TeqAtlas talked to Sean Nasiri, Head of Operations and Business Development at Tokensoft - a token issuance platform that helped the Digital Securities Market pioneers raise nearly $500 million by now. Read on to learn about the successful fundraising cases and difficulties, plans and accomplishments of the team.
TokenSoft is a leading technology platform for companies seeking to issue, manage, and custody digital securities on the blockchain. TokenSoft offers a bespoke suite of technology and consulting services to meet the needs of the entire lifecycle of a digital security, including onboarding, distribution, custody, and ongoing administration. TokenSoft supports the highest standards for regulation and compliance, regardless of jurisdiction. The firm’s clients have raised nearly $500 million in assets. TokenSoft, Inc. does not provide legal advice or engage in broker dealer services.
1. The team behind TokenSoft is quite impressive. Could you tell our readers the backstory of the company and your token solutions?
TokenSoft was started after seeing an unmet need for secure and compliant digital asset issuances. In 2017, companies started to issue their own assets on the blockchain but not necessarily follow the regulations. We worked with attorneys and leaders in the space to understand the needs and built an open-architecture, white-label token issuance platform designed around helping issuers adhere to securities laws. Today, TokenSoft’s Platform is known for helping some of the largest token-issuers follow the laws with scale and security in mind.
Mason Borda, co-founder and CEO, is a technology entrepreneur with early experience in blockchain technology, custody of cryptocurrencies, and related regulations. In 2017, companies started to issue their own assets but not necessarily following the regulations. TokenSoft saw an opportunity to help issuers adhere to securities laws. James Poole, co-founder and CTO, has an extensive background in building security software for large companies and started exploring blockchain technology early on as well. It was important that TokenSoft solve both regulatory and cybersecurity challenges faced by any company entering the space.
2. You’ve had a lot of clients. How much have your clients have raised?
Our clients have raised nearly $500 million. We are happy to support their success with Tokensoft’s Platform, a secure, scalable, and compliant issuance platform for issuer-led sales. As a software company, we focus on providing tools to help with issuer-led sales rather than making investor introductions, which is an activity only broker-dealers can undertake. We believe our software tools empower high-quality projects to rise to the top for investors with technology that easily integrates into secondary market infrastructure providers like ATS exchanges while standing the test of time when it comes to technology and applicable regulations.
A key part of enabling scale is our ability to enforce jurisdictional banking and financial securities laws during the issuance process AND embedding those rules into the token via smart contracts to ensure secondary market trades are also compliant. This year, we expect to see a number of our clients enjoy these features, particularly as the profile of our clients moves up-market to more of an institutional flavor.
3. How did you get the first successful case? What was your major learning during that process?
Our first client’s token sale went live in 2017 and we have continued to build capabilities and grow our client list. Our first client was issuing in many jurisdictions so developing the scale and automated flows to account for many markets was a challenge and learning that has helped us get to where we are now. We believe a lot of our early success is a result of relying heavily on experienced securities law attorneys with a global footprint. We spent countless hours with our client’s counsel and our own counsel to ensure each issuance was compliant. Additionally, our focus on security and ensuring our customers felt comfortable in self-custody of funds was very important. Developing our own self-custodial, multi-signature wallet was part of this process of empowering our customers while also making them feel secure.
4. What are the difficulties in approaching different audiences like startups, enterprises, funds, and investment banks that seek to issue digital securities (or security tokens)?
As the industry is still nascent, we spend a lot of time on education across all segments. When working with a specific issuer, we often consult on the strategy to architect their vision using blockchain technology and other software tools in the ecosystem. That’s actually the reason behind our recent introduction of TokenSoft Consulting Services. Companies often know what they want but rely on our deep experience to help them get there.
We work with a range of company profiles but find that we work best with companies who have shared values. Companies that work with us tend to be those who take the legal and regulatory side of things as seriously as we do. As we’ve been working more with larger institutions of late, we have watched as the approach, pace, needs, and level of questions (and concerns) have changed. As TokenSoft’s Platform is bespoke in nature, we are uniquely qualified to serve the varying needs of different clients. In our experience, no two projects have been the same.
5. What do you think should happen to bring investors into the space and what incentives do you use to keep transactions on the platform?
As a technology and service provider, we engage in issuer-led sales, where we provide the infrastructure and tools that enable them to run a fully compliant issuance, in the jurisdictions they specify. Given we do not interact directly with investors, we believe focusing on providing a streamlined and elegant user onboarding process that can be completed seamlessly and in minutes is a powerful tool to give our clients. TokenSoft’s Platform is built with this client experience in mind.
I think the industry wants a system where accredited investors and institutions do not need to go through the onboarding process repeatedly, but we are unsure regulations allow for this at this time.
6. The team behind TokenSoft has experience in creating wallet infrastructure, and it was obvious for you to create your own Knox Wallet. What benefits does it have for digital assets that are being treated as securities?
Knox Wallet is purpose-built for self-custody and administration of digital securities. Compliance requirements for digital securities exist at the blockchain level.Therefore, custody solutions must administer compliance for the tokens at the blockchain level as well. With Knox Wallet, issuers can manage investor’s ability to transfer tokens, ensure only compliant exchanges list these tokens, and a lot more.
7. To support the private placement requirements you acquired an ownership stake in a Broker-Dealer and partnered with Coinbase, the well-known digital asset custody company. Together it looks like a digital assets management system that covers all the aspects of the custodianship?
Yes, we acquired an interest in a broker-dealer called TokenSoft Global Markets and have also integrated with Coinbase Custody, but it’s important to separate the two.
With Coinbase Custody, the goal was to provide our clients the option to use a well-known institutional brand that people are familiar with as an alternative to self-custody route while utilizing a trust company approved by the state of New York and experience securing billions of dollars worth of assets. Another benefit to Coinbase custody is the ability to exchange cryptocurrency for dollars through a trusted platform after the sale ends.
For TokenSoft Global Markets, we are working on some exciting updates that you will hear about soon.
8. There is a proliferation of security token “standards” out there. You are working on the ERC-1404. What was your main goal behind creating this standard?
ERC-1404 also known as “simple restricted token standard” was a collaborative project with leading global law firms and exchanges to design something for security tokens that carry complex compliance requirements. We wanted to help issuers manage security tokens and their requirements through automation and tools such as whitelists to prevent token flowback if sold to non-US investors, ability to revoke a token if required by law or otherwise, and to support other transfer restrictions such as caps on ownership amounts.
9. How long has TokenSoft been working on ERC-1404? Is it compatible with other protocols?
ERC-1404 is designed for security tokens that carry complex compliance requirements while also being flexible enough to implement some of the branded security token standards and even the standard for Delaware shares. The TokenSoft team announced the standard to the community in the Fall of 2018 after having worked on it for several months. The token standard was developed with corporate governance, banking, and securities laws in mind and with the help of top-tier exchanges, financial institutions, and law firms. It is fully open source, which enables it to provide flexibility in interoperability within the Ethereum universe in addition to being compatible with most other security token standards on the market.
10. There are initiatives to create one global standard, e.g. The Millbrook Accord that is working on the Verified Token Framework (VTF). Do you think the industry needs one standard for all marketplaces and exchanges to scale?
While we believe that the industry would benefit from some standardization and common taxonomy, we also believe that it is too early to know what the standards should be right now. That’s actually the reason we created a “simple restricted token standard.” We believe this standard is the best option to restrict transfers for any reason, not just securities laws reasons. For example, ERC 1404 could be used to implement a USD-backed stablecoin or closed-loop gift card or rewards program.
The industry is still very young and it would be difficult to anticipate everything that would go into creating a single standard this early in its development. People are also too focused on the protocol layer as it pertains to token standards. We created ERC-1404 to be permissioned and interoperable for the future.
11. 2018 was a year densely packed with accomplishments for TokenSoft. Support for the new type of clients (funds), new integrations (Chainpoint, Corda, Stellar, Hyperledger) and features (ERC-1404, Knox Wallet), partnerships (OpenFinance, Coinbase), acquisitions (Broker-Dealer). What should we expect from TokenSoft in 2019?
2019 is shaping up to be a very exciting year for TokenSoft and the industry as a whole. As mentioned in previous questions, the entrance of major banks, institutions, and enterprises are major milestones for the space. As the companies are maturing, so is the industry, and we are also seeing increased activity from Asia, Europe, and the rest of the world. We are excited for some of our marquee clients to announce their upcoming fundraising efforts, which we believe will garner the attention of mainstream finance and media.
We are working on projects that serve the specific needs of our clients and continuing to build out feature sets within the TokenSoft Platform and Knox Wallet.