Tokensoft Takes 2021
We launched Tokensoft in 2017 to support Blockchain projects seeking to comply with securities (and other applicable) laws. We’ve been fortunate to help launch projects such as Tezos, Hashgraph, The Graph, Arca, INX Limited, (and through Tokensoft International AG) Avalanche, and Seba Bank. Since inception, we’ve grown to support several asset classes on the blockchain, including stablecoins, tokenized assets, SEC-registered tokens and wrapped assets. To date we’ve launched over 50 customers and assets, processed over $1.5 Billion and 150k investors internationally.
Tokenizing our cap table and distributing $4 Million in Tokensoft Equity ($TSFT) to Tokensoft investors and former employees. $TSFT is tracked on the Ethereum blockchain and the regulations are enforced using ERC-1404. Investors such as Base10, e-ventures, Coinbase, Meltem Demirors, and Avon Ventures (a Fidelity affiliate) were able to take delivery of the SAFE-governed token and to hold it in self-managed wallets. The SEC approved the first two registered issuances of digital asset securities that both utilized Tokensoft technology: the first closed end fund on the blockchain (the Arca U.S. Treasury Fund) and the first blockchain IPO (by INX Ltd). After many conversations, the SEC became comfortable with the Ethereum smart contract programming standard (ERC-1404) that Tokensoft utilizes for issuance of security tokens to maintain compliance with applicable securities regulations.
Due to increasing demand on our platform, we engaged in several platform upgrades, the most notable one being an increase in the number of assets supported on the blockchain. We have several users such as Seba (through Tokensoft International AG) and wrapped.com which carry large pipelines. The upgrade enables support of up to 1,000 assets per customer on any supported blockchain, regardless of asset class or regulatory requirements. To support these issuances, Tokensoft also launched a transfer agent after receiving approval from the SEC. Importantly, the masterfile of this transfer agent (which is called TTA and f/k/a DTAC) is informed directly from transactions in digital asset securities utilizing ERC-1404 technology that occur on the blockchain. This is a key step in the direction of allowing blockchain to be used directly as a record of truth for securities transactions.
Tokensoft additionally engaged both staff and commissioners at the SEC and FINRA on many occasions to explain how the Ethereum blockchain (and ERC-1404 specifically) can be used to provide secure and auditable custody for digital asset securities. These conversations and materials provided key background for the SEC’s recent proposed regulations that finally allow for broker dealers to custody digital asset securities.
We partnered with Anchorage to launch wrapped.com, a regulatory compliant process for the wrapping of a blockchain asset (such as ZCash) and issuing an equivalent representation on another blockchain (such as Ethereum) to facilitate decentralized finance (DeFi) transactions. Wrapped ZCash (WZEC), for instance, is an ERC-20 token created by Tokensoft that’s backed on a 1:1 basis with bitcoin held in reserve by Anchorage as qualified custodian. Launching our customers Arca and INX, both of which are issuing the only SEC-registered securities on Ethereum.
Looking into 2021
We saw 2020 feature the maturity and growth of defi platforms offering a variety of services such as automated market making, insurance and lending. These platforms were all underscored by one key feature, the ability for investors to generate a yield on pre-existing investments. We also saw the SEC get comfortable with SEC-registered tokens on the Ethereum network, such as Tokensoft customers INX and Arca. We consider this to be the largest regulatory breakthrough of 2020, and hope to use this as a platform to enter 2021 on a stronger foundation.
Looking forward to 2021, the biggest regulatory questions continue to revolve around whether more strategic clarity will arise for the US overall as the Biden administration comes on board and potentially prioritizes a roadmap for the adoption and regulation of blockchain and cryptocurrency. As to now-established aspects of blockchain usage for financial transactions, the two main regulators in the US (the SEC and CFTC) have begun to lay the groundwork to continue to build on recent efforts to provide more regulatory clarity, as evidenced by the recent proposed SEC rules for broker dealer custody of digital asset securities and the CFTC’s assertion of clear jurisdiction over Bitcoin and Ethereum. Regulatory engagement will continue to be key for Tokensoft and the industry overall to ensure proposed and future regulation deals effectively with both the opportunities created and problems that arise from utilizing blockchain technology and to push regulators to recognize blockchain as a record of truth for financial transactions. Regulators, however, will continue to play catch up as the use of blockchain evolves to include more aspects and usages for DeFi that do not fall neatly into any current regulatory framework.
More iteration = more innovation
Iteration begets innovation. Today, DeFi is the most vibrant and rapidly evolving petri dish in the history of software. We see new concepts born almost on a monthly basis and see the space iterating towards product market fit thanks to an endless stream of copy-cat projects which feature at most, a minor improvement on a pre-existing set of smart contracts. We saw this with the reuse of the Compound governance contracts, the Synthetix staking contracts and the Ampleforth rebasing smart contracts. This has led to a rapidly evolving, never ending stream of innovative projects that people love.
Security tokens, are they ready?
Today Tokensoft powers the only SEC-registered security tokens trading on the Ethereum blockchain. This is partly due to progress with educating the SEC on how the Tokensoft Transfer Agent works in coordination with ERC-1404. We haven’t seen a large stream of issuers take this path due to the perceived challenge and cost. However, we hope to change this in 2021. We think our regulatory moat will enable us to create a large pipeline of assets across multiple asset categories, not exclusive to just security tokens. We’ll be launching some new concepts that take advantage of the regulatory structure of security tokens that allow us to interact with the world of digital assets in new, exciting ways.
Tokensoft propelling the markets in 2021
With infrastructure mature enough to allow various regulatory structures, we expect to maintain a consistent schedule of launches. Through a combination of our customers as well as assets that we spearhead, we expect to launch on the low-end 64 assets and on the high-end up to 250 assets on the Ethereum network and other blockchains. These will be a conglomerate of stablecoins, wrapped assets, SEC-registered security tokens and tokenized, private-market securities.
2020 brought us a lot of hard working, intelligent teams, a better understood regulatory environment and an increasing number of major institutional investors. Prior years of success had been overshadowed by extreme market drops and a subsequent drop in morale and interest. The strength of the market in 2021 will provide a solid foundation for blockchain startups to continue launching products and services in a stable, growing market and a healthy dose of retail interest.
We’re excited to continue to support the next batch of innovators in launching their blockchains and defi protocols. Excited about the intelligent, innovative teams we’ll meet and excited to support the crypto space. We launched Tokensoft at a combined $100 million market cap, three years later we’re excited to help push it from $1 Trillion today to $10 Trillion tomorrow.
Tokensoft is a leading technology platform for blockchain-enabled securities based in Austin, TX. The Tokensoft platform enables forward-thinking enterprises, asset managers, and financial institutions to fundraise, manage investors, and access secondary market liquidity using the blockchain. The Tokensoft platform has processed investors in over 50 countries and Tokensoft customers have raised or managed over a billion USD.