Summit envisions digital-asset economy
By having Jeff Pulver, one of the world's distinguished internet entrepreneurs, host an event in Bermuda, the island has added to its standing as a leader in the field of blockchain and fintech regulation.
It is one of the reasons why James Wallace, a co-founder of venture fund Exponential Ventures, was in Bermuda this week for the Security Token Summit II.
He attended to support start-up TribeOS, which last month became the first company to launch a security token under Bermuda's new digital-asset regulations.
The summit was held at the Hamilton Princess and Beach Club on Tuesday. It was organised by Mr Pulver, chairman of the Blockchain Token Association. Mr Pulver was a pioneer of voice over internet protocol, which allowed voice communication and multimedia streaming over the internet.
After attending the summit, Mr Wallace called the event “a massive success”, and said: “Jeff Pulver is an extraordinary man, he has done some extraordinary things — to be part of the team that invented VOIP. He is a genius who experienced things in the dotcom era.”
He said Mr Pulver was bringing his high degree of experience and intelligence to the space of security tokens — seeing opportunities, but also the threats and obstacles.
The summit attracted attendees from 13 countries. Mr Wallace said: “[Jeff] has no business model, there is no value extraction here. He has put really smart people in the room together to create the new digital-asset economy.”
He said Mr Pulver was presenting a vision of standardisation for the digital-asset economy that will “allow for more value creation and sharing of that value. With his leadership, and that mandate, he attracted some enormous value creators here.”
Last month, TribeOS announced it was offering its security token, called Fire, under Bermuda's Initial Coin Offering Act. The token aims to raise $45 million for the start-up, which is focused on combating the problem of online ad fraud.
Exponential Ventures has helped TribeOS on its path to reaching the point of issuing Fire.
Mr Wallace said: “It is significant — the world's first federally approved digital security. We imagine ourselves architecting the new digital-asset economy, which is better for everyone.”
He sees the road ahead as tokenisation and fractionalisation that allows for “anyone to invest in anything, essentially — whether that's arts, downtown Toronto real estate — you buy a dollar of it instead of $10 million, which would be the entry fee to get into most asset classes”.
Security tokens are a move away from the old model of initial coin offerings, which Mr Wallace said was really about “distorting the value of the token, inflating the value of the token — typically to enrich the token holder”.
He said: “We don't think that is a viable business model and is nothing we want to be a part of.
“So the new security token paradigm that we believe in is one that is all about stability, that represents real assets, real equity and when it is a profit-generating business — because it could be a non-profit that can tokenise. When it is a profit-generating business we do attach a dividend to it.”
Exponential Ventures was the sole seed investor in Bermudian-registered TribeOS, contributing $500,000.
Mr Wallace said it followed up in the “series A” round of major fundraising, contributing $2.2 million.
“We literally embedded ourselves in the start-up so that we could help facilitate a lot of the conversations to help TribeOS get the approval that it wanted. But also because we understood as an investment fund, that we had an opportunity to create a blueprint,” he said.
That blueprint has been released and is called Seed to DSO [digital security offering].
“As a venture fund we are seeing it as a seed round to a digital security offering.”
Mr Wallace explained that Exponential Ventures is finding start-ups that are solving major world problems, “because our investment thesis is that we invest in start-ups that alleviate suffering or expand potential to enable meaningful living — we believe meaningful living is a human right”.
Once a start-up that fits that qualification is identified, Exponential Ventures puts them on a path to a digital security offering; fractionalising and tokenising an equity in the start-up.
Mr Wallace said: “Having facilitated those conversations with the Bermuda Monetary Authority, the Ministry of Finance, the executive branch and so on, we feel we have something we can quite literally prescribe to our investments — give them a playbook, a blueprint, a framework — so it does not cost a lot or take their attention away from building the product that consumers want.”
Mr Wallace said the venture fund was also in Bermuda to deepen its relationship with the island.
“We have banking in the US, and broker dealers in the UK; we feel there is a cohesive [digital] platform in Bermuda that does not exist elsewhere.
“With the ‘Seed to DSO' blueprint that we are proscribing to our start-ups, we see an endless deal flow for this platform.”
He said the Bermuda Monetary Authority and the Bermuda Business Development Agency were seeking filters to help them when they are considering applications.
“We want to package up grade A applications that the BMA feels are complete, and that they feel respected. We are developing those relationships so that when we package up our start-ups to seek digital security approval, the agencies are pleased with the applications and the approvals are speedy.”
As for the role that Bermuda is playing in the development of security tokens and other fintech and blockchain associated technologies, Mr Wallace said that without Bermuda, venture funds would still be taking significant risks, exposing themselves to legal issues and liability, and risking a lot of investments.
He said: “The SEC is basically providing guidance by enforcement, so we are having to interpret their opinions based on fines and statements.”
To his mind Bermuda, and possibly Gibraltar, are the only jurisdictions in the world where it is possible to have a conversation with the regulators.
“Bermuda provides a very clear path to regulation and compliance. We are not getting that guidance from other regulators. We are very grateful for that. We feel we have these enlightened documents that protect the start-up and protect the investor and the founders,” he said.
“That was only possible because they were willing to take meetings, and willing to have real conversations that were thoughtful and beneficial.”
The Security Token Summit was presented by the BDA, Finetch Bermuda and the Blockchain Token Association.
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