TokenMarket: At the Forefront of Investment Crowdfunding
This article is a guest publication from Blocklike, the article can be found here.
Welcome to Digital Security Frontier Vision: The Voice of the Core Builders from Global Digital Security Industry # 18.
In this interview, we are welcoming Mikko Ohtamaa from TokenMarket. Europe’s Leading Token Investment Platform. on a mission to “tokenise the most exciting tech startups shares and place them on the blockchain." Since the company was founded at the end of 2016, it has reportedly helped to raise £240 million for 30 start-ups, which includes utility token offerings such as Storj, Fetch.ai, Civic, Dent, and Crypto.com.
Some time ago，TokenMarket announced it has received approval from the FCA to run its Security Token Offering (STO) in the regulatory sandbox.
“I am the CTO of TokenMarket. I started software developing back in 1999, with Nokia, working with the first internet-connected mobile phones and apps for them. Then in 2013, I moved to develop finance and blockchain solutions, work as CTO in LocalBitcoins, the world largest OTC exchange. From there I moved to developing on Ethereum in 2016 when the first smart contract developing tools become available. Right back then, I saw that it would be super beneficial to have real-world assets like company shares on a blockchain — we did not call them tokens by time, but colored coins. This would enable people to invest and earn interest and dividends easily, something you cannot do with current cryptocurrencies where only benefit you get is upside if value goes up.”
1. We heard the good news about “TokenMarket Receives FCA Approval To Launch Security Token Offering (STO) In The UK”, Congratulations！When did you start applying? And what preparations have been made for this?
TokenMarket has always had an overall aim; to tokenize the most exciting tech startups shares and place them on the blockchain. We started this journey in late 2017 but the STO side of things had not yet caught up until now for many reasons and regulators were slightly hesitant about the overall process.
However, when the FCA announced it would be opening the Cohort 4 Sandbox, in 2018, TokenMarket was the first to apply. As we saw it, technology and legal understanding were finally here. We have been now in the sandbox process for a little over a year.
2. At present, digital securities are in the early stage of development in the world. What do you think is the biggest advantage of the UK’s policy for STOs, compared to Europe and the United States? (After the issuance of STO in the UK, will Brexit have an impact on this?)
TokenMarket sees STOs as an effective instrument for crowdfunding.
The UK has always been at the forefront of “investment crowdfunding” which equity crowdfunding is a part of.
Equity crowdfunding differs from a product kick starter platform where one buys a presale product. In equity crowdfunding, investors are able to buy company shares as an investment in order to make a profit.
The UK is championing this new type of crowdfunding with its policies and tax schemes that support investment in early-stage companies. The equity crowdfunding industry has mature and well-known platforms like Crowdcube and Seedrs which has seen thousands of deals executed since the first rules for investment crowdfunding become effective in 2004. In the UK, investment crowdfunding passed venture capital investments in 2015.
Speculating on Brexit is difficult as we still do not know if it will happen or not. The UK has been the leading financial hub of the world for the last 500 years. They have very business-friendly policies, but also very strict and fair legal systems to ensure healthy capital markets. Even if Brexit, this won’t change the fact.
Also, the crowdfunding rules are now being harmonised across European Union countries and it will become much easier to execute what lawyers call “prospectus directive exempt offers” everywhere in the EU. TokenMarket is opening a side office in Malta to hedge our risks if politicians cannot reach a viable agreement.
3. TokenMarket has helped many companies to do ICO in 2017. Why now you turned to security token market?
We see tokenised securities as a continuum for the utility token markets. With securities, the investor can make a direct profit, in the form of interest, dividends or revenue sharing. Long term, they are more attractive to investors compared to utility tokens where one can only speculate whether a profit will happen. With security tokens, the investor also gets various rights including information rights, voting rights, and control rights, so carrying out proper due diligence checks is easier. Regulation around securities, the additional due diligence coming with it, protects the investors by preventing risky deals to enter the markets.
We must not ignore the overall success of utility tokens and the ICO boom of 2017. A lot of the infrastructure, markets, and apps were created during this time and most of them are still going. Billions of pounds have been invested in the token ecosystem and this progress has made it possible to finally have tokenised securities.
4. In the process of transforming ICO platform into STO platform, what difficulties do you think should be solved?
I think that the largest challenge is the education of investors.
STOs are not just rebranded ICOs where you upload your passport. Startup and high tech company investing, which most of the ICOs are, has been around for decades within much more traditional areas. It was not before the ICO boom when a lot of Millenials started to think about money, savings, making passive profits and things like this.
We need to explain to people what tokenised shares are in order for them to understand just how the overall process works. For more traditional investors we need to explain what tokenised securities are and what benefits they bring instead of having a paper share certificate.
5. As an enterprise which has received FCA approval to launch its own STO in a regulatory sandbox, what do you think your success has implications for other issuers?
We have a strong pipeline of customers waiting to go live after TokenMarket STO. Some of them considered getting publicly listed on, but they also see that the days of traditional exchanges are numbered.
When the investors see that digital assets work, there will be a massive rush to get there. Never before has there been a way to get global visibility and reach to expand your company investor base as there is with tokenised securities.
This will also be a game changer for how investing itself works. Instead of professional investors, like venture capital funds, we will see a lot of more product consumer-investor hybrids. For example. I would personally be happy to invest in the top 20 apps I am using on my mobile phone because I love those apps and the companies behind them.
6. It was reported that “TokenMarket has assisted over 30 of the most innovative Blockchain companies raise over £240 million in total, issuing digital tokens to over 250,000 investors.” This is a very exciting number. What do you think is TokenMarket’s biggest advantage in helping companies ‘capital raising?
We have a proven working platform and which is powered by our own technology. We have a six to twelve month lead on the next competitor. We also have an existing global investor base. Not only that but we also have a well-known brand and a good reputation within the space. We understand the regulatory landscape and have engaged with regulators of different jurisdictions earlier than most, educating them about the benefits of tokenisation and blockchain for non-payment use cases.
7. What difficulties do you think exist in start-up capital raising? In the future, if TokenMarket helps a startup to issue STO, can these difficulties be solved?
Currently, raising capital for an early-stage company is relationship-centric. It boils down to “it’s who you know, not what you know.” The likelihood of getting money with good terms highly correlates with the network of people you have around you. Silicon Valley companies and investors have a huge advantage over everybody else because of this human-centric relationship.
We want to change this. We want to make early-stage capital raising more market based like it is for mature companies. Everyone should have democratic access to these deals. Investing should be a fluid process with a good user experience instead of faxing a pile of papers around and you should be easily able to trade your positions in companies in and out. Our goal is to make it for the best European companies and the best US companies raise money as easily and with the same terms.
All of these do not change the fundamentals of investing and the return of investment, but they make the process around it much more efficient.
8. What is the number of investors on the TokenMarket platform? Are they interested in security tokens?
I would say there is a keen interest. We have around 170,000 registered users currently and there is a demand to know more as our security token articles regularly get thousands of readers.
There is another new audience outside the everyday investors that TokenMarket users mostly consist of. Professional investors, who have more conservative investor profile and skip cryptocurrencies, are now looking into tokenised deals. They see the benefit of wider reach, wider investor base, easier transactions, and efficient investor communications and management as benefits even if they do not care about blockchain technology.
9. You have been one of Ethereum developers and have been working in the crypto for a long time. From ICO to STO, how is this market been changing? What are the future trends? How will this market’s future?
Decentralised finance (Defi) is the future. You may not directly invest in the companies themselves, but instead, invest through a smart contract governed by financial instruments. Smart contracts can be seen as automatic fee-free funds, with fully transparent rules and no counterparty risks. RigoBlock, EthLend, and MakerDao are few of the early pioneers in this space.
Because most interest or dividends products are securities, we need to engage with regulators alike to give you these profit-generating tokens.
10. Now many people think that shortage of liquidity is the big problem of STO industry, As a well-known Token investment platform in Europe, how will you solve this problem?
First, we need to define what liquidity is. Is it the volume of one million dollars per day, hundreds of millions or more? Based on this kind of criteria, there are only very few truly liquid markets currently available including, forex, US treasury notes, and global S&P 500 stocks. For example, the London AIM and the NASDAQ First North companies barely see trading of any kind. The number of equity IPOs and people investing in stock has been declining worldwide for some time.
We see STOs bringing a partial response to this, in the form of better access for investors. Because settling and clearing tokens between different blockchain systems and wallets are so easy, there are very few technical barriers to enter the trading market. There will be a renaissance in terms of trading and investing apps, just as we have seen within the payments and banking sector. Think WeChat Payments but for investing.
Blockchain technology brings the cost of running capital markets down: software development for market places gets cheaper. Transfers and transactions get cheaper. Compliance gets cheaper. I believe we will see a time where there are zero transaction fees to buy and sell shares and people will use company shares like money. Startups can easily pay their service providers and contractors using the stock as money, utilising ICO style “private money” deals. The will take this offer, as the risk premium of tokenised shares can be defined transparently through a smart contract, and thus pricing the risk and liquidating this payment will be easy.
Did you know that the part-time masseuse of the first Google office got paid in shares and she later retired as a millionaire?
Cryptocurrencies have shown that liquid, 24*7, global markets can exist and thrive. Whether you think cryptos are a scam or not, they truly demonstrate investor direct exchanges and markets that do not exist in the current world. I can log in, complete exchange onboarding and trade bitcoin against other cryptocurrencies under 10 minutes and it does not matter if the exchange is in Hong Kong or Brazil.
But will tokenised securities like Bitcoin? No. However, it will trade orders of magnitude more than early stage high tech company shares of today.
TokenMarket is working towards a Multilateral Trading Facility (MTF) license in Europe and an Automated Market Institution (AMI) license in the Dubai International Financial Centre. Both of these licenses allow us to operate one of the first exchange for tokenised securities.
11. Is there anything else that you would like to share with readers?
Our business is moving from UK London to the east. Our offices are spread in Gibraltar, Helsinki, Malta, and Dubai, moving forward Asia step by step.
China, HK, and Singapore are the hubs of the internet and Fintech startups and innovation. The market speed and potential are impressive. I believe Europe and Tokenmarket will be a strategic partnership and market for Asia. It will be an honor to discuss and exchange ideas with innovator and forerunner here who share the same vision with us.