And why a broker-dealer is part of our future.
TokenSoft, Inc. is proud to announce we acquired an interest in a broker-dealer, now renamed TokenSoft Global Markets LLC. And we have the ability to acquire 100% of TokenSoft Global Markets, subject to regulatory approval. TokenSoft Global Markets, a SEC registered broker-dealer, is powered by the same security and compliance software running our clients’ issuer-led security token sales.
To understand why we made this decision, you need to understand the story of TokenSoft.
Don’t have time to read the story? Skip to the end to learn how TokenSoft Global Markets can help security token issuers. You can also read our press release.
In the winter of 2015, the market was quiet and those already engaged in the Bitcoin space were heads down building. Earlier in the year, one of the largest exchanges, Bitstamp, announced hackers had stolen almost 19,000 bitcoins, worth around $5 million at the time. This was the second time in less than a year that hackers had made off with a significant amount of bitcoin from a major exchange after the Mt. Gox hack in 2014.
While times were tough for many companies in the space, there were a few that weathered the storm better than others. Coinbase raised $75M in 2015 as they built a compliance-first, fiat to cryptocurrency exchange. This was the largest amount ever raised by a cryptocurrency company until a stealth startup called 21e6 (previously 21[.]co and later Earn[.]com) came out of the closet with a bang, raising $110 million and launching The 21 Bitcoin Computer. While many debated the value of the 21 miner, most agree that it inspired a community of young developers to begin building tools on Bitcoin.
During a week-long hackathon, where developers around the world came together to build products using the 21 Bitcoin Computer, Mason was one of three judges. During a review of the hackathon submissions, Mason noticed there was one particular individual that had five submissions, all of which were commercially viable products. At the time, it was rare for any Bitcoin company to be commercially viable. Out of curiosity for James’ ability to build cryptocurrency products that solved real world problems, Mason reached out to start a conversation.
Mason asked James, “What inspired your product submissions?” and James responded, “I just took a look at all the AWS services and made them payable with Bitcoin.”
James won 1st and 2nd place and took home $1,000 in Bitcoin and an Oculus Rift.
Later that year, Mason and fellow 21[.]co employee, Justin O’Brien, held a Bitcoin Bootcamp.
“I used the money I made from the 21 Hackathon to attend the Bitcoin Bootcamp,” James, co-founder and CTO at TokenSoft.
After meeting, Mason and James kept in touch while both of them continued working at their current jobs, Mason at BitGo and James at a variety of internet security and blockchain companies.
At BitGo, Mason built the company’s first multi-signature wallet for Ethereum and regularly led security consulting engagements with their clients.
Meanwhile, James was a security engineer for Symantec and then RSA Security, helping secure websites for some of the largest consumer companies in the world -- including many financial institutions. After his work in security, James led development of a variety of blockchain-related projects.
In short, Mason’s and James’ pedigrees were born in bitcoin and bred out of internet security. These became the backbone of what became TokenSoft.
Everything changed in 2017. Token sales took flight: First, it was $5 million; then $100 million. Finally, token sales in excess of $200 million rocked both the cryptocurrency market and Wall Street. It was an exciting time but bad actors loomed. The new industry saw endless apparent scams, many launched with copy and paste white papers (How To Guide), and hackers regularly helped themselves to a cut of huge amounts of money being raised by token sales.
From a regulatory standpoint, no one knew which way was up. Everyone had their own opinions on whether many of these assets were cryptocurrencies, securities, or something else, and governments were slow to try to define them.
But, one thing was clear -- very few in the industry were focused on security or compliance.
JAMES (in Atlanta): Hello?
MASON: Hey, James. It’s Mason. I am starting a company to help companies manage compliance for token sales. I need your help.
MASON: So, I need you to come to San Francisco to help.
JAMES: Okay, I’ll think about it.
MASON: No, I need you this weekend.
Needless to say, this is a bit of revisionist history but James flew to San Francisco shortly thereafter. Their first two clients launched token sale websites on the same day, leveraging TokenSoft’s technological ability to build secure sites that meet the issuer’s needs. A little over 14 months later, TokenSoft leads the charge in providing these services to support compliant token sales. Our clients have raised over $400 million with a total combined market cap of $750 million, all while maintaining compliance with applicable U.S. and international laws.
We reached this point in three simple yet novel steps:
1st, we launched our platform, a customizable white-labeled subdomain for each client to manage its own compliance process during its token sale.
2nd, we launched Knox Wallet, the first cold storage, multi-signature wallet that is mobile-first to help clients self-custody sale proceeds during their token sale. Follow us on Medium for our big update about Knox Wallet in early 2019.
3rd, we worked with exchanges and token issuers to create the framework for ERC-1404, an open standard for security tokens, to help token issuers manage securities law compliance post-issuance.
Today, we are proud to support this industry’s evolution by making digital asset issuance a growth strategy accessible to all companies — even those with the most demanding regulatory and compliance standards.
As the security token market matured, clients began demanding services related to broker-dealer activities, which we did not offer. TokenSoft Global Markets can.
From referring clients to exchanges or brokers, to custody solutions when self-custody is not an option, to supporting private placements, TokenSoft Global Markets hopes to be a helpful advisor to token issuers as they weigh their best approach to the market.
“Prior to joining TokenSoft as head of special projects, I spent a lot of time thinking about what the future of banking and finance would look like,” said Lawson Baker, Head of Project Zero. “Mason and James gave me a lot of flexibility in modeling for the future of security tokens. Acquiring an interest in a broker-dealer is only one step in our path forward.”
As TokenSoft and TokenSoft Global Markets are separate companies with separate management teams, we expect both companies to grow together and separately. At the end of the day, it comes down to the client experience. Some clients want to manage the token sale process themselves with TokenSoft’s compliance platform and Knox Wallet. Some clients want the support of a broker-dealer like TokenSoft Global Markets.
That’s why we made the decision. And, that’s the story of TokenSoft.
TokenSoft continues to grow its team. Learn more about our open positions.