David Weild IV, former Vice Chairman at Nasdaq, often referred to as the ‘father’ of the Jumpstart Our Business Startups Act (JOBS) based on the role he played in drafting the legislation, is a stock market expert who can pick and choose which projects he wishes to associate with.
The project Weild IV chose to assist was INX, a digital asset trading platform registered in Gibraltar with offices in Israel where key executives of the company operate out of, in receiving regulatory clearance for the first-ever blockchain token initial public offering (IPO). For Weild IV, this is a strong follow-up by Dr. Muneeb Ali of Blockstack PBC, who has made progress in helping the crypto community translate its value to Wall Street. It is exciting to imagine if the likes of Ali, who so painstakingly works to have his company’s balance sheet – and the business of blockchain – understood by analysts, were to combine forces with a powerhouse such as Weild IV in driving U.S. securities investments onto tokenization platforms.
Weild IV had shared his vision of this project last year. However, as the INX project was announced on August 20, 2020, the original vision of this story was to help capture how pioneers often referred to as ‘cypherpunks’ for their extreme focus on achieving privacy through cryptography, were able to work side-by-side with a very ‘mainstream’ Wall Street type such as Weild IV.
Bitcoin evangelist Jameson Lopp, an Advisor to INX, had agreed to answer questions as part of this story; however, he ultimately declined to participate in the interview with Weild IV. Therefore, the interview held with Weild IV is only the ‘Wall Street’ take on the INX deal, while the ‘Crypto’ perspective on the matching of Wall Street with crypto and blockchain will remain … cryptic.
Forbes: You have a strong traditional background on Wall Street. What attracted you to the idea of blockchain in the first place?
David Weild IV: I have been involved in every major technology change in life sciences and information technology dating back to the 1980s whether as an investment banker or an operator. So, notwithstanding the libertarian ethos that surrounds crypto and blockchain, I see DLT, crypto, smart contracts and related constructs as important tools to improve transaction-based and supply-chain-dependent businesses.
Forbes: Do you envision the concept of ‘security tokens’ on a blockchain as the future for capital markets in the U.S.?
Weild IV: Yes, but not before many of the basic protections that are afforded to securities investors are replicated by alternative means for token holders. For example, custody is still a concern for institutional investors. Retail investors still have to fret that they lose a cyberwallet or have a computer crash and lose tokens without a mechanism to get them replaced. Divorce courts can’t freeze a cyberwallet when they split up marital assets. What happens in the case of an estate? Can you locate token assets? And if you can locate those assets, can you monetize those assets? In the case of INX, many of these challenges were tackled, but with interim legacy world measures. A regulated transfer agent was retained to duplicate tokenholder records that are recorded on the blockchain. Also, INX tokens can be frozen or rerouted based on court order.
I expect that security tokens and the systems that support them will evolve and converge to provide the protections of traditional securities while capturing the lower-cost advantages of security tokens, smart contracts and DLT/blockchain.
Forbes: Why would you argue this is better than the traditional capital markets systems in place today?
Weild IV: You need to ask the question “Where are securities tokens (or crypto) better than the current capital markets systems in place today?” Right now, crypto is still in its infancy. Trading venues are numerous, fragmented, unregulated and the investor isn’t generally given a consolidated “Best bid and offer” the way they are in US securities markets under Reg. NMS (National Market System). So, a trade execution can be very inefficient in crypto. In addition, over 90% of investors are not yet accessing tokens. Until traditional clearing entities like DTCC figure out how to custody tokens so that they can be accessed by traditional securities accounts at places like Morgan Stanley MS , UBS and Bank of America Merrill Lynch BAC , Issuers who tokenize securities may be cutting off access to their tokenized assets to the majority of investors. This is why at Weild & Co. we have advised clients that are interested in tokenizing an offering to also provide traditional investors with a security version.
This is the beginning of a long-term shift, not unlike what we saw years ago when physical stock certificates gradually moved over to electronic delivery. The two coexisted (and still coexist today). Some investors might take possession of physical stock certificates while other investors in the same security might have it notated electronically in their securities account at Morgan Stanley which would be fed electronically by DTCC (Depository Trust Company).
Notwithstanding the above, I do believe that tokens can unleash a wave of innovation that creates features that investors value and that herein lies the magic of tokens as securities. For example, dividend frequency can be increased dramatically with very little cost. In private markets, innovators are integrating smart contract layers that automate the compliance, Patriot Act and other checks that are required before private securities can be transferred.
Forbes: Do you agree with the SEC’s recent decision to allow those with Series 7 licenses into the ‘accredited investor’ category?
Weild IV: Yes. Allowing securities professionals to participate in private transactions will add to their understanding of these markets thereby allowing these securities professionals to better serve the public.
Forbes: What did you like specifically about the INX team that drew you to this project?
Weild IV: They had a commitment to doing things the right way… going through the front-door of regulation. INX filed to register with the US Securities & Exchange Commission. The team includes professionals who have worked in the securities industry in the US and Israel and Europe.
In addition, INX was introduced to me by Barry Silbert who is the founder of Digital Currency Group (and before that SecondMarket which became Nasdaq Private Markets) and someone who I worked with on the JOBS Act.
Forbes: I know you have a security token offering that is live, so I am not asking you to directly comment on the SEC itself during this process, but more broadly, what do you think the SEC should do across the board in terms of its regulatory programming for blockchain in general?
Weild IV: The US needs a consolidated cross-market initiative to remove bottlenecks against innovation. The problem with the introduction of block chain in the United States capital markets is not the SEC so much as the inertia at key ecosystem vendors including DTCC, NYSE and NASDAQ NDAQ . It would be helpful if the Government would sit an empowered cross-industry commission to make a list of all of the critical touch points, bring them together, identify and solve challenges and require these entities to adopt plans for the listing of tokens, the settlement of tokens, custody, etc.
The United States is less competitive in this arena than we could be because of the lack of coordinated leadership across our securities-focused ecosystem.
Forbes: Finally, is there a component of this as it relates to national security? In other words, if our capital markets don’t keep up with the latest in technology, do we risk losing our economic strength against other countries?
Technology leadership is essential to long-term national security. However, it may be more important which technologies we lead in. For example, quantum computing may have greater direct implications to national security than blockchain. That said, I do worry about stable coins as something that represents a natural progression in the development of money – from wampum to gold to coins to paper currency to travelers checks to credit cards and now to stable coins. If US Government dollar-backed stable coins are supplanted by another stable coin as the “currency” of choice for oil contracts, other international commerce, or as a store of value, it has the risk of debasing the US dollar and triggering significant inflation.
Forbes: Thank you.