Why Security Tokens Will Transform the Real Estate Industry

Why Security Tokens Will Transform the Real Estate Industry


Adam Chapnick: Hello and thanks for
joining us here at the Security Token Academy. I’m Adam Chapnick. Clifford Chance is one of the world’s elite
law firms with over 3,200 legal resources delivering innovative solutions to emerging
FinTech companies and leading financial institutions in the Americas, Europe, Asia-Pacific, Africa,
and the Middle East. Clifford Chance is a gold corporate member
of the Security Token Academy. Adam Chapnick: Today, we are talking
to two attorneys from the New York office. Joining us from New York is Steven Gatti,
partner at Clifford Chance, as well as Clifford Chance associate, Jesse Overall. Thanks to you both for spending some time
to chat with us today. First, let’s start with an overview of Clifford
Chance. Your firm’s a global law firm. It’s one of the 10 largest firms in the world,
actually. Steve, can you tell us more about Clifford
Chance and what led you to becoming one of the world’s really premiere law firms? Steven Gatti: Sure. You’ve got to go back to about 1987 when two
leading London-based firms decided to merge with the, even back to that point, the ambition
of being the leading global law firm as they saw the consolidation of legal services well
before that had already taken place. In 2000, that firm, Clifford Chance, essentially
acquired a New York-based firm, Rogers & Wells and a German firm, called Pünder, creating,
in essence, the modern Clifford Chance. Over time, over the last 18 to 19 years, the
firm has continued to grow with major presence in every major financial market, every continent
except Antarctica, and across many practice areas. Adam Chapnick: 01:58 Amazing. On your website, you mention a focus on responsible
business. Steve, what does that mean? Why is it important? Steven Gatti: Well, it’s very important. We’re a well-known brand and a leader in legal
services and we’re active in every community in which we are located or not located. Clifford Chance wants to always strive to
be a positive contributor to that community whether through access to justice, education,
environmental concerns, general charitable and good works. We’re very committed to our role as a member
of the global community, not just legal community, but overall community. Adam Chapnick: Jesse, what made Clifford
Chance decide to get into the security token space? Jesse Overall: I think that as a firm,
we see the security tokens, specifically in blockchain distributed ledger technology,
more generally as a phenomenon that holds the potential to be a next evolution of global
financial markets, I would say capital markets specifically. We were attracted by the ability to enter
the space at an early stage and to help shape the norms and the practices and the customs
in this space. We saw an opportunity to do that, to contribute
while the space was still developing. Jesse Overall: Having recognized the
potential early, we sought to channel our participation through a number of different
channels. We’ve actually been involved in a number of
market-leading, pioneering transactions, particularly in the real estate space. We also participate in a number of global
trade groups, industry consortia, standard-setting bodies, in an effort to help shape the standards
and norms going forward and to do things outside of our direct transactional work in an effort
to help the space develop and to shape it while we have the chance. Jesse Overall: I think that’s definitely
something that we found attractive and that motivated our recognizing the potential early
and getting involved in it as we have. I think a slightly related, but slightly different
motivation for engagement in the sector is we see it as an outgrowth of our wider tech
practice and our wider engagement with technology more broadly. We have market-leading cybersecurity, data
privacy, AI practices and so we see our involvement with blockchain and distributed ledger and
security tokens as a logical outgrowth of that wider engagement. Adam Chapnick: Got it. Steve, how do you go about managing a large
firm such as yours with such a diverse array of client needs? Steven Gatti: Well, it’s certainly not
easy, but the Clifford Chance model and really ethos is how do we get the best people, the
right people, for a particular project working on that project in the right region. The structure of the firm is such that you’re
incentivized to always get the best people working on the most important work. We have a relentless focus on clients. Everything is about client service, everything
is about best delivery to those clients. Steven Gatti: If you focus on the clients
and where the clients are heading and how you can serve them, you can address the issues
… If you’re focused on the clients, you’re going to be able to manage that type of business. If you’re focused on other things other than
clients, you’re not going to be able to keep up. Adam Chapnick: Could you both describe
the regulatory and legal framework for security tokens? Maybe let’s start first with Steve. Steven Gatti: Sure. Well, to date, what’s been happening, and
I think will continue to happen, is how do we fit security tokens as a new asset class
into the existing regulatory framework for the regulation of securities. That’s what the SEC has been trying to do
over the last three years in dealing with these assets. I think that’s the appropriate approach. There’ll certainly be adjustments to regulation
over time, but there is a framework for how securities are offered, how securities are
traded, how securities are held, how securities are marketed. If a digital asset is a security, then that
framework should apply. Steven Gatti: Now, that sounds a lot
easier than it is because this is a new type of asset. It has some indicia of a traditional security
but it also has characteristics of a different kind of economic arrangement between the holder
and the issuer of that asset. The SEC’s approach to date has been started
with, and I think rightfully so, getting rid of fraud. Who are the fraudsters? Who are the people who are just using this
asset to harm investors and clean that up? Over time, the SEC has issued reports, like
the DOW report in the summer of 2017, explaining their position on when is a digital asset
a security. Steven Gatti: That was followed by other
enforcement actions where there was not fraud, but they made statements about what constitutes
a security in this environment under the Munchee case. Now, most recently, there’s been settlements
involving the Paragon and Airfox settlements where they really designed a way for an ICO
issuer to come forward, make restitution, pay a fine, and restructure their business
in a way that they can move forward. Steven Gatti: I think the ground is
now fertilized to allow for … Initial coin offering, I think, is the wrong term. An offering of digital securities can be done
in a compliant manner. Adam Chapnick: Jesse, can you add anything
about the regulatory and legal framework around security tokens? Jesse Overall: Yeah, so I think Steve
did a great job of laying the groundwork for understanding the legal and regulatory framework
that applies to security tokens. I think that, as Steve noted, in 2016, 2017,
as the price of Bitcoin increased almost exponentially, there was a great deal of enthusiasm for the
potential, what was seen as the potentially transformative properties, of digital assets
and initial coin offerings as being the new way to raise capital outside of traditional
channels and without the involvement of traditional intermediaries. Jesse Overall: That motivated a large
number of, in many cases, unscrupulous actors and in other cases, obviously, good faith
actors to become interested in initial coin offerings as a capital-raising mechanism or
a new way to structure their business. We think that the SEC and a number of other
federal regulators saw that almost gold rush going on and were worried about the potential
excesses that could accompany that phenomenon. The SEC focused early on defining digital
assets that might be securities in a way that is quite broad using the traditional catchall
test that has emerged under a body of Supreme Court jurisprudence, focusing on a test called
the SEC vs. W.J. Howey Co. This is a catchall test for an investment
when an arrangement or structure or transaction constitutes an investment contract. Jesse Overall: The SEC deployed this
weapon to address what it saw as investors essentially getting ripped off and the prevalence
of fraud in the space. Over time, the SEC’s focus has shifted somewhat
from policing issuers with potentially obvious fraud, shall we say, or in some cases, that’s
arguable, but at least policing offerings that have the indicia of fraud to policing
cases where issuers have issued tokens in violation of the securities laws but not necessarily
involving fraud. So, making more technical violations of the
securities laws and not necessarily engaging in wrongdoing vis-à-vis their investors other
than not registering with the SEC. Jesse Overall: Over time, the SEC’s
focus has shifted somewhat and, as Steve mentioned, these are the foundational cases that we think
articulate a path that issuers can follow if they want to comply with the regulations. We have a better sense of what the regulatory
perimeter is as a result of these enforcement actions having come out. I think that it’s been useful to learn SEC’s
attitude. Adam Chapnick: Yeah, is the legal and
regulatory regime for securities adapting to the use of blockchain technology and selling
token? Let’s start with you, Jesse. Jesse Overall: The framework has been
adapting over time and, as we mentioned in our previous response, the SEC’s attitude
and that of certain other federal agencies has been evolving on the question of digital
assets. Initially, there was a focus on fraud and
on issuers. Then, as time has gone on, the SEC has broadened
its enforcement focus to include financial market intermediaries who facilitate trading
in digital assets or investing in digital assets. Jesse Overall: For instance, in the
last year, you had the SEC brought a number of cases, on against a token-trading platform
for operating as an unregistered broker-dealer for facilitating trading and taking transaction-based
compensation in connection therewith. You also had an SEC action against another
trading platform and specifically against its original developer and creator for operating
as an unregistered national securities exchange. Equally, you’ve had on the buy side, you’ve
had SEC cases against, for the first time, an investment manager for operating an unregistered
investment company that had invested in digital assets that the SEC deemed to be securities. Jesse Overall: So, the SEC has broadened
its focus from fraud and from issuers towards financial market intermediaries. Adam Chapnick: 14:39 Got it. Yeah, Steve, do you see any evidence additionally
about how the regulatory regime is adapting to specifically the blockchain technology
in selling the tokens? Steven Gatti: Yes. We’ve been talking a lot about enforcement
developments and how the SEC is using the enforcement process to articulate regulatory
developments that will then be applied across the industry. But, at the same time, they’ve also put out
a number of statements over the last year to 18 months setting goalposts without the
use of enforcement. For example, about six months ago, the SEC
released a statement on exchanges or participation or trading in digital assets that one, sent
a message to the market but also laid down some parameters. Steven Gatti: Very recently they put
out a statement relating to the custody of digital assets. As many people know, Commissioner Peirce has
been very active in reaching out to the industry, speaking about digital asset issues, security
token issues. I think what’s happening over there is there’s
a maturation of the SEC’s thinking about these issues and understanding that there are, like
most of our clients, certainly all of our clients, most people in the industry want
to do the right thing and try to get it right. Adam Chapnick: Yeah, I’ve been quite
impressed with how nimble and, dare I say, even creative the SEC has been through this
evolution. Just from one man’s opinion, I think that
they’ve been quite impressive. But, shifting gears, let’s talk a little institutional. Are you guys seeing that institutional investors
are buying digital assets? What sort of legal or regulatory and structuring
considerations should institutional investors think about if they’re considering investing
in the sector? What do you think, Steve? Steven Gatti: Well, look, there’s always
initially the viability of the investment. Do you believe the investment is going to
appreciate in value? Is it consistent with the investment objectives
that you as an advisor have set out to your clients? Is it consistent with the risk profile? The same considerations that an investment
manager may bring to any asset, they would also bring to a digital asset. Concerns about liquidity. Will I be able to get out of it? Concerns about volatility, concerns about
consistency or portfolio drift because of the swings in value of these assets. Steven Gatti: 17:46 I think over time as there’s
a stabilization in the volatility within digital asset markets, whether it’s cryptocurrencies
or security tokens or otherwise, you will see even greater acceptance that digital assets,
security tokens are a viable component of a diversified asset allocation strategy. Adam Chapnick: Are you guys seeing right
now that institutions are already in or is that in the future yet to be determined? Steven Gatti: Sure. Yes, I don’t have the statistics at the ready,
but recent statistics have been published about the number of investment managers who
have created a slice of their pie into digital assets. There are managers out there who are marketing
crypto asset funds and are focusing on that area of the marketplace in terms of investments. There is some statistical information out
there, I just don’t have it at the ready, but clearly, you’re seeing it. Steven Gatti: In fact, in one example,
Fidelity, I think about six months ago, five months ago, announced a component of their
private wealth program that would be focused on digital assets. That would be getting down into people whose
money is managed by a Fidelity asset manager, so bringing even to the high net worth area
managed access to digital assets. Adam Chapnick: One of your areas in
particular of expertise is real estate. Jesse, how do you see the security token changing
the real estate space? Jesse Overall: We think that security
tokens have the potential to be very transformative on real estate financing and investment. We worked on the pioneering transaction involving
the tokenization of a minority interest in the St. Regis Aspen Hotel in Colorado. I think that that transaction illustrates
the potential that tokenization has to serve as a means of financing in a more efficient
and streamlined way for fractions of single-fee, simple real estate properties. Jesse Overall: We think that tokenization
will enable the financing and carving up of smaller stakes in an individual property and
then the divvying up of those stakes among the security token holders proportionately
in a way that is superior to existing methods of finance which can be very complex and very
paperwork-intensive and full of friction and difficulties. We think that there’s great potential for
security tokens to represent a new development in the financing of real estate particularly. Adam Chapnick: Again, we agree here
at Security Token Academy. What other verticals do you see being prominent
in the security token space? Are there any reactions you’ve seen from the
corporate world specifically around blockchain technology and security tokens, Jesse? Jesse Overall: At its heart, blockchain
and distributed ledger technology, these are really just ways to record information in
a new way. There’s not really constraints on what the
content that information should be. This is something that enables these technologies
to be industry agnostic and to be applied to potentially every industry. The benefits are not confined to just, let’s
say, finance. That being said, a lot of the activity that
we’ve seen, and maybe it’s because the original digital asset, Bitcoin, is a payment mechanism,
we’ve seen a lot of interest and we’ve seen a lot of developing applications in the financial
services industry. Jesse Overall: For instance, there have
been attempts to apply the underlying technology to a variety of different financial instruments
from originating loans, for instance, to securitizing the loans and issuing interest in pools of
loans. There’s also been interest in applying the
technology to the derivatives market. Actually, today, as the show’s being taped,
the Commodity Futures Trading Commission, which it the U.S. derivatives regulatory,
is holding a hearing on the potential applications of blockchain and distributed ledger technology
to, among other, the swaps market. Jesse Overall: We think that financial
services has been an area where there’s been a lot of interest in security token and in
the underlying technology. Outside of financial services, a number of
traditional technology providers, IBM, Microsoft, Amazon, all offer blockchain technology that
developers can build on. As these infrastructural services are being
provided by these technology providers, we think that the applications will become increasingly
common across many different industries. Adam Chapnick: Got it. What do you think are some of the biggest
challenges that face clients who are looking to launch a security token? What do you think about that? Steven Gatti: What they’re faced with
right now is a regulatory framework that, again, is not designed to accommodate a digital
asset in the sense that secondary markets have not yet developed to adequately, say,
transfer or create liquidity once you’ve offered the token. I think we’ve moved to a good spot in terms
of being able to engage in a compliant offering, primary offering or a securities token. Steven Gatti: You can fit into that
framework relatively easy. There are some limitations perhaps on marketing
depending on what exemption or what route you take in terms of the offering registration
requirements. But, thereafter it’s liquidity with respect
to that security that creates issues because the process of transfer, the process of custody
in terms of exchanging those assets has not fully developed yet. That’s a real challenge for someone engaging
in an offering. Steven Gatti: The other challenge is
do I really, truly have a security or I may have a security at the time that I offer it,
but over time my security token truly will be a token, a utility token that allows someone
within the ecosystem that I’ve created to exchange that token for some other item of
value similar to a ticket at an amusement park. To use an example, if you want to do a securities
token offering to raise money to build your amusement park and you go out and you sell
these tokens and you take the capital and you build the amusement park … Those people
have those tokens and they’re going to be using them in your amusement park a year later. Steven Gatti: Well, if you successfully
build the amusement park and the tokens are then used, are they still a security or am
I just using it to get on a roller coaster even though it was used to fund your business? It’s fitting what your actual business and
what your goals are into the framework and that’s still being worked out. Adam Chapnick: In your example, that
question has yet to be answered, the amusement park example of a token … it’s a great one
… they still haven’t got a definitive answer on that. Steven Gatti: It hasn’t and the SEC,
thankfully, is sensitive to it and they’re accepting of the concept of an evolving instrument. They’ve talked about it in the context of
Ether and the Ethereum blockchain and how it may have been a security when offered but
now functions as a decentralized unit of value for a unit of exchange. Many of these cases, even recent cases, the
Airfox and the Paragon, I think the founders, the issuers of those tokens viewed what they
were issuing ultimately to be something to be used within that ecosystem in order to
receive goods or services through that ecosystem. Steven Gatti: They were used to raise
money to build the ecosystem and I think the SEC there foresaid, at least at their inception,
they represented a security under the Howey test that Jesse mentioned. Adam Chapnick: Right. Jesse, is there anything that occurs to you
as other challenges that you’ve seen or you can perceive for clients who are looking to
launch a security token offering? Jesse Overall: Well, I think Steve got
it perfect. Really, the two areas that he identified,
I see that regulatory uncertainty is one of the biggest hurdles that clients have to face
and it’s always difficult to be the first as we know from our representation on certain
of our first of their kind transactions. It’s always difficult to be the first and
particularly when a lot of the obstacles are based on uncertainty as to the exact regulatory
status you have a particular problem because you don’t know if you’re complying with the
law. I think Steve is exactly right that the two
material areas, most material areas of uncertainty really is one, are you a security or if you
are something that started life as a security, at what point does it change into a non-security? Jesse Overall: As Steve was alluding
to, the SEC has signaled that they think there are potentially two ways that a digital token
could be not a security or even if it began as a security, it could change into something
that’s not security. One of them is decentralization. As Steve noted, the example there is Ether. Ether was sold in what the SEC Director of
the Division of Corporation Finance, William Hinman, referred to as a fundraising in 2014
at an initial point at which time the fundraising looked a lot like a traditional securities
offering. The entity or group of entities that were
involved in organizing the fundraising were what the SEC would refer to as centralized
and they looked to the SEC like an issuer or a promoter that’s familiar from the SEC’s
jurisprudence and regulation. Jesse Overall: Those are familiar concepts
to the SEC. The SEC said that initial fundraising by what
looks like an issuer/promoter of Ethereum could have been a securities offering. Over time, the network became sufficiently
decentralized. The ownership of Ether became sufficiently
dispersed. Ether’s open source and the use of Ether for
its functionality, these are all things that the SEC may have taken into consideration
expressing the view that Ether had become sufficiently decentralized that current sales
of Ether are no longer transactions and securities. Jesse Overall: The question is, when
exactly does that point occur and when exactly can we pin down from a legal perspective that
decentralization has occurred and you are no longer subject to securities regulations? We don’t know that. That’s a major area of uncertainty that’s
facing us and our clients that want to do digital asset offerings, but don’t, for a
variety of reasons, especially when it comes to embracing new business models that are
based on utility tokens and the usage of utility tokens or the consumption of utility tokens
in decentralized market places or over decentralized peer-to-peer networks. These are things that we’re not sure about
and we’re waiting on the SEC to clarify these things. Jesse Overall: That’s one major area
of uncertainty. The second area of uncertainty is, as Steve
highlighted precisely, is the area of secondary trading and the regulation of the intermediaries
that facilitate secondary trading and the issues surrounding custody. For broker-dealers that are facilitating digital
asset transactions, what exactly is a good control location for purposed of SEC regulation
when you’re holding onto private keys? Another issue is DTC hasn’t added any digital
assets to date to the list of eligible assets. That’s another issue for market intermediaries
that are looking to facilitate trading in these instruments. Jesse Overall: We think that these are
two significant barriers, two significant regulation-based barriers to the continued
evolution development of the digital asset markets. We’ve seen these issues come up in representing
our clients. Adam Chapnick: Got it. Are you guys seeing a need for more regulations
in the security token world? You have a unique perch from which to view
this. What do you think, Steve? Steven Gatti: Well, more regulation
I think is not the issue. The issue is more understanding of how to
apply these assets within the existing regulatory framework. I don’t think this asset class will lead us
to having … We have the Securities Act of 1933, the Securities Exchange Act of 1934,
Investment Company Act and Investment Advisor’s Act of 1940. I don’t think we’ll necessarily need the Digital
Asset Security Token Act of 2019, but the existing framework … and this is happening,
the markets have led the regulators to this point … will need to accommodate these assets
and will need to be flexible enough to fit these assets within the existing framework
or, in certain areas, Jesse mentioned custody as one. Steven Gatti: There will likely be additional
regulation. Additional regulation is not harmful. If it’s smart regulation, it actually allows
for a level of certainty and to build a durable business based upon certainty in the law and
in regulation. That’s truly what industry participants want. They want to know what the rules are. They want to work within those rules and they
want to do what they do best which is build business. Adam Chapnick: Right. Jesse, what do you think about regulations? Lots more needed? Jesse Overall: I would definitely echo
Steve’s points for sure. I would note, and we feel, that regulators
have been quite proactive and have been very engaged in trying to understand these new
technologies. I think the SEC, but certain other federal
regulators and state regulators have been very engaged in trying to understand the impact
of these technologies on the markets that they regulate. The SEC regularly has engaged in consultation
with the industry. Jesse Overall: Like Steve mentioned
earlier, they’re asking about custody of digital assets right now and trying to learn more
information so they can understand better how to apply the existing framework to these
new assets. Another regulator that’s been very proactive
has been the derivatives regulators, the nation’s derivatives regulator, which is the Commodity
Futures Trading Commission. Today, they’re holding a hearing on distributed
ledger technology, the potential for it to act as a financial market infrastructure and
the potential impacts it may have on the swap market, which is under their jurisdiction. Jesse Overall: I think that there’s
a trend here that regulators are trying to learn more and understand these things, but
for purposed of our clients and for commercial market participants, there’s definitely an
eagerness for the agencies to proceed expeditiously because it’s very difficult to contend with
the uncertainty and the not knowing how your regulatory posture is going to change as a
result of an unexpected announcement or unexpected speech two months from now or six months from
now. At the same time, there are a number of outstanding
issues that haven’t been clarified and haven’t been addressed. Jesse Overall: Definitely, we’re hoping
that the agencies will continue to make those things clear over time. Adam Chapnick: All right, understanding
that we can’t talk about Antarctica ’cause it’s pretty much the only place you guy don’t
operate, let’s talk about the rest of the world. How is the global regulatory environment taking
shape compared to the U.S.? Do you guys think there are more opportunities
here or globally for security token offerings? Steve, why don’t we start with you? Steven Gatti: Well, I think every jurisdiction
is struggling. The regulators in every jurisdiction are struggling
with how, again, the first impulse is to try to fit security tokens into the existing regulatory
framework because that’s what you know and that’s what participants can understand and
that’s how securities have been offered or traded or custodied within your market for
a number of years. Steven Gatti: We know from given the
nature of our practice and being active in every major financial market and many other
secondary markets, we have a great sense of what’s going on in each jurisdiction through
our global FinTech and technology groups and financial regulatory groups. I have to tell you that there are some markets
that have embraced securities tokens and are trying to develop a regulatory framework that
will accommodate and maybe attract more capital to those markets or more technology companies
to those markets. There’s others that are behind the U.S. in
the sense that they really haven’t given it the focus. Steven Gatti: Europe, for example, you
have home country regulation, but then you have European Union directives sitting on
top of that home country regulation. Firms trying to do a securities token offering
in an EU jurisdiction have to both look to the directives and to the home country. I would say right now, it’s a mixed bag. I think there are more places than not that
take a more liberal view of what constitutes a security than the U.S. meaning certain digital
assets that would be considered a security in the U.S. may not be considered a security
in that country. If that’s the case, then offering it doesn’t
bring in the regulatory regime. Steven Gatti: That being said, in other
areas, particularly Europe, has applied their laws extraterritorially, whether you see on
GDPR on Method or in other areas. As an issuer of a security token, you need
to take into account regardless of where you are, where do you feel comfortable offering
it, where do markets exist where it could be traded after it’s offered, and what are
jurisdictions I have to avoid? Adam Chapnick: In 2019, what is Clifford
Chance most excited to expand into or move into? Is there something you guys can share about
where you’re headed? Steven Gatti: Well, I’ll take it first. We’re excited on a number of fronts. The firm has invested a serious amount of
human and actual capital in building out our technology practice, our FinTech practice,
looking for, like ourselves, any business looking at how technology can improve how
we deliver our services to our clients, applied solutions group, Clifford Chance Create. There’s a lot of work being done around how
technology can facilitate the provisions of legal services in a more efficient manner. Steven Gatti: In terms of securities
tokens, we are very aggressively and enthusiastically supporting our clients on the issuer side. Jesse mentioned the Aspen St. Regis transaction. We are working with a number, of whether it’s
real estate or other issuers looking to use digital assets to raise capital. We’re very interested with our clients, larger
financial services clients and newly emerging leaders in building out the plumbing of this
sale, transfer, custody of digital assets. So, all the things that are happening behind
the scenes that will ultimately allow for digital assets to be traded without friction
within the capital markets, we’re working with a number of clients in that area. Steven Gatti: Then, outside of the issuer
or, say, broker-dealer exchange community, our investment management clients, whether
they’re going to use digital assets in terms of a digital fund in offering fund interest
to their investors or increasing the allocation within a portfolio to digital assets. That’s just in the financial services area
and capital markets. Our tech group is active in any number of
other industries in terms of the use of blockchain technology. Adam Chapnick: Amazing. Jesse, what are you excited about? Jesse Overall: I think that in the near
term, the, just like Steve said, the plumbing and the infrastructure, these critical enablers
of the transformation of financial services as it exists today, I think that these frameworks
will become more articulated and more services will become available and more entrants will
enter the space. You’ll have more providers and more vendors
and more regulated exchanges and regulated intermediaries. Because I think that in many cases, a number
of these things are missing today and that’s a shortcoming of the present state of the
digital asset market is there’s a shortage of regulated, compliant, intermediaries who
have both the technical capabilities and the legal license to be engaging in the activity
that they’re engaging in. Jesse Overall: The combination of these
things, I think that in the near term to the medium term, that’s where you’re going to
see the most development. There’s manifold evidence of that. Just to give one example, new Bitcoin futures
venture called Backed, which is affiliated with the parent company of the New York Stock
Exchange, is seeking to obtain licenses and begin operations. As Steve mentioned earlier, Fidelity has entered
the digital assets space. I think that these players will come and they’ll
bring their professionalism and the full spectrum of capabilities that they have to offer to
the space and I think that all members of the entire digital asset, digital security
ecosystem will benefit from that. Jesse Overall: I think that it’s a very
exciting time to be around for that. In the medium to longer term, what that enables
is everything can be put on blockchain and you can do everything using distributed ledgers
and you don’t have to use legacy paperwork intensive systems. I think that in the medium to longer term,
when you have all of these infrastructure providers online, you’ll be able to move everything
on chain. Adam Chapnick: So, Steve-
Jesse Overall: That’s what will be truly revolutionary. Adam Chapnick: Yeah, I think we’re right
into the crystal ball territory, which I love talking about. Steve, if I forced you to look ahead into
a crystal ball, where do you see the security token industry heading? Do you have any predictions? Steven Gatti: I predict that the security
token industry, I guess you want to call it, or the use of a securities offering framework
to sell a digital asset will continue to increase, will continue to grow. Think about it this way, right now, if you
bought a security, you would just go to your, I don’t know, go to E-Trade or your Robinhood
account or wherever you go and you would type in a message. You would send an order. You’d buy the security. It would show up in your account and all kinds
of things are happening behind the scenes to make that transaction occur in a very frictionless
way with a whole lot of people involved in that. Steven Gatti: 46:26 I believe over the course
of this year we will see greater and greater development of that frictionless intermediary
transfer of value process that will allow an issuer, who’s offering a security token,
to do so in a manner that’s not only compliant, but also reaps the benefits of using the capital
markets to raise capital. At the same time, looking at the crystal ball,
I think over time, the SEC and the markets will understand that there are certain tokens
that are maybe used in a capital-raising capacity, but ultimately will migrate into a utility
framework and therefore investors no longer need the protection of the securities laws
through the filing of annual reports and quarterly reports and audited financial statements and
any of the number of things that a public-issuer of securities has to file. Steven Gatti: I think times are good. I think it’s going to be an area that will
continue to grow and we’ll see more and more offerings. Adam Chapnick: I’d like to thank Steven
Gatti, partner at Clifford Chance, as well as associate Jesse Overall for giving us this
fantastic overview of Clifford Chance. Steven Gatti: Thank you, Adam. Jesse Overall: Thanks, Adam.

3 thoughts on “Why Security Tokens Will Transform the Real Estate Industry

  1. Wouldn't it also be good with marriage/divorce. Keeping track of who has paid what towards the home. For example – say the Husband deposits $80,000 up front for the house, but the Wife only put down $20,000…. the blockchain can keep track of this so that the Husband gets his fair share when divorce occurs.

  2. hahahahha the question is which Blockchain Plattform for tradingthe security token will be one of the bests .. hmmm…. hmmm

  3. TokenizedRE and TokenizedCRE will be the next big things on every search engine. Everyone and their grandma and the kids will be flocking to buy fractional real estate for $1. And we can invest globally . with an app on our phone. go back 10 years when email came, Youtube came. Now we can see our favorite dance band from korea on youtube .. See our best Indian chef making dishes , see an yoga video . send Unlimited emails .. Internet 2.0 changed the world. tech 3.0 will change investment.

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