We had a chance to talk to Aleksander Dyo, a serial entrepreneur, investor and co-founder of Token IQ, a blockchain platform for the tokenization of securities and asset backed investment contracts. Aleksander was kind enough to answer a few questions on the startup.
Please give us a high-level summary of Token IQ.
Token IQ, Inc. was founded in 2017 and is a leading compliant securities token offering (STO) platform aiming to transform capital markets through tokenization of any asset. In less than a year, we’ve moved from the idea stage to an end-to-end implementation of smart and fully-compliant securities tokens technology delivered using our patent-pending technology platform.
Our technology enables issuers to convert rights to an asset into smart and fully compliant digital tokens on a blockchain with the goal of eliminating middlemen, reducing fees, and creating a frictionless environment. Our proprietary solution makes capital formation more efficient while unlocking liquidity for traditionally non-liquid asset classes. We make it easier for companies of any size and industry to launch a digitized offering and seek investment with confidence.
Token IQ offers an unparalleled value proposition focused on bridging the gap between traditional capital market and the opportunities afforded by distributed ledger technologies. Assisting investors and their advisors with compliance and access has created a strong competitive advantage for Token IQ and its customers.
What is Token IQ’s typical turnaround time in launching an STO from start to finish?
Unlike similar offerings, Token IQ can deploy a complete securities tokens build out solution in less than 2 weeks, which saves our clients time and money in the long-run.
Smart contract solutions that are built on Ethereum’s ERC-20 standard require careful coding and testing to verify functionality and safeguard against potential vulnerabilities that have already cost the community as much as $1B in cryptocurrency losses. By comparison, Token IQ’s patent-pending technology platform enables an “always on” compliance model, which means that there is no waiting required when deciding to issue an STO with Token IQ.
Which distributed ledger does Token IQ use as its main platform? Why?
Token IQ uses Stellar’s distributed ledger as its main platform, which brings with it numerous advantages and opportunities for issuers. Added security, higher transaction rates, and lower operating costs are just a few of them. The expanded attack surface, the added cost, the complexity of creating smart contracts are all simply extraneous for STOs that want to issue smarter, more effective securities but do not need the smart contract functionality required for utility ICO tokens. Put simply, while utility tokens may need the smart contract functionality afforded by Ethereum’s virtual machine capabilities, tokenized securities do not.
What features does Token IQ offer that are available in traditional securities markets?
Token IQ’s solution offers versatility that competitors simply can not deliver, with the ability to perform all the functions that a traditional security would be expected to, all on token. Tokens built on Token IQ’s platform can take advantage of numerous market-making capabilities like options, and swaps as well as allowing for more complex needs like earn-outs, vesting, and escrow arrangements. These features allow issuers to exercise the full spectrum of market-making and tax optimization capabilities that are standard in the traditional environment and thus are made available to issuers with Token IQ.
Currently, ICOs face a serious issue with “wallet lockout.” How does Token IQ handle recovering tokens in this case?
In the traditional investment world, so-called bearer shares have fallen out of favor over the last few decades, replaced by registered shares that preserve investor rights without regard for share certificates or similar documents. Simply put, loss of a share certificate does not equal loss of ownership. Broadly speaking, shareholder rights are not curtailed through the loss of documents like share certificates. The crypto world, on the other hand, is built around the assumption that loss of access to the wallet equates with the loss of the tokens and, in the case of STOs, the resultant erosion of investor rights. This assumption simply does not survive the collision of crypto and securities laws.
Token IQ has built the ability for issuers to manage the ownership of issued tokens, even post-issuance in response to a loss of wallet access. This capability also allows issuers to respond to legal demands, facilitate custodianship, and allow these assets to be managed by fiduciaries. A shareholder who has lost access to their wallet can go through a process analogous to that which an investor in a conventional offer would to reclaim their shares with the help of the issuers, facilitated by the Token IQ’s platform.
How does Token IQ’s tokenization process ensure critical requirements are met for STO compliance?
The Token IQ platform has the built-in ability to restrict the movement of tokens either into wallets that have not been pre-approved or out of wallets that are restricted due to investment lifecycle, compliance, or even in response to court orders and the like. This capability allows issuers to condition transactions on investor qualification or appropriate Know Your Customer (KYC)/Anti-Money Laundering (AML) requirements directly in the token, which eliminates the need for cumbersome arrangements like SAFT agreements. This allows for a more consistent transaction history, mitigates third-party data exposure, and allows for a more nuanced and effective KYC process.
Token IQ’s “always on” compliance model acts as a functional backstop to prevent gaps that may arise from incomplete guidance or faulty contract development that may miss critical elements. Its patent-pending technology embeds smart compliance into issuers’ offerings to ensure that the all requirements enumerated by their legal team and other advisors strictly adhered to without needing to resort to third-party controllers or delegates to manage contracts and validation. Terms for investment contracts can be scripted and registered with the necessary checks in place and built on Token IQ’s platform. This further enhances the options which organizations have at their disposal when they use the core functionality to create an investment’s structure, agreement rules, and purpose.
How is Token IQ’s process able to adapt in the event laws or regulations change in the future?
Unlike smart-contract based solutions, the Token IQ’s platform, built on top of the Stellar ledger, allows issuers and their advisors to update the terms and conditions of their offering. This might happen naturally throughout the lifecycle of the company as, for example, in the case when a company matures and transitions from a Regulation D offering to a full-fledged S-1 offering. This may also need to happen in response to regulatory changes, as happened when the Regulation A+ rules were introduced in 2015 and new opportunities were created for issuers, or when the maximum number of investors for private companies was revised upward from 499 to 1999 with the passing of the JOBS act in 2012.
With all of the details that still need to be ironed out in the future of the crypto industry, it is this ability above all others, that should give peace of mind to issuers and investors alike that Token IQ’s patent-pending platform is flexible enough to meet the demands of their ever-changing needs.
Is Token IQ solely for use in securitizing assets or can it be used for other investments?
The core functionality of Token IQ is to provide companies with a simpler and more foolproof way in which to tokenize and represent their assets. While the first and simplest concept that can be considered in this context is, of course, equity, the versatility of our platform allows for other asset classes to be tokenized as well. Some examples of other such asset classes are debt instruments, long- and short-term notes, ownership in real estate, art, collectibles, intellectual property, and franchises.
One of the early case studies that we previously announced was the creation of a short-term note for a company in the travel/hospitality industry. This feature, however, is not industry-specific, and the options for various debt instrument creations are numerous.
Are there plans to make Token IQ’s platform available for international businesses?
From the beginning, Token IQ’s mission has been to bring our asset tokenization platform to the world, and our technology platform has been built with this goal in mind. Of course, the specific rules and compliance requirements vary from jurisdiction to jurisdiction so our offering needs to evolve over time. We have already started and are working with advisors and markets outside of U.S and on our way to delivering Token IQ’s platform across the globe.
Because of the way our platform has been engineered, we can add capabilities, jurisdictions and novel securitizing mechanics over time, even for existing customers and tokens. In time, the aim is definitely to enhance Token IQ’s platform and open up compliant avenues internationally, as we have done for the U.S.