Processing of All Financial Instruments Will Shift to Blockchain - Unhashed #12

For the 12th part of Unhashed, I reached out to Ross Shemeliak, the Co-Founder and Chief Operating Officer of Stobox, a firm helping companies leverage the potential of tokenized securities and digital assets.

Let’s delve into what he had to say on digital securities, regulations, traditional fundraising methods, and more.

Q1: Welcome to Unhashed. Please share with us your journey into crypto and how you came to the Stobox Project?

Answer: From my teenage years, I was fascinated by economics and everything related to it. After graduating, I would attend a study-in-practice economics course by the vice prime minister of economy, where my team and I were proudly recognized as the best students. Long story short, I was in love with the current subject from a pretty early age, which led me to study it on a more professional level.

I started my finance career as a sales manager and later analyst position in a hedge fund. My job was to consult and help interested people invest in the US stock market, commodities, as well as cryptocurrency. This had fully immersed me in futures and stock trading, the wall street market, and the way it works in practice out in the real world. While working there, I came across the technological and fast-growing blockchain market, so I began to study this technology much more deeply and started building my crypto portfolio. I also started trading Bitcoin, which allowed me to get a much closer look at the blockchain technologies and instruments and navigate within the various projects.

While monitoring different exciting blockchain projects as well as outstanding job opportunities, my attention fell on Stobox, where, as luck would have it, my good acquaintance worked as well. This is how I joined the project, learned more about STOs, and generally started immersing myself in the tokenized securities market more.

Q2: How important are global secondary markets for digital securities? And what benefits can tokenized securities derive from them?

Answer: Let’s take a look at the way the investment market works today on a case example: Say there’s an American startup involved in developing some innovative product. There also are investors like venture funds or angel investors who wish to fund it. At the moment, the investment procedure suggests buying the startups’ paper securities. But what’s needed for this startup to sell its stocks when it grows is to look for an investor or a fund, to which you will be able to sell the current stock – namely a share, which could have grown in price. Or wait for the startup to conduct an IPO only in order to receive such a possibility.

How does the digital securities market work? The logic is the same, but instead of paper security, you have its digital equivalent in MetaMask. This, however, doesn’t solve the problem of the liquidity absence: to sell such a share, you still need to find somebody who would buy it. This is why the secondary market is a necessity for industry growth, and this is the benefit enabled by the very essence of digital securities. This is why we developed one of our newest products, DS Swap, which works similarly to UniSwap for digital securities. DS Swap enables a startup company (or merely a big business) to let their investors open a secondary market whereas not going public. The problem with becoming public – listing the shares on security exchanges or stock exchanges – pushes the company to spend hundreds of thousands of dollars for listing; the price of conducting an IPO is around $10 000 000. Don’t forget about the enormous costs of reporting. On the contrary, the solution we are offering allows opening a secondary market while remaining private.

Q3: Please tell us more about what Stobox is doing in the field of blockchain.

Answer: We provide technology and consulting to help clients leverage digital assets and tokenized securities. During the last three years, Stobox developed a series of blockchain-based products, conducted 25000+ hours of research, advised numerous clients, and built partnerships in 10+ countries. Stobox exists at the intersection of traditional finance and crypto and strives to enable businesses to implement decentralized technologies, simplify operations with digital assets, and remove obstacles to their adoption.

Currently, we are building the Digital Assets Ecosystem. It consists of several products, and we are putting an extra effort to make their usage as convenient as possible. In our work, we have two primary directions — tokenization and crypto.

Tokenization:

Stobox Digital Securities Dashboard — a white-label product, which is a stand-alone platform for issuing and managing digital securities.

Digital Securities Swap — Think about it as a UniSwap for digital securities.

Tokenization Consulting and Legal Management — to help clients in the digital assets markets choose the proper jurisdiction, security type, corporate structure, as well as potential pitfalls, and a general project roadmap.

Crypto:

Stobox Exchange — a CEX designed for digital asset research and investments. We built this because we believe central it is important for investors to prioritize investing over trading.

Stobox Bridge — a bridge between Ethereum and Binance Smart Chain two blockchains for our utility token STBU.

NFTs — this spring, we issued a branded NFT merch collection.

Q4: How do you see the future of tokenization? How shall tokenization complement the traditional methods of raising funding?

Answer: The future of tokenization is twofold. One side of the problem relates to tokenization as a revolution of the infrastructure for accounting and operations with financial instruments. In this regard, we are going to see the processing of all financial instruments to ship onto the blockchain, primarily if they are already involved in those operations imported into blockchain themselves, such as custodians, government registers, and security depositaries. There is a general consensus in the financial industry that this is what awaits us.

What's more interesting is the evolution of capital raising and the view on tokenization as a capital-raising method. One process that we are going to see is that tokenization or a token offering as a separate fundraising method will cease to exist. Instead, we are speaking about private placement, equity crowdfunding, or public offering being all conducted using tokenized securities. What will happen instead is that those conventional forms of fundraising will evolve using new technological opportunities.

For example, it will be a new norm to have in your captable a few dozens or hundred community members holding minor stakes alongside one or two large angel or venture investors, so the line between conventional and institutional private placement and equity crowdfunding becomes quite blurred in this regard.

What will also change is that when our view of tokenization matures, we stop seeing it as a way to make non-attractive assets attractive to sell, assets for which we cannot find buyers. Instead, we will see it as an additional opportunity to enhance yield for investors. Therefore, I don't think we will witness all businesses for which we hope the liquidity will emerge, or that we will securitize all assets with tokens, finding their investors or finding liquidity.

Unfortunately, this is still a fundamental reality: many businesses are simply bad, not interesting for investors, and are unattractive as their assets. So we will be seeing tokenization as a way to make good assets even better. And those assets that were good but returns on which couldn't have been appropriately realized due to, for instance, lack of liquidity, will now be able to unleash their full potential using the opportunities provided by tokenization.

Q5. What are the poentential roadblocks in this coexistence of traditional fundraising methods and tokenization?

Answer: Lastly, regarding the roadblocks, this is probably the chicken-and-egg problem between the investor's interest and regulations. Because if you want tokenization to become mainstream, you need an investor's interest, which, in turn, comes not simply from the fact that you have attractive assets because you have the conventional market as well. It rather comes because tokenization makes investment better: now you can deposit your tokens into a lending protocol, or you can trade them using automated market-making protocols. So, what we need is investors and specifically large institution who are still the dominating force on the financial markets, and we need those investors to start embracing benefits of tokenized assets, and thus, start using DeFi protocols like UniSwap and Compound.

But what you also need for that is the regulation. You need regulators recognizing the power of the decentralized finance solution as something that creates the potential of tokenized securities and therefore starts creating regulations and guidance for investors venturing into this field. But because all of those large institutional investors are usually highly regulated and highly risk-averse in terms of regulatory risks, the problem is, without a proper demand from those same institutions or the presence of the main political force in the decision-making financial authorities, we are not going to see competent authorities making those regulatory moves.

Therefore, what is needed is institutional investors recognizing the potential of decentralized finance and pushing regulators into making the yield-enhancing opportunities and liquidity opportunities provided by DeFi fit into the regulatory framework that institutional investors can use. Probably the way this can happen is through those institutions primarily getting involved with conventional crypto, because with conventional crypto, at least in the one or two next years, trading it, investing in it and using it in DeFi solutions will be much easier from a legal perspective. So, this is where institutions will learn all the benefits of DeFi and start demanding a possibility to be applied to tokenized securities as well.

Q6: On a different note, why did you decide to launch a crypto exchange in 2021? How is it different from other exchanges?

Answer: When implementing the tokenized securities trajectory, we felt the demand for our own structure to work with crypto assets, and Stobox Exchange is one of its essential parts. Technology is the centerpiece of our belief system, and we see the opportunities brought along by investing and crypto assets. That is why our focus is to assist the new-to-crypto users to make their first steps in the crypto world — and make them successful ones. We choose the best сrypto projects for the Exchange to make this happen: with a high technological value and impact that we ourselves are ready to invest in.

We moved away from margin or futures trading as well as competition with the existing exchanges. Instead, Stobox Exchange aims to take its niche and serve as a credible long-term gateway into the world of tokenized assets for novice users.

Aside from transparency and strong technical support, Stobox Exchange has a chain of distinguishing core features ranging from a simple UX/UI for new-to-crypto users, a clear KYC policy, no hidden commissions, hand-picked projects to invest in and so on.

Disclaimer: The sole purpose of Unhashed is to unhash (decode) information about projects innovating using blockchain and cryptocurrencies and share it with the community. The writer does not have any vested interest in any of the projects covered herein. Not that this article shares any, but still, taking investment advice from strangers on the internet is not a wise thing to do.