not a deal breaker for an established company at a mature stage.

However, it is for companies at a growth stage where timely funding can spell the difference between bankruptcy and survival. Initial Security Token Offerings Investors naturally want to get access to IPOs because IPOs are typically underpriced by banks so as to secure successful subscription. However, most retail investors lose out to institutional investors when it comes to IPO allocations as investment banks want to keep their regular feepaying clients (hedge funds) happy, and these banks keep hefty IPO allocations for their favored clients at the expense of retail investors who are nobody’s clients.

Technology can solve this problem of access to investors, even without having to use smart contracts. Platforms such as Linkedin and Angel List have all the Investor universe you can think of. So a digital platform that connects issuers with investors will solve the problem of access to investors if it succeeds in building traction by bringing high-quality issuers, building trust worthiness of the platform by keeping away bad actors and proving usefulness and ease of use. Inability to handle tedious processes Smart contracts will facilitate the handling of features such as shareholder voting, dividend distribution etc and make it more efficient for issuers giving them more control over the processes and catalyzing a more personal relationship with the investors, which may be a good thing in the age of Alexa. Inability to determine a reasonable valuation Though valuation is a science, in practice it is more of a process when it comes to IPOs. It is simply done by building an order book which algorithms can very well replicate, once investors are accessible on the platform and ready to put in their orders and reveal their price preference to subscribe to shares in a specific IPO. This is no different from online auctioned which are now all-pervasive, and the same behavior can be expected of investors too.

A major point of difference between crypto economy and the traditional capital markets is in valuation and pricing. While shares use metrics such as Net Present Value of future cash flows, Capital Asset Pricing Model, Discounted Cashflows, price multiples, public trading multiples etc, cryptocurrencies started with completely laissez-faire pricing. However, digitised Securities will once again take us back to a reasoned ground where initial issue price may be determined by demand but over time, it has to be sustained by fundamentals. A look below at the vast divergence between pricing models. Lack of an independent entity to assure the quality of an issue – Virtue Signalling This is a problem that can be solved by community governance, and market place rating mechanisms which have evolved well since Amazon and eBay. Dynamic and democratic ratings Where everyone can participate have become far more reliable indicators of quality, than privately guarded ratings such as by those of Moodys and Fitch which are known to have had agency problems or incompetence in predicting quality and consistency or lack thereof, as many blowups in the past indicate. All in all, with the right quality checks and institutional grade security, Smart Contracts may surpass investment banks in price, efficiency, as well as a superior personal connection with investors. We, therefore, believe HCX has immense potential as a pioneering innovator in the space of challenging the archaic systems.

Smart Financial Contracts Revisited Discussion Paper

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ABSTRACT

We then look at Szabo´s definition of smart contracts, especially the verifiability, observability, privity and the enforceability conditions. In the following we discuss Szabos conditions in the context of smart financial contracts and distributed ledgers. We especially enquire whether distributed ledgers are necessary and/or enough condition for the existence of smart financial contracts. The answer is rather no, if this does not coincide with an algorithmic standard. This leads to the conclusion, that mean a public or private ledger of my personal trust be it implemented with block-chain or another technology.

SMART CONTRACTS

The next move of FinTech must be in the area of adopting such a standard in order to make progress. We believe that the combination of distributed ledger technology and an open, well documented and well tested algorithmic standard is the next logical step in FinTech. In order to understand the role of the financial contract within the system of finance we discuss in an excursus the meaning of the term “finance” and the role of a Touring complete language for the existence of smart financial contracts. The article does not discuss block-chains and distributed ledgers in detail. With distributed ledgers we Szabo introduced the term “smart contracts”, whose more precise definition we will see in the next section. In this paper we narrow down our focus on “smart financial contracts” due to their unique features within the universe of contracts.

The unique features of financial contracts are:

• The inherent mathematical nature of financial contracts. Financial contracts are like no other contracts definable and in practice defined in mathematical terms.

• Financial contracts are pure exchange of payments or cashflows. Other contracts are either goods against payments or define some other relationship such as a marriage, shareholder agreements etc.

• These features make financial contracts the prime candidates for smart contracts since the agreement can be represented by computer writable algorithms save for some cases of default. They are not only representable by algorithms, they are – since cash is exchanged for cash – in general also much simpler than other contracts. The set of existing financial contracts is also of high relative importance within the universe of contract which justifies taking a closer look at this sub-set which is another justification for taking a narrow focus on smart financial contracts only.

Szabos definition of Smart Contracts In his 1996 article , Szabo defined smart contracts as “a set of promises, specified in digital form, including protocols within which the parties perform on other’s promises”. He lists besides technical features, four conditions or objective for a contract to be a smart contract which are:

• Observability, the “… ability of the principals to observe each other’s performance of the contract”

• Verifiability, the “…ability of a principal to prove to an arbitrator that a contract has been performed or breached”

• “Privity, the “… principle that knowledge and control over the contents and performance of a contract should be distributed among parties only as much as is necessary for the performance of that contract”.

• Enforceability These are the conditions we will take a closer look at in the following The Enforceability and Privity condition Of the four conditions, the enforceability condition is the most difficult one to meet. Even Szabo recognizes it in his article. He introduces the term as follows: Enforceability, according to the statement, cannot be attained absolutely but can only be maximized by making the contract as verifiable as possible. We believe this to be true for all the contracts and especially true for the financial contract. Some examples of enforceability have been forwarded such as the car that cannot be started if the payments on the leasing contract have not been fulfilled. We doubt that even such a simple mechanism can be implemented in a realworld setting and legal system.

While this is in doubt even for straight forward contracts, it is clearly impossible for financial contracts if stated in an absolute form. Finance is cash today for cash tomorrow where the payback follows some rules, such as the amortization of a mortgage, the payment at the strike date of an option and so on. Such a promise can only be enforced with 100% certainty with a cash down-payment at the initiation of the contract. However, if the debtor must pay down 100% in cash then there is no reason to enter a financial contract, to begin with. Banks have solved the problem with solutions that come close to enforceability, however not absolutely. This is done with collateral such as a house which must say 125% of the value of the mortgage at the date of issue, cash-collateral as in future exchanges and guarantees. These mechanisms work almost all the time, nevertheless failures are known.

The smart financial contract will further minimize failures in enforceability, but not fully eliminate it. Regarding the privity condition we rather doubt, whether public distributed ledgers based on today´s blockchain technologies do fulfill it. There might be blockchains that are better in this respect. However, the two most wellknown examples Bitcoin and Ethereum do not fulfill this in a satisfactory manner. Once the public account ID is known all movements are known. Even if it is difficult to obtain the account ID, it is not impossible.

Even if distributed ledgers can fulfill the privity condition better than the current banking system, it is in doubt, whether this advantage will sustain over the long term, at least for the nonblack money part. Cryptocurrencies are facing problems because they are tainted with blackmoney. This makes it in many countries impossible and in the other countries at least very difficult to connect to the existing “fiat” systems. The price of connection to the fiat system is most likely less privity. Thus, regulation will rather make it more difficult for distributed ledgers, to keep an advantage in terms of privity. Conclusion: If we compare the current financial system with the distributed ledger technology regarding enforceability there is no advantage, since it is not attainable due to the logic of finance. In terms of privacy we see problems on both sides and we will have to see, whether distributed ledger, especially the public ones, will be able to keep an advantage.

In the next sections, we will focus on observability and verifiability within a distributed ledger framework. Are distributed ledger technologies necessary and or enough conditions for smart financial contracts? Are distributed ledgers a necessary condition for observability and verifiability? Ethereum played an important part in popularizing the term “smart contract” to the point, where many people now see a close connection between smart contracts and blockchains to the point where blockchains are considered to be a necessary condition for smart contracts. About enforceability we have seen already, that distributed ledgers cannot be a necessary condition, since they do not provide any specific advantage vis a vis the current system. Distributed ledgers could be a necessary condition regarding privity since privity is best guaranteed in a system where no specific actor has the power to overrule others. This however gets reversed with the need to connect to the “fiat” systems due to regulation aspects. Here we consider the question whether distributed ledgers are a necessary condition for the existence of smart financial contracts about observability and verifiability.

Since – according to Szabo – enforceability is maximized through verifiability, the question is of great interest. Regarding observability, distributed ledgers offer indeed an unmatched insight to all participants. This high level of observability however can be an undesirable feature in the financial sector, at least with respect to public ledgers. Private ledgers however can avoid this disadvantage. Although it is a true advantage, it must be taken with a pinch of salt. As it stands currently, blockchains keep track of accounts in cryptocurrencies like what payment systems like Western Union, Visa, Postal Systems and of course also banks. When considering the performance of the financial system in terms of account keeping since the Middle Ages, it is astonishing, how reliable the system has been. Even in the late Middle age, it was possible to make the payment in Florence and to pay the cash in Bruges. Ledgers were kept with an astonishing diligence even then, making international trade possible. This has improved ever since. Personally, I do not know a single person, neither do I know a person who knows another person that has been deceived by a bank with regards to account keeping. The reasons why it functions so well are first the four-eye principle, secondly, the reputational damage to any bank or payment service provider, if records were not kept properly and finally the insurance of deposits.

Considering this excellent performance of the financial sector over the centuries, the advantage of the blockchain is less than it is commonly assumed. Nevertheless, we consider the impersonal trust offered by distributed ledgers as an advantage and, we could say, a necessary condition for smart financial contracts. This is especially true in areas, where trust in a financial sector continues to be an unsolved problem, leaving a large proportion of the population unbanked. What about verifiability. In order to discuss this question, we must make a little digression.

Excursus:

What is Finance? The role of a touring complete language. What is finance? We mentioned already, that the current state of distributed ledger or FinTech in a larger sense, is concerned with payments, a sector which is already well covered and efficiently solved by traditional systems. More importantly, payment systems can, at the best, only be considered a fringe activity of finance. Most of the payments are not even done through banks but other services: Western Union, PayPal, Visa etc. and of course cash payments. Finance means giving loans, Mortgages, depositing money for interest, issuing bonds, doing swaps, futures, and options. All these activities trigger and make possible real economic activities which otherwise would not happen. Houses are built, rail tracks are laid and so on. All these financial activities have in common, that they move cash over time following some rule. In a mortgage, as an example, the house owner gets money which must be paid back over time including interest. Smart financial contracts must represent these financial contracts. Thanks to the mathematical nature of financial contracts, they are the prime candidates – the low hanging fruit – to be represented as smart contracts. They are, in the language of Szabo “a set of promises, [that can be] specified in the digital form, including protocols within which the parties perform on the other promises”.of course also banks.

The proposed solution for blockchains with regard to smart contracts has been to offer a Touring complete language which means a powerful computing language with commands on the level of Java, C, and similar languages. Is this the solution? The answer is No. Yes, it is possible to program any financial contract and substitute most lawyers jargon with exactly defined algorithms. However, the problem with Touring complete programming language: they are too wide, too open. Financial contracts are well defined and follow a very limited however strictly defined set of mechanisms. Unnecessary openness can only lead to problems. The current observable chaos found in the financial sector is a consequence of the fact, that the problem is solved with open, Touring complete languages without any standard representation of the algorithms. The same bond, mortgage or loan is represented in different programming languages, different naming conventions for the attributes and differently programmed. This is the reason, why it is often almost impossible to reconcile data within banks. Reconciliation is associated with tremendous cost and induces low quality, a problem that should be solved by FinTech with the introduction of a smart financial contract based on a standard.

The tragedy is, that the banking business does, in fact, follow standards, however, the standard is unknown. How is this possible? Financial contracts are first written on paper in legal language. In order to manage them, they are represented in core banking or transaction processing systems. Each system is based on a Touring complete language and implemented in endless variations producing a chaos at the aggregate level. The good news however: the number of patterns of exchange of cash and their associated algorithms – let´s call them Contract Types is limited, and it can be handled. This is possible, because banks do follow standards in practice but not on the level of code. What is needed therefore is a standard representation of the algorithms that make up the financial contracts and the associated parameters. Space does not allow to go into further depth and we refer to the ACTUS website. Coming back to the question of verifiability: Financial contracts to be verifiable must be based on well defined, standardized, openly published and well tested reference code.

A Touring complete language does not fulfill this per se, but in combination with what we just said, can do so. Blockchains definitively will increase the verifiability of smart financial contracts based on a standard. However, to call it an absolute necessity would go too far. Such well-defined contract can live outside a blockchain as we will see in the last section. We will describe there also an optimal solution regarding on- and off chain implementation. Are distributed ledgers a enough condition for observability and verifiability? The general answer: It can be enough with a well-defined standard. As a corollary follows, it is not enough in absence of a standard. Having a standard representation or a Contract Type for every financial contract, we can imagine the following system:

Each Contract Type is implemented on a given blockchain Parties can now agree to enter in a financial contract on the blockchain according to following steps:

• Select the Contract Type, for example for a mortgage they would select an Annuity Contract Type which is capable to calculate the payments.

• Define the contract terms, such as national interest rates, maturity date and so on

• Since the code which generates all payments is knows, it would be possible to do a pre-deal checking by executing all hypothetical payments.

• Once both parties agree on the expected payments, the deal can be executed by signing it on the blockchain.

• Each payment would be calculated automatically

• Whenever the payment would be due, the payment could be automatically executed (depending on available funds however) or both parties could accept the new state manually

• The new state is recorded on the blockchain

• Would the mortgage be for example variable, the contract would update its state at each rate resetting date? This could happen via an oracle of a market data provider

• Since all events have been known beforehand, the verifiability condition has been met to the maximum level, leaving hardly a possibility for dispute except in the case of default.

• Such an architecture makes the contract observable, verifiable and enforceable to the maximum extend.

• While this is conceptually possible, it is at least currently – not a feasible solution at least on the public blockchains which are not scalable and too expensive to run. An efficient, scalable, pragmatic way forward Before sketching a pragmatic solution, we must expand yet the concept of finance. Further up we discussed finance on the level of financial contracts which are exchanges of cash over time following some rules of exchange. Would this be the only problem of finance, blockchains might be able to handle it at least in a foreseeable future. Banking however is more than executing and managing financial contracts. In addition, it is understanding the impact on liquidity, value and income along the timeline.

These are the management or analytic function of banking which can be grouped into:

• Finance: Accounting, profit loss analysis, budgeting and planning

• Risk management: All types of risks such as market, credit etc. and all sorts of techniques from stress scenarios to Monte Carlo calculation

• Regulatory reporting: All regulatory reports All these functions are based on the very same cash flow patterns or Contract Type logic as used on the transaction level. This feature which makes the expensive interfaces between all supplications superfluous is the main benefit and the big cost saver for the industry, since it will solve the reconciliation problem once for all. However, while based on the same data, code and logic, the necessary computing power is much bigger in these areas. Such calculations are only feasible off-chain. Also, it is very likely, that a specific bank would not execute all transaction on a single blockchain. This would again need an area, where all financial contracts are consolidated from the different blockchains and possible contracts managed entirely off-chain. These are the reasons that demand a more pragmatic approach.

The center of the approach is the Contract Type standard which makes a specific financial transaction equally understandable by all involved parties be it on or off-chain. The pragmatic solution could look as follows:

• The reference code per Contract Type can be stored on the block chain. This could be in form of a hash-code of the reference implementation or an implementation in the specific language

• The initial contract parameters are stored on the blockchain

• Calculation for transaction processing and analytics happen off-chain.

• Payments are executed on the blockchain

• Contract states are updated after each event By signing (either individually or bulk acceptance) the updated states, it becomes always clear that the parties agreed at latest to that stage. By having a reference to the Contract Type, it becomes virtually impossible to dispute the agreement. The center stage of this solution is a standardizer smart financial contract based. Combined with the single source of truth based on a distributed ledger can revolutionize finance. This is a necessary step with the potential to reignite Fintech, blockchains and digital ledgers and bring it to its full value.

REFERENCES:

1 Nick Szabo, Building Blocks for Digital Markets, (retrieved 20180822) http://www.alamut.com/subj/economics/ni ck_szabo/smartContracts.html

2 More detail can be found in Brammertz Willi, Mendelowitz Allan (2018) From digital currency to digital finance: The case for a smart financial contract standard “The Journal of Risk Finance” volume 19, issue 1.

3 These algorithms may contain links to external risk factors such as interest rates in a variable rate contract. In this case the links are known but the effective state will only be known at the time of the event.

4 Cash is a unit of account and thus one dimensional. Buying say a car involves hundreds of dimensions beginning with the color, the seats etc.

5 Nick Szabo, Building Blocks for Digital Markets http://www.alamut.com/subj/economics/ni ck_szabo/smartContracts.html (retrieved 20180822)

6 Szabo discusses additional considerations. We list here only the important ones for our argument. Especially we leave out the more technical considerations.

7 One should only think about complications such as leased cars that cannot be re-ignited once they stopped on a highway etc.

8 Which of course can be zero.

9. The most recent failure was the CDS´s issued by AIG after the Lehman collapse. Only a huge bail-out action by the US government could avoid it.

10. It is probably true that one of the reasons of the success of the blockchains is black money. It is probably also true, that it is not easy to find out the owner of an account. Nevertheless, there are possibilities to find out with sufficient efforts. Consider the case, where a bank does transactions on a public distributed ledger. Any employee involved in the transaction would know the ID and would be able to see all information even after leaving the bank. The many thefts also prove, that the system is not waterproof, even if in many cases some carelessness of the participants may be blamed.

11. This does not mean that banks do not fail and that everything banks are doing is perfect. However, account keeping is not a problem due to the stated reasons.

12. Interesting detail: The financial contracts handled in the core banking and transaction processing systems of the bank fulfill Szabo´s condition of being “specified in digital form, including protocols within which the parties perform on the other promises”. The protocol however only defines the payments, not the entire life cycle of the contract.

13. Banks follow standards implicitly but not consciously.

14 www.actusfrf.org. The ACTUS standard represents these financial contracts. Please note, that the standard is not an invention but a discovery since the banks do follow standards in practice but not on the level of code. The website is organized as follows: In the “Taxonomy” gives an overview on the different Contract Types or patterns of exchange. The “Data Dictionary” offers describes all attributes and the “Technical Description” the exact algorithms. In “ACTUS code” the code is downloadable based on some information and “Demo App” offers an easy way to test code.

15 There is a first implementation of a single contract Type on Ethereum. IT follows the ACTUS standard but needs yet to be accepted by ACTUS.

16. ACTUS has defined a validation process to do so.

The Unicorn Era – We are living in the era of fastest unicorns in history, but why isn’t the common man benefiting from legendary entrepreneurial successes of our generation?

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Stocks are among the best long term investment options, as the fortune building of Warren Buffett as a first generation professional investor proves.

There are only two ways to wealth. The Steve Jobs way where you build a fortune through your own entrepreneurial endeavors or The Warren Buffett way where you develop a knack for spotting winners and investing in them as a habit, with discipline, and meticulously for the long term.

We are living in the era of fastest unicorns, where companies are going from incorporation to unicorn in a mere year or two, if not months. Yet, the common man is not benefiting from these wheels of fortune (the stocks of promising unicorns) – which are all too ubiquitous to miss.

The way the common man has access to stocks is mostly through retirement and pension funds, mutual funds etc, barring those who actively trade in stock markets. When common man chooses to invest in these funds, he entrusts the fund manager to exercise stock picking judgment sometimes paying hefty fees such as 2% per annum, for even standard fund management strategies such as S&P100 etc. Adjusted for the fund management fees, this indirect stock investor nets returns any where between 0- 25% per annum.

Even the best fund managers find it challenging to return over 25% compounded annual return. However, the individual marquee stocks and blue chips such as Apple, Google etc do deliver consistently exceptional compounded returns, especially in the early years post IPO. The marquee stocks are also easy to spot in the current digital information era.

Then, why does the average saver not get the benefit of investing in these best performing stocks?

1. By the time the company goes public, it has already received several hundreds of dollars in funding from private investors (VCs) who have reaped the most benefit from early exposure to these companies.

2. By the time the company goes public, the competition and the herd mentality of VCs to chase the same companies that other VCs are funding and the hype cycle during the company’s long ascendancy to fortune while remaining private has ensured over valuation of the startup pre IPO and that there is no under pricing of IPO. So, very little upside remains for the little stake that is made open to the common man to subscribe to. Let us say VCs hold 50-60% of the company before it goes public, then excluding the owners and management, maybe 20-30% is made available to the public. This little stake which is open for public is again fought over fiercely by hedge funds who are regular clientele of investment banks, with banks giving them preferred allocations. So retail investors get very little allocations, even if they take the trouble to subscribe to IPOs.

3. Retail investors need to keep an eye on which companies are going public when, need to select the stocks, and need to go through tedious processes of filling up an application etc, and wait for their allocation till after the IPO issue is completed.

4. That leaves us with retail investors investing in companies that are well past their IPOs (thus missing the lion’s share of the fat early returns).

Here, every time the retail investor invests, he frequently has a broker dealer placing his orders and pays fees to the broker dealer. Or he invests through funds which are marketed heavily, and easily within reach of the common investor but at the expense of a haircut – for the fund management fees. All in all, any which way you look at it, unless you are a serious investor with a knack to spot the winners early on. And who likes to spend an inordinate time actively trading on multiple exchanges, what the common man gets out of investing in stocks is a meagre return – never more than 20-25% p.a in the best of circumstances.

THE PROBLEM

1. Undemocratic

2. Obsolete System

3. Unfair Pricing

4. Opaque and No Access

THE SOLUTION

A low cost platform for digitising traditional Wall Street Securities at the IPO stage, where the IPO is controlled fully by the issuer (company going public) and the ability of the common man to invest in ISTOs (Initial Security Token Offerings) with these compelling features:

TEASER

• Token features such as liquidity, divisibility into small units, transferability

• Eliminating the fees payable to multiple layers of intermediaries

• Ability to pick and choose promising ISTOs from a user friendly dashboard,

• Safety of a legally compliant security

• Early exposure to the upside of a potential unicorn

• Reach of a consumer product easily available on a smartphone wallet.

Why is this a boon to entrepreneurs worldwide?

• Entrepreneurs can go public sooner than the VCs would have them go.

• They can access a global borderless marketplace for investors with every risk appetite and quantum of funds to invest, both institutional and retail

• No fees to pay to intermediaries (and revolutionarily no investment banking and legal fees to pay in most plain vanilla IPOs ( ISTOs)

• Companies are in control of every process from pre-issuance, to issuance, and post-issuance of securities

• This levels the playing field for entrepreneurs in remote corners of the earth, with extra-ordinary growth prospects, not just the ones with access to a rich investor ecosystem Why is this a boon to retail and traditional stock market investors?

• Can bypass traditional fund managers, or reduce fees payable to asset managers

• Can access investment opportunities from around the globe, on a frictionless platform

• Liquidity early on, instead of locking up funds for 7-10 years with a fund manager

More safer and secure prospects than Wild West ICOs, while riding early on the security token wave

What are you waiting for? The security token ecosystem is maturing, so we can expect a replica of the Wall Street model on token streets sooner than you think! Would you ride this wave early on, or wait for everyone else to catch up and skim the early rewards?

The rise of platforms based on mathematically engineered trust – challenges ahead.

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“Contracts have existed in one form or another for as long as barter has existed in civilizations, going back to stone inscribed hieroglyphics in Mesopotamian era.”

In the “Merchant of Venice”, Shakespeare eloquently depicts the excesses of greed, where an usurious merchant has an agreement with a poor buyer who receives his goods and fails to fulfill his payment on time, as agreed in the contract meticulously drawn out by the merchant, and the merchant goes on to demand his “pound of flesh” which was the penalty mutually agreed in case of default.

The emergence of platform monopolies for peer to peer interactions, albeit centrally managed by fee gateways: We are now witnessing the emergence of a new class of platforms based on mathematically engineered trust. This is a leap from the previous decade of socially engineered trust, community-created content, and community-generated inventory, which saw the rise of platform monopolies such as Facebook, LinkedIn, Twitter, Instagram, YouTube, Airbnb, Uber etc. with a centralized platform manager managing the community for his gain and not that of the community.

The last decade was fortuitous for those social platform owners that the community embraced those innovations as a social good, when indeed they later emerged more deviant than other profit-seeking firms, because exploiting trust reposed by public in a platform on a gigantic scale and abusing it is viler than the gimmicks employed by a typical commercial firm to boost their advertising revenue. However, the remarkable success of these platforms with unprecedented market penetration such as close to half the world’s population is a resounding validation of the need for massive platforms that bring humanity together for trusted peer to peer interactions. The previous era of platforms thrived on community-based reputation and influence scores, also unduly influenced by those who were willing to spend on marketing and ad budgets, to the benefit of the centralized owners who repeated profits.

What are the implications when such socially engineered trust is replaced by trust derived from algorithms and game theory? What if mathematically guaranteed trust complimented by auditability and transparency is now possible in the new paradigm, which was once obscured by centralized platforms driven solely by profit maximization? The implications are enormous, and we are starting to witness a paradigm change with a whole new class of financial instruments that do not rely on an arbiter to dispense the deliverables. These new class of instruments rely extensively on mathematical constructs called “Smart Contracts”. In a perfect world, Smart Contracts function perfectly, they are coded as intended, they are designed in accordance with principles of fairness and justice, are leakproof with no scope for pilferage, fraud, scams, or just plain abusing of the needy party.

However, reality is not so utopian, and at least in the current scenario there are several problems with smart contracts; not with-standing the functional challenges such as:

• scalability

• privacy

• performance

• throughput & speed

• limitation on block sizes

• absence of education

• absence of universal standards.

The potential market for security tokens is estimated to be $500 trillion and investments in security tokens space have already exceeded $500 million in 2018. So it is an opportune moment for serious infrastructure players in Digitized Securities industry to pause and take stock of risks that apply to this new space and be prepared with a risk management strategy.

Smart contract risks specifically in the domain of marketplaces and securities

• Unlawfully circumvent rules and procedures

• Diminish transparency and accountability

• Impair market integrity

• Introduce risks, including operational, technical, and cyber security

• Be subject to fraud and manipulation Source CFTC Labs

So smart contracts may need a dispute resolution mechanism, ombudsman, or arbiter Afterall, when dealing with marketplaces.

Do legal frameworks apply to smart contracts?

Of course, no matter what you do, law enforcement has long arms, and bitcoin kid Ross Ulbricht of Silk Road fame, now sitting in jail is now proof.

Examples of traditional legal frameworks that apply to securities, would also apply to tokenized securities or smart securities:

• Commodity Exchange Act

• Federal & State Securities Law & Regulation

• Federal, State, Local tax laws & Regulation

• Uniform Commercial Code (UCC)

• Uniform Electronic Transaction Act (UETA)

• Electronic Signatures in Global and National Commerce Act (ESIGN Act)

• The Bank Secrecy Act

• AML Laws & Regulations

• Money Transmission Laws

Applicability of law

• A jurisdiction needs to be specified as to which law is applicable.

• A contract needs to be deemed to be signed by both parties for it to be valid However, contract law is not simply based on punishment to a breaching party.

Contract law takes into account principles of fairness and natural justice, such that it is not usurious, not unduly taking advantage of one party’s misinformed ness or adverse circumstances etc. So smart contracts need to accommodate such considerations for them to be practical, or an oversight body needs to weigh such tradeoffs. Let us now delve into details of general challenges related to smart contracts.

Best practices for programming Smart Contracts

• Prepare for failure

• Rollout carefully and in phases

• Keep contracts simple

• Stay up to date

• Be aware of blockchain properties

• Crowd-sourced escape hatches

• Security tools for catching bugs in the code

Risk Management in Smart Contracts

Smart contracts are subject to multitudinous risks as various hacks of Parity Wallet, A eternity etc. prove.

Innovators attempting to build new infrastructure rails in capital markets based on smart contracts need to pay heed to active risk monitoring as well as dynamic risk mitigation measures, some of which are listed below: AML, KYC

Platform Access:Platform access can be made conditional on KYC, AML, for example, MLDS, JMLSG standards. Checking whitelisted addresses to ensure asset performance

Wallet infrastructure: Wallets need to be highly secure and CCSS compliant and accessible only by whitelisted addresses

Institutional Grade Custody: Custody solutions such as being announced by Fidelity Digital Assets to store crypto assets in cold wallet storage. W

Segregation of client assets

Platform Rule Book: A rulebook can govern platform use to protect participants from malaise users, and abuse of the platform.

Each transaction can be backed by a legally enforceable bilateral agreement Institutional and Operational Challenges

The Next Generation Capital Markets.

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Money flows in a manner that is like water – it follows the path of least resistance. The arrival of Distributed Ledger Technology (DLT) and the strengthening of it with smart contracts makes it inevitable that these technologies will now find their way into capital markets.

Where speed through execution and settlement, consistency, easier and continuous access, transparency, trust, the certainty of delivery, lower cost, traceability, scalability, and so on, and so on, are all good drivers for change. These automated methodologies are well proven. There are many others. This process of systems revision in capital markets is now happening in earnest. In my local domain, ASX has announced an implementation plan for evolution to the CHESS settlement sub-register that will use DLT at its core and contract modeling work-flows from Digital Assets.

Notably, ASX has avoided addressing the most obvious function for applying DLT – to trade matching. The trade matching market will continue operating under the current model at nine hundred trades per minute. Maybe there were doubts about DLT operating throughput at these trading levels. Or that too much radical change creates too much risk. The bad news for ASX is that doing nothing is also high risk. Capital markets have been a province occupied by big players – central government, national stock markets, national banks, global investment banks and member stockbrokers.

A happy alliance persists amongst these players akin to a mutual society existing primarily for the benefit of the principal actors and mostly closed to outsiders. They derive good and regular fees and there are many opportunities for the privileged gatekeepers to enjoy significant advantages at the expense of outliers. Especially the retail investors, whether invested through retail funds or directly, who are at the end of this food chain and who, at the end of the day, when everything is settled, absorb the whole cost.

JOHN PUTTICK
C.T.O, HCX

Chair at Tanda , specialist in financial and
education services. As founder of GBST he
guided this innovative leader in IT for the
financial services sector from embryonic idea
through to its listing on the ASX in 2005.
GBST provides technology services to the
financial services industry, addressing clients
needs for innovation, competitiveness and
responsive IT that truly enables their
business.

Hardly a process that ensures efficient allocation and utilisation of capital. These days new capital is often created from some form of intellectual property – a discovery, a better business model, a new technology. These discoveries can quickly become orphans for lack of capital from poor parents who have taken the headline risk to innovate and grow the idea through to some form of proof of concept. These ideas too often die at the gate due to exhaustion – exhausted parents with exhausted funds. They are crying out for sponsors. And the sponsors are abundant. But the threshold costs for raising capital kills the business case. Well not anymore.

DLT makes it possible now to fund these new ventures with initial and ongoing capital raisings that don’t involve substantial fees leaking out of the core business to support all the advisors to the raising. Examples abound of 8-10% IPO fees. Top ten investment banks made nearly $50bn in 2017 in fee income from IPOs and Bond issuances. So, it is with these thoughts, derived from a lifetime of experience in supplying systems to assist the automation of capital markets, that I am delighted to be able to offer my support, such as it is, to Himalaya Capital Exchange. A DLT venture, creating a revolutionary smart contract platform which is for and by end users and investors, addressing their market needs. I urge them on to ultimate success with their vision for a much better future.

What makes Switzerland & Liechtenstein regulatory framework attractive to international blockchain projects?

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First, specialized crypto or blockchain related regulations or guidelines influence the decision to relocate the crypto business to the country.

Switzerland was one of the first countries in the world which introduced ICO guidelines in February 2018 defining:

• Payment tokens as synonymous with cryptocurrencies and having no further functions or links to other development projects. Tokens may in some cases only develop the necessary functionality and become accepted as a means of payment over a period.

• Utility tokens are tokens which are intended to provide digital access to an application or service (white paper publication, nonaction letter from FINMA, no prospectus needed).

Asset tokens represent assets such as participations in real physical underlying, companies, or earnings streams, or an entitlement to dividends or interest payments.

In terms of their economic function, the tokens are analogous to equities, bonds or derivatives. Asset token is defined also like any type of investment while requirements for normal securities are to be fulfilled like publication of prospectus and in certain cases dealer’s license.

In 2017 a couple of Liechtenstein and Swiss banks started opening accounts for ICOs and other crypto projects. In September 2018 Swiss Bankers. Association published detailed guidelines for banks for opening bank accounts for blockchain projects. By now there are over 10 banks who work with crypto.

Recently FINMA introduced simplified license for fintech projects:

Swiss exemption for the banking license works for deposits for up to 100 Million. The Fintech license is subject to certain conditions relating to, inter alia, the organization, risk management, compliance, accounting and minimum capital (at least CHF 300,000 or 3% of deposits). Such conditions are e.g. that an institution with a Fintech license must have its registered office and conduct its business activities in Switzerland.

In December 2018 the Federal Council adopted a report on the legal framework for blockchain and distributed ledger technology (DLT) in the financial sector[3], where clarifications for the following activities for blockchain projects are provided inter alia:

• Requirements for ICOs

• Banking authorization and exemptions Crypto exchanges etc.

• In general, also the following factors make Switzerland competitive towards Malta.

Estonia and other crypto friendly countries:

• Stable economic and political situation

• Extremely well established and operating legal framework especially in the financial sector (sorry could not resist to underline it as a lawyer): especially regarding protection of investors

• Quite a low taxation and business friendly state environment Major disadvantages currently are:

• No or limited access to European market

• Costs of approvals or licenses (including company set up, attorneys, minimum capital etc.) for blockchain projects are high

• Terms for getting an approval or license are long (for STO on average 6 months, securities dealer license for an exchange around 12 months etc.)

Liechtenstein Financial Market Authority Liechtenstein (FMA) has also published ICO factsheet in September 2017.

As one of the first in the world Liechtenstein has already introduced Blockchain Act (Trustworthy Technology Act) to be enacted at the beginning of 2019 (Liechtenstein Blockchain Act in English (not official translation))[5] and our summary of Liechtenstein Blockchain Act.

The Blockchain Act defines token as the embodiment of rights, conditions for disposal over token and relationship: person, token and related assets.

The following activities will require special registration under the Blockchain Act while financial market laws and ordinances are still to be complied with:

• Token issuer

• Token generator

• Private keys custodian for third parties

• Physical validator (between token and tokenized assets)

• Protector (holding tokens in his own name for account of third parties)

• Exchange office operator (token exchange for fiat and tokens for tokens)

• Verifying authority (checking ability to conclude the deal and the preconditions to sell tokens)

• Price service provider

• Identity service provider (identifying the authorized person of public keys and making registry)

Under financial market laws the following activities may be subject to the following approvals and licenses:

• For STO most likely prospectus would need to be published.

• Most of the exchanges and tokenization platform would fall under payment institution and securities dealer license.

Besides of the regulatory framework Liechtenstein has the following competitive advantages:

• Liechtenstein is a part of European Economic Area and thus offers access to the European market, which is not the case with Switzerland.

• Serious jurisdiction, reliable for investors compared to Estonia, Cayman Islands and other offshores

• Liberal legislation and legal stability as in Switzerland but faster and more flexible thanks to the size of the country

• Getting an STO in a couple of months in a serious jurisdiction reliable for investors

• Liechtenstein is an international financial center with over around 295 billion assets under management

• Credit ratings S&P, Moody’s, Fitch AAA +

Major disadvantages are costs of approvals or licenses (including company set up, attorneys, minimum capital etc.) for blockchain projects are still high compared to Lithuania, Estonia etc. Here we still must note that it not any sort of consultation and RLP Lawyers will not take any liability for the general overview information provided.

HCX security token platform – efficiency, security and stability.

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With a dizzying array of token issuance platforms, it can be difficult to distinguish one offering from another.

That’s why we’ve put together this convenient guide to some of the points that differentiate HCX (Himalaya Capital Exchange) from other security token platforms and make it stand out in the crypto arena. The field of security token issuance is still the Wild West as far as industry standards and compliance are concerned. Companies are forced to create their own standards and interpretations of regulatory requirements. Platforms that provide technological support for token issuance still require companies to engineer their own legal frameworks.

The end-to-end platforms that are common for IPOs or other types of traditional securities offering do not yet exist for security tokens. At the same time, the industry is calling upon institutional investors to take a leap of faith with security tokens. Big players are gearing up to trade security tokens as soon as regulatory frameworks are established. There’s a massive gap in the industry between the vast potential of securitization and the process to facilitate it. This is where HCX comes in — an end-to-end platform for security token creation, issuance and trading that is setting the industry standard for securitization.

The main differentiation of HCX is that this platform addresses many of the challenges of the crypto markets from its very inception. Right now, one of the biggest problems with the crypto market is its volatility. The value of a token shoots sky high based on nothing at all, a bubble which is sure to burst. HCX creates stability in two ways. First, the value of the platform’s internal token, CCX, is pegged to a fiat currency, with the flexibility to shift to another pegged currency to attain maximum advantage for community members. So each IPO offered through the HCX platform as Initial Security Token Offering is denominated in CCX.

And second, issuer-specific security tokens are asset-backed, providing a real-world anchor. Both of these factors prevent HCX from becoming the roller coaster that many tokens have proven to be. Another major problem in today’s crypto climate is inefficiency. Because the field is so new, companies are all scrambling to reinvent the wheel, creating their own processes and standards. HCX streamlines the process through decentralization and eliminating intermediaries. This doesn’t mean that there’s no oversight — in fact, with the transparency of the entire HCX community determining the value and pricing of tokens, the actual worth of an asset is a lot easier to establish. Going beyond the basics, here are a few more ways that HCX stands out from the bewildering crowd of competitors.

1) HCX tokens combine security and flexibility

While HCX is a utility token used to raise funds during the ICO stage only, following the ICO stage, investors will invest in the native Himalaya Capital Exchange (CCX) token, which is pegged to the U.S. dollar. CCX will be immediately exchangeable for fiat currency while remaining sheltered from the volatility of crypto assets since it is anchored to the U.S. dollar. In addition, if at some point, a different anchoring model is desired, such as a basket of currencies rather than the single U.S. currency, the peg can be shifted ensuring optimal stability at all times. The Himalaya Capital Exchange platform will offer a crypto-to-fiat exchange so that issuers can easily convert CCX to fiat, and investors in IPOs (Initial Security Token Offerings) can deposit fiat, then convert it to CCX so that they can subscribe to the IPOs they choose to support.

2) Lower fees, fairer fees

Although both parties using the HCX platform pay fees, the fees are denominated in HCX token, and are generally lower, making the total overhead cost of the investment transaction lower overall, and fairer due to shared cost. HCX is also adopting a transaction-based fee rather than a percentage. Some other ICOs currently charge fees of 5%, while investment banks charge 7-10% of the capital raised on their platform. Regardless of the size of the investment, HCX’s simplified transaction fee model ensures that fees remain static, while the value of HCX itself will continue to rise as more investors and issuers make use of the platform. So, while subscribers to HCX token during its ICO are privy to the upside of HCX token as a cryptocurrency, regular investors and users of the platform who subscribe to the IPOs benefit from the stability of the pegged token CCX.

3) Multi-token flexibility

Unlike many other platforms, HCX offers the flexibility not only to liquidate tokens into fiat currency, but also through extensive fintech partnerships, the ability to trade security tokens issued by a number of other platforms. We are currently negotiating with several platforms in order to ensure both reliable cross-platform inter-negotiability as well as the highest degree of regulatory compliance and licensing.

4) More rational, democratic listing price

HCX is the first platform in the world to offer asset owners total independence when it comes to calculating the guidance issue price and setting their own Initial Listing Price. We believe you know your assets better than anyone else and that there is no need for third parties to undermine and second-guess your own expertise in this information age. Investment banks rely on market feedback to determine the demand-supply intersection, on which they then base the initial issuance price. HCX replaces these crude manual calculations with smart algorithms that seek market feedback and become more intelligent over time, as the platform supports more and more successful IPOs.

And further supporting a saner and more rational model of market pricing, the open and fair trading environment on the HCX platform will ensure that artificially inflated prices will not be accepted. The wisdom of the crowd, as well as automation functions such as smart contracts enforcement, operate instead of third parties to keep all transactions fair and honest, saving money and ensuring compliance at every stage. This gives every entrepreneur a fair chance to raise money, and ensures that no one is left out of capital markets due to high threshold fees charged by banks, which currently act as entry barriers. All of which creates a truly democratic capital market.

5) Crowd-sourced curation

People who are new to the HCX platform often inquire about how we can ensure that bad investors or assets won’t get into the ecosystem and ruin things for everybody. With little conventional oversight and self-evaluated assets, it seems as if the platform is ripe for taking advantage of users who are less savvy. However, the HCX model views community members as “curators,” taking advantage of modern transparency and full disclosure on the part of asset owners to serve as the final arbiters of who is permitted to participate within the community, the value of assets being offered, and much more. Also, following the model being used successfully on many e-commerce platforms today, reputation is cumulative: a community rating for each issuer and investor is built up over time, offering a reliable organic alternative to third parties such as rating agencies. The entire platform will embody this democratic governance model.

Bottom Line

Beyond all the jargon and shiny new technology, it’s simple: a token based on real assets offers the kind of oldfashioned security that utility tokens don’t, while still sharing the benefits of the blockchain, namely transparency and accountability.

HCX offers all this and more: – Security and flexibility, tied to a stable standard – Lower fees and fairer flat fees based on transactions – Multi-token flexibility and fiat liquidity – Market-determined fair asset prices – Crowd-driven curation to set community standards.

Today’s investors are eager to harness the power of blockchain and the HCX platform, with its ease of use and interoperability, creates a user-friendly entry point into the expanding world of fintech. Forget the jargon — what it comes down to is that, because it’s based around security tokens rather than just empty promises, HCX works in the real world because it’s based in the real world — and that’s where it will pay off for its entire community. The future of investment will be here soon, and HCX lets you be part of it.

How can Blockchain transform the Education Sector??

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What began as a chance meeting in a New York City? hotel bar in 2012, is blossoming into a cross-border phenomenon that promises to change the education industry. ODEM, or the On-Demand Education Marketplace, is deploying blockchain technology to make international education more accessible, affordable, transferrable and verifiable. Based in Switzerland, ODEM is poised to launch the ODEM Platform, a global education portal that connects students and professors to collaborate and deliver innovative educational programs.

On top of that, the Platform is critical to ODEM’s partnerships with General Electric Co. and leading centers of learning in Europe and North America to issue blockchain-based certificates of professional and educational achievement. Blockchain technology is the software that underlays the creation of digital currencies such as bitcoin and Ethereum. A key feature of the encryption technology is that it enables transactions to securely occur without the involvement of intermediaries. Back in 2012, Blockchain was barely in its pre-infancy when Bill Bayrd, a former Marine Corps bomb disposal expert, and Richard Maaghul, a Silicon Valley software entrepreneur, met for the first time over a drink in Manhattan. That conversation led to the eventual creation of an international training company and exposed the pair Richard Maaghul, ODEM to the complexities of putting together courses for foreign students and executives on the campuses of elite U.S. universities.

Arranging classrooms, facilities, language translation, catering, and traveland– accommodation were time consuming and expensive. Not long afterward, Bayrd and Maaghul became aware of blockchain technology and began to consider how to unleash its power to creatively shake up the education industry and improve learning outcomes. “Bitcoin opened my eyes to how blockchain technology could be used to make education more affordable and responsive to students’ needs,” said Bayrd. “The technology was made for collaboration.”

The result is that Bayrd and Maaghul and them international team have created a global education marketplace that eases the organization of in-person learning and gives students more power to interact directly with professors at top universities. The ODEM Platform enables students to actively manage the cost of education by focusing on affordable, short-term, in-person classes finely tuned to their learning needs at a specific time in their career. It could herald the end of costly four-year degrees. ODEM uses artificial intelligence to seamlessly manage complex requests to organize educational programs around the world. Once programs are entered into by students and educators, ODEM smart contracts manage payments from beginning to the end of short-term and long-term engagements.

The beauty of the ODEM platform and its use of blockchain and artificial intelligence is that the more educators generate popular academic courses, the more students will be attracted. And the more students that use the platform, the more our network efficiency will drive costs down for participants. For educators, the Platform increases their visibility among all education buyers, generates real-time feedback on their programs, and pays incentives for development of relevant educational content. The platform reduces costs and improves access to premium education by directly connecting educators with students and eliminating inefficient and costly intermediaries.

As the ODEM Platform moves toward launch in the first quarter of 2019, momentum is increasing, especially in the realm of the issuance of blockchain-based certificates. This was a major milestone that came to fruition in September 2018. ODEM was successful in the activation of smart contracts on the Ethereum Blockchain in support of the ODEM Platform. Dr. Adel Emissary, ODEM’s Chief Technology Mentor, completed the deployment of the contracts at a live event at the #SWITCH! Conference in Vilnius, Lithuania As an audience of mostly students looked on, Antanas Guoga, the Lithuanian representative to the European Parliament, received the first blockchainbased educational certificate to be generated by the ODEM Platform. “Today’s activation is a powerful endorsement of our project’s technical viability,” said Dr. Emissary. “I’m really pleased with the progress we’ve achieved toward making the ODEM Platform a reality.”

In December 2018 ODEM partnered with the Southern Alberta Institute of Technology (SAIT) to issue blockchain based academic certificates to a select group of SAIT students. They became the first graduating class at a Canadian postsecondary institution to be granted digital credentials using blockchain technology. Blockchain certificates enable students to directly share their academic achievements with recruiters and potential employers around the world without requesting their paper or electronic records from SAIT.

Blockchain technology creates a decentralized digital ledger to cryptographically assure the validity of recipient-controlled credentials. ODEM also it will provide GE GeniusLinkTM, a unit of General Electric. With blockchain-based tools and technology to support GeniusLink management of experts and on-demand consultants. GeniusLink will verify the professional qualifications of its highkchain certificates to ensure that shortterm talent successfully fulfills client expectations. ODEM will provide training allowing GeniusLink to augment and validate the qualifications of its on-demand talent for clients. Onboarding educators has also been a priority.

In December 2018 ODEM welcomed Dr. Michel Girardin, a consultant and respected lecturer in Macro Economics and Finance at the University of Geneva. He is joining ODEM, as an of blended- learning academic programs, educator relations, and marketing strategies. Dr. Girardin’s Investment Management course has been among the highest-rated business offerings on Coursera, according to a report prepared for the University of Geneva. “In 2017, this specialization ranked in the top 10 of all specializations at Coursera aimed at boosting educator and strategic advisor. Dr. Girardin managed an Investment Management course for Coursera that has one’s professional career and was further classified in the top three courses to build skills in today’s hottest fields, that of becoming a financial advisor,” the report states.

“Earlier this year, the program was second in popularity among 980 business offerings on Coursera’s platform.” Dr. Girardin has more than two decades of experience in the Swiss private banking industry as a Chief Economist been followed by more than 450,000 students since 2018. He will advise ODEM on the development and Chief Investment Officer. He was attracted to ODEM by the opportunity to explore the use of blockchain technology to address the problem of student dishonesty in online education.

The ODEM platform with its innovation, values, and achievements has already won the respect of the tech industry and is looking forward to unlocking human potential, globally.

Security Tokens Prove Blockchain Is Flexible Enough for Regulation

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In the very first days of the blockchain, you would be hardpressed to find more than a few technologists willing to say a kind word for regulation.

Bitcoin’s Genesis Block, after all, includes the text of the financial crash headline from the London Times. If the world’s banks, despite millions of pages of financial law and legal regulation, could bring the economy to a halt, perhaps it was time to try something new and different. Although 2018 was a challenging year for the blockchain and cryptocurrency communities, there was good news too. One such development was the recognition of regulation.

A 2018 bust followed the boom days of 2017. In the last year, many coins failed due to regulatory challenges; Basis, for example, returned investors’ money after recognizing that U.S. laws would prohibit its operation. Basis stalled despite good intentions and smart investors, but other projects failed for more sinister reasons: Considering the laws broken and the lies told, it was no shock to learn that the AriseBank had its CEO arrested. Now, as the industry matures and we learn from 2018’s mistakes, security tokens offer a new way forward. Because security tokens are designed from the ground up to adhere to established laws, they hope to bypass both the regulatory challenges of Basis and the bad faith of AriseBank. Because they more easily fit within longestablished regulations, security token issuers will inspire far more confidence in investors, and in businesses looking to integrate.

And because securities law mandates scrutiny of executives, AriseBank-style scammers — their CEO had prior criminal convictions — are more likely to be weeded out before they could harm investors. Since security tokens pair the assurance of traditional securities with the flexibility and speed of the blockchain, they’ve become a major source of excitement in the community. Blockchain’s advocates and detractors alike have long called it the Wild West of the tech world. But just as law, order, and railroads arrived in the West after a period of chaotic growth, so may security tokens represent a maturation of blockchain. For its first decade, blockchain was associated with cryptocurrency. Security tokens, by digitizing ownership of everything from art to intellectual property to real estate, represent a significant expansion of the blockchain’s capabilities. Property, after all, is a larger category than money.

If 2018 was the year that the blockchain community began believing in security tokens, it was also the year that these tokens’ genuine challenges became apparent. Domestic securities laws are complicated enough; security tokens must function in such a way that they do not infringe the rules in any investor’s territory. In the short run, this may mean establishing geographical restrictions on token holders. Similarly, prospective buyers of security tokens may have to pass certain financial thresholds, like the accredited investor check in the United States. While some may argue that this tradeoff represents an abandonment of blockchain’s democratic roots, it is proof of the technology’s utility and versatility. Another challenge for would-be security token offerers is building a team. Blockchain developers, as we know, are in high demand and short supply.

Yet a security token firm does not succeed just on the basis of its developers; it requires individuals with deep knowledge of international finance and securities law. Security tokens could make complicated, slow, and opaque transactions simple, swift, and transparent, but this process of improvement requires a full understanding of the status quo and how rules may be interpreted.

Success in blockchain has always required expertise in multiple fields, including economics, cryptography, finance, and computer science. Security tokens, by definition, require that firms add legal insight to the core team’s strengths. While meeting external requirements, some of them based on laws promulgated well before the digital revolution, will be a major concern for security token holdings in 2019 and beyond, some questions about this new asset class have arisen in the blockchain community itself. Just as video endured a format war in the 1980s (VHS or Betamax?) and personal computing dealt with one in the 1990s (Windows or Macintosh or Linux?), there are debates in the blockchain world about which blockchain is most suitable for constructing complicated assets like security tokens. Some favor the bitcoin blockchain as the most secure, most venerable, and best known, while others argue that others like ethereum there, faster and perhaps more flexible, would be a superior choice.

I expect we will see successful implementations off multiple chains in the next few years, with potential consolidation happening thereafter. As security tokens gradually enter the financial mainstream, another challenge may arise. Because blockchain allows for the direct exchange of values between two parties, security token transactions will have fewer middlemen and, potentially, fewer safeguards. Tokens have abundant advantages, including quicker settlement, fractional ownership rights, 24/7 trading, and potentially greater access to liquidity, but the blockchain and financial industries have a duty to inform the investing public of the inherent tradeoffs.

As the infrastructure for token trading matures and as security tokens grow more familiar, it’s likely that these disadvantages will grow ever smaller. I doubt that anyone will want to return to the old way of doing things. After all, the plumbing behind traditional equities trading is decades old. That blockchain has come so far in its ten years is a wonder. It has moved from theory to practice to a multibillion dollar industry; it has shaken systems, intrigued individual investors and big banks, and made millions of people reconsider the very concepts of money, property, and ownership. Security tokens offer another way to improve international financial markets. Making predictions about blockchain is notoriously difficult, but if there’s one thing that the last decade has shown us, it’s that the blockchain community will not cease questioning systems and looking for things to fix. Security tokens are the latest demonstration of this continuous cycle of self-improvement and technological innovation.

Making predictions about blockchain is notoriously difficult, but if there’s one thing that the last decade has shown us, it’s that the blockchain community will not cease questioning systems and looking for things to fix. Security tokens are the latest demonstration of this continuous cycle of self-improvement and technological innovation.